According to Australian economist James Laurenceson, despite a bleak scenario of global economic affairs, China will still be a huge growth driver for Asia, which will continue to outperform the rest of the world. Laurenceson, who is also Deputy Director of Australia-China Relations Institute of University of Technology, Sydney, noted that China's growth has been driven by domestic demand since 2010. He said, "In other words, Asia has a huge growth driver that lies within the region. It no longer needs to rely on demand coming from the U. S. and Europe. The most important consideration is that China's path to a predominantly middle class country remains on track".
However, China has been under continuous pressure of economic slowdown. Higher labour costs led to relocation of some industries to other low-cost countries. Laurenceson said rising wages is a challenge, but is fundamentally necessary if China is to become a predominantly middle class country. Laurenceson said, "I look upon rising wages as a sign of strength and the progress that is being made toward China's growth being driven by consumption and its goal of becoming a moderately prosperous society." As representatives from Asian governments, business sector and other areas of life are about to meet in Hainan, China for the annual Boao Forum for Asia, Laurenceson emphasised that major Asian economies should strengthen cooperation and coordination by adding priority to the completion of the Regional Comprehensive Economic Partnership (RCEP). He said "The Boao Forum provides the logical venue for where the case for this trade agreement can be made".
While the US Federal Reserve aims to hike interest rate and Europe and Japan implement new round of quantitative easing, Asian economies need to strengthen policy coordination in order to mitigate the risks. Laurenceson said the challenge for Asian economies, in particular China, is to collectively resist the idea that growth can come from extremely loose macroeconomic policies rather than structural reforms. He said "Recent statements by Premier Li Keqiang and People's Bank of China Governor Zhou Xiaochuan give me confidence that China's leaders understand this". He said China certainly has enough space to use fiscal policy and monetary policy to cushion a growth slowdown if necessary. The choice to only deploy such measures in a modest and targeted way to date is "appropriate". He said "Supply-side reform is the key and, in particular, opening state-owned enterprises in the services sector to more competition from private sector players. I'm confident that China's leaders understand this is essential to achieving their target of at least 6.5 percent growth between now and 2020".
During the Two Sessions which just ended earlier this month (March 2016), China has passed the 13th Five-Year Plan, drawing a blueprint for the country's economic development in the next five years. Laurenceson found that there is an increased emphasis on development driven by innovation and entrepreneurship in this year's Two Session documents. He maintains "Now the challenge is to put in place specific policies that will unleash these forces. The most important of these is to put private sector firms on a level playing field with state-owned enterprises. If comprehensive reforms along these lines are implemented, I am extremely confident that China's growth target can be met without resorting to the ultra-loose macroeconomic policies seen in the U.S., the EU and Japan".
As for the Belt and Road Initiative and the Asian Infrastructure Investment Bank (AIIB), Laurenceson hold that they pose no threat to the current system at all. He said "They do not replace existing institutions. Rather, they are new initiatives that complement and improve upon the current system. Poor quality infrastructure restricts trade and investment opportunities in the Asian region. If the Belt and Road Initiative and the AIIB can help to ease this constraint, then the region as a whole will benefit." As an economist who has been watching the Chinese economy for a long time, Laurenceson noticed that there had always been an impatience in some groups within China and abroad for more rapid reforms. He said, "It's true that progress in some areas has been slower than hoped for, such as exposing state-owned firms to competition from the private sector. But in other areas such as the rise of the internet economy China's transformation has been stunning and it now leads the world. My overall assessment is that in the last year the pace of reform has picked up and I think this will continue in the next few years".
Moreover, China's development will help Australian economy. Australian Treasurer Scott Morrison said China will continue to make a sizable contribution to the global economy, as it grows off a much larger base than that of ten years ago. Although the world famous credit ratings agency-Moody's recently downgraded its outlook on Chinese government debt from "stable" to "negative," Morrison believed Moody's at the same time have recognized the continued strength of the Chinese economy. He said, "As our No.1 trading partner, China will continue to present opportunities for Australia to continue to grow our economic prosperity".
Morrison noted that China's transition away from investment-led growth model to one more reliant on consumption and services is not without risk. He said "However the authorities appear to have sufficient policy buffers, with which they can support growth and stabilize the Chinese economy, including scope to expand the use of monetary policy; a large household savings buffer; relatively low fiscal deficit; mostly domestic denominated debt; and large foreign exchange reserves of around 3.2 trillion U.S. dollars". Morrison explained the relationship the Australian economy has with that of China is not uni-dimensional. He said "Certainly we have benefited greatly from the resources boom that we have had and what has been here with the production side of economy that is going into the consumption phase now".
Morrison expects that over the long-term, China will rebalance away from the investment-led model that has underpinned its growth for decades toward one more focused on consumption-led growth. He said "For a country that has been known as the 'world's factory,' the services sector now contributes over 50 percent of its GDP". He added, "China has more room for its consumption to grow than just about any country in history. Household consumption contributed just 38.5 per cent of GDP in 2015 to 56 per cent in Australia and nearly 70 per cent in the United States. This means although we see weakening signs in the traditional sources of China's growth, such as heavy industries like steel manufacturing, over the long-term, the rise of consumption within the Chinese economy should continue to support its economic development".
China announced a number of market-oriented reforms in 2013, which were reiterated in October 2015. Morrison said "These reforms (include) a path of higher quality growth, including through innovation, which is at the core of China's growth for the next five years and is expected to drive productivity gains. The Central Economic Work Conference, in December 2015, also announced a series of necessary 'supply-side reforms,' such as tax cuts, reducing industrial capacity and halting lending to so-called 'zombie firms'". Morrison added Australia has the highest proportion of its exports going to China of any advanced economy. He said "China accounted for around 32 per cent of our total merchandise exports in 2014-15, up from around 10 per cent in 2004-05". Morrison also noted the transition occurring in the Chinese economy is also creating new opportunities for the Australian economy. He said "China is already our largest destination for services exports, having increased from around 3 per cent of our services exports in 2000-2001 to around 14 per cent in 2014-2015".
Moreover, China is also ready to help other nations to grow. For example, it has expressed its willingness to cooperate with other countries in helping countries like Bangladesh build its first deep seaport at any location Bangladesh deems appropriate. All these indicate the healthy state of the newly emerging Asian economic global power Chinese economy amid a bleak picture of global economic turmoil.    Â
The writer is a retired Professor of Economics, BCS General Education Cadre.
E-mail: sarwarmdskhaled@gmail.com
China as a huge growth driver for Asia
Sarwar Md Saifullah Khaled | Published: April 09, 2016 00:00:00 | Updated: February 01, 2018 00:00:00
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