On the Road To Recovery

China’s economy shows signs of rebounding but it must find a way to sustain its upward tick By Deng yaqing

After dipping to a three-year low in the third quarter of 2012, the Chinese economy registered a robust 7.9 percent growth in the last quarter, sending positive signals to the rest of the world that China’s economic prowess could be on the rebound. But will the momentum carry into 2013?

At a forum held by the financial portal website Hexun.com and the Stock Exchange Executive Council in Beijing on January 19, experts on China’s economy exchanged ideas on whether the country can maintain its rebounding growth in the new year and in the long term.

Predictions

At the forum, Wang Wei, chief editor of Hexun.com, published the Hexun 2013 Forecast on Macro Economy, predicting that China’s GDP will rise 7.8 percent in 2013, which is the same as the previous predication of the Standard Chartered Bank.

In its newly released World Economic Outlook, the World Bank expected China’s economy to expand by 8.4 percent in 2013, 8 percent and 7.9 percent in 2014 and 2015.

Chen Xikang, a research fellow at the Chinese Academy of Sciences said at the forum that the World Bank’s predication is reasonable.“But only if domestic and international circumstances are stable, and there is no deviation of national policies, can China witness an 8.4-percent growth rate,” he said.

Other factors could impact the country’s rebounding growth. If China and Japan go to war over a group of islets in the South China Sea, China’s economic development could be adversely impacted. If the eurozone sovereign debt crisis and the U.S. fiscal woes worsen, it will be dif fi cult for China’s foreign trade to grow alongside its GDP.

INDUSTRIALIED: Workers on duty at a steel tube production line of Fengbao Special Steel in a Linzhou-based factory

Wang Tongsan, Director of the Institute of Quantitative and Technical Economics at the Chinese Academy of Social Sciences, argued that overseas market demand and world economic circumstances would determine whether China’s GDP growth in 2013 would surpass 8 percent.

The United States can overcome its debt problem only by elevating its debt ceiling. Otherwise,a new crisis will drag down the U.S. economy. In addition, uncertainties persist in the eurozone sovereign debt crisis. The lack of authority and the failure of a fiscal pact make the future of the eurozone bleak, Wang said.

Currently, Japan has the highest rate of national debt to the GDP among developed countries, somewhere in between 230 percent to 250 percent. If the country’s debt continues to increase, Japan will be the next country to suffer a sovereign debt crisis, he added.

“Taking all the above-mentioned possible factors into consideration, it’s still uncertain whether the Chinese economy can grow by more than 8 percent,” Wang said.

Zhang Hanya, President of Investment Association of China, held that China’s economy will maintain an annual growth rate between 8 percent and 9 percent until 2018, because the country is still in the middle and later stages of urbanization and industrialization, a period that normally features robust economic growth.

Deep-seated problems

Finding growth points for China’s economy is more than a pressing issue: It also reveals problems that have accumulated over time.

Jiang Zhenghua, former Vice Chairman of the Standing Committee of the National People’s Congress,believes that only by fully understanding China’s current economic development can the engine for sustainable development be tapped.

First, China’s investment efficiency has been on the decline, says Jiang. Investment elasticity, a coefficient to measure the growth rate of the GDP when investment increases 1 percent, has tumbled in recent years. In the January to November period of 2012, investment elasticity was 0.3 percent, far lower than the world average.

Second, despite advancing by leaps and bounds in the fi elds of science and technology,core technology remains out of China’s hands.Computer systems are a good example. China has taken second place in terms of computing speed, but the core chips and software are imported from other countries. The lack of core expertise is a major weakness.

Third, productivity is relatively low. According to statistics released by the International Labor Organization, China lags far behind Germany in productivity in almost every industrial sector.Efforts must be made to elevate productivity.

Fourth, resource scarcity will increasingly restrain China’s economic development, such as a shortage of petroleum. Furthermore, fresh water seems more likely to block the development of some regions, for China only accounts for 6 percent of the world’s total freshwater resources while it breeds one quarter of the world’s total population.

Wang Qing, Managing Director of China International Capital Corp. Ltd., said China has to do three things in the long term—sustain momentum for economic growth, manage the fi nancial relations between the central and local governments and initiate the retreat of stateowned enterprises from competitive sectors.

According to Wang, for emerging economies, sustainable growth of the labor force is fundamental for economic growth. Meanwhile,macroeconomic problems stem from fiscal problems, the key of which is the financial relations between the central and local governments. To ensure efficient and quality economic growth, the government and stateowned enterprises should retreat from the competitive sectors and make room for privately owned enterprises.

“China’s economic development still depends largely on policy stimulus. The enthusiasm to invest is always dampened by invisible obstacles,” said Lu Zhengwei, chief economist of Industrial Bank Co. Ltd.

At the conference, Lu presented his view that China should force the market to play a bigger role in promoting economic growth.

But He Qiang, a professor at the Central University of Finance and Economics, noted that the government should slowly ease its monetary policies in 2013 to shore up economic growth. In the short run, policy support seems indispensable in order to secure a growth rebound.

“Looking back, investment was always the starter for economic growth. As a new economic growth pattern has yet to take shape, what really matters is still investment,” said He. ■