By Ni Tao |
SOBER analyses byreputable economists is critically needed amid China’s ongoing economicrestructuring efforts.
Noted Chinesescholars and officials from the Asian Development Bank (ADB) gathered andshared their thoughts on how to get the Chinese economy back on track at arecent symposium at Shanghai’s Asia-Pacific Finance and Development Institute.The symposium was held to commemorate the 30th anniversary of China’scooperation with ADB.
Professor ZhangWeiying, who teaches at the National School of Development, a think tankaffiliated with Peking University, pointed out that China’s spectacular growthin the past 30 years can be attributed to, among other things, improvedefficiency of resource allocation.
Chineseentrepreneurs have benefited enormously from what he calls the “arbitragemodel” since the start of the country’s economic reforms, meaning that theyhave taken advantage of the gap between Chinese and foreign prices forresources like labor, land and raw materials.
But as this gapshrinks, arbitrage opportunities are steadily running dry, suggesting thenecessity of a new path to growth. This is where, in Zhang’s opinion,innovation and entrepreneurship come in. Unlike the quick, short-term gainsmade through arbitrage, promoting innovation is a long-term endeavor. It willtake years, if not decades, to realize the benefits of such efforts, he said.
Although Chineseauthorities have instituted changes and put in place mechanisms intended tofoster innovation, these are not necessarily enough to incentivize a populardrive to innovate, he said.
According to him,the biggest thing lacking in China’s ongoing efforts to build a true marketeconomy is an equally strenuous commitment to a sound legal system thatgenuinely enshrines property rights.
Rule of law
As the cornerstoneof innovation, stronger property rights protection, especially of intellectualproperty rights, is needed to ease the sense of insecurity felt within thelocal business community, he observed.
A longtimechampion of property rights, the Peking University professor remarked that akey challenge China has to meet in the next 20 years or so is how to update itslegal system to ensure the arrival of a society governed by the rule of law,rather than the rule by law.
In response to thewell-trodden criticisms of China’s state owned enterprises as inefficient andmonopolistic behemoths, Takehiko Nakao, President of ADB, said there is muchwork China can do to enhance economic efficiency.
For example, itcan consider deregulating and opening up some industries for free competition.Such policy suggestions are hardly new, yet still haven’t materialized on alarge scale.
Reflecting onADB’s 30-year partnership with China, Nakao recalled a comment economist PaulKrugman made in the 1990s about what he saw as the ultimate unsustainability ofAsian growth owing to a lack of innovation. As Krugman saw it, growth in Asiawas fueled mainly by pooling and utilizing resources like labor, land andcapital, with little innovation to speak of.
Nakao took issuewith the Nobel laureate in Economics, saying that proper mobilization ofresources in support of growth is, in itself, a big step forward as it requiresan innovative spirit that still eludes many underdeveloped nations in Asia andbeyond.
Nakao concludedthat the pooling-utilization model deserves more credit than is given byKrugman.
In assessing thebiggest risks threatening China’s economic well-being, Professor Lawrence Lauwith the Chinese University of Hong Kong dissented from the consensus view thatthe country’s debt-to-GDP ratio is a harbinger of a debt crisis. According to Lau,public debts, which actually account for roughly a fifth of China’s GDP, arestill low by global standards and fairly manageable.
The real danger hesees lies in the dearth of effective demand.
At a time whenjust about every major industry is battling overcapacity, it should not beforgotten that the private sector is usually unable to generate demand on itsown.
“What can theyinvest in? Steel, cement, glass? Everything is in excess supply,” said Lau.
He believes now isthe time to look at increasing the provision of public goods, in areas like theenvironment, education and health care. A good place to start would be cleaningup the air, an undertaking that would benefit everyone.
He suggested thatall this requires government leadership at both the local and central levels,since the private sector is unlikely to play a leadership role in these areas.
However, he warnedabout the pitfalls of this typical Keynesian approach. The best example of thisis the lingering fallout from the 4 trillion yuan (US$583 billion) stimuluspackage adopted in 2008 to generate demand and stimulate the economy. “While itdid sustain growth, the government has sort of overdone it,” Lau claimed.
He remains upbeatnonetheless about the prospects of China becoming a “moderately prosperous”society by 2020, with per capita GDP exceeding US$10,000 — a goal outlined inan economic blueprint issued several years ago.
Shanghai Daily2016.11.21
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