Next decade is China's golden period of development

15:15, August 02, 2010

China's current economy can be summarized with following wording: Its economic situation remains unchanged, economic policy is stable and steady, and the adjustment of its irrational economic structure has been hastened. What merits attention here is that some outcome of the economic restructuring is already available.

First, the economic restructuring in some coastal areas has embarked on a new path by employing new technology and new management approaches to upgrade traditional services, and this modern service industry is booming. Second, the traditional, export-oriented industries in south China's Guangdong province, and the Shanghai area in east China are transferring out rapidly to the interior at very fast paces and, third, consumption has entered a passageway of fast growth.

The rise in the cost of labor poses a new challenge currently facing China and, with relatively growing labor shortage in rural areas, a decline trend in the share of labor income in gross domestic product (GDP) over the years is expected to reverse shortly.

China's economy will be still in a golden period of development for 10 years ahead, and it will enjoy an annual growth rates in the excess of 9 percent as I have envisaged. And this evolves four major factors:

First is urbanization. China is currently in the period of rapid urbanization with each promoting development of the other. Its current official reported rate of urbanization is 46.8 percent, which is far lower than the average figure for other nations at the same stage of economic growth, specifically to be 11 percent lower in general, and this is a figure with ample potentials. As one travels around China, he or she may find that urbanization is accelerating and resulting in a new round of consumption and construction.

The second factor is the rapid development of China's interior. Some people say that the country will enter a phase of low-speed development. If you look at the Republic of Korea (ROK) and Japan, they were once stagnated for a period of time. However, I suppose, China has a large number of mainland cities, which are usually backward or less-developed, and major mainland markets are yet to be tapped or further developed.

The third factor is the renewal of energy production. This is a tough challenge and also an opportunity for development. China will go in for low-carbon development. Fundamentally, China has to upgrade its production capacity to alter its ways of growth via transforming a few high energy or fuel consumption industries and to eliminate some outdated energy production methods.

If China's five principal energy-consuming industries are renewed or upgraded to the relatively advanced levels, the nation may save at least 10 percent fuels and reduce at least 10 percent carbon dioxide emissions a year. This will in turn boost a new round of investment and, if the annual energy production capacity is lifted by 5 percent, the nation's gross domestic production (GDP) growth will pull or increase by 2.5 percent.

The fourth factor is China's public fiscal health development, which has a spacious room for the implementation of the government-led transition policies. I have personally estimated the Chinese government assets to be approximately 120 percent of the nation's GDP, whereas the government debt accounts for about 80 percent of the GDP. So, cash flows do have any problem and the space for fiscal maneuvering is ample enough and, if with a slight loosening or relaxation, there will be a very great impetus to Chinese economy.

These four factors have told us that China's potential for the future economic growth is immense. The premise, however, is that the government policies should be more proactive and some of its regulatory measures be greater and more intensified, so as to render people more tangible or substantial benefits.

Some people, however, note that Chinese economy will have a bottleneck of an ageing population in the next 10 years of so with a deficient labor force supply because China will not only lower its growth rate but its asset prices will also shrink significantly. Nevertheless, I cannot agree to this viewpoint. To me, I do not take the ageing of population a tough issue as China's population dividend has not ended yet. If China encounters a possible population bottleneck over the next decade, it is owed to unreasonable institutional arrangements, which constrain the work enthusiasm of some people who are slightly advanced in age, and I'm sure that some sort of reform would help resolve this issue.

By People's Daily Online and its author is Li Daokui, a senior Chinese economist and director of Chinese and World Economics and Management Institute of elite Tsinghua University in Beijing