The way forward for China’s economy

Shen Jianguang

Shen Jianguang

China and Europe must end their business-as-usual stance this year and get their houses in order for a better future, said experts at the Institute of Southeast Asian Studies’ regional outlook forum 2013 in Singapore.

While China had, last year, averted an expected hard landing due to its slowing economy, China expert Shen Jianguang said it was not out of the woods yet and so would find it “challenging” to grow this year.

Dr Shen, who is managing director and chief economist of Mizuho Securities Asia, said China’s economy did not crash because, in the last quarter of last year, it enjoyed a fierce domestic demand from better paid workers and its leaders also went on a public construction spree.

Up to 32 per cent of its factories lay idle

While domestic consumption would remain strong, and so help counter continuing sluggish demand elsewhere, Dr Shen warned that any growth spurt from the Chinese government’s continued infrastructural investments would not last.

Already, he pointed out, banks were delaying the approval of loans even as residents protested publicly that over-building was ruining their surroundings.

Meanwhile, up to 32 per cent of its factories lay idle from over-expansion, a fallout fuelled by the government’s stimulus packages in 2009 and 2010, he said.

Manufacturers pulling out of China.

On top of that, he noted, many manufacturers were pulling out of China and going into Southeast Asia instead, especially Indonesia. This was because wages were rising in China, with even migrant workers enjoying a 13 per cent pay rise last year.

Still, Dr Shen said, the Chinese were “more optimistic” about this year as their new leaders had said in recent weeks that they would roll out very difficult reforms.

Dr Shen was more circumspect about China’s rebound from its slowdown last year.

He said that it would probably grow minimally more than the government’s target of 7.5 per cent this year, but nothing was certain after that because China had not yet cracked a way to move up the value chain.

University of California at Davis, Wing Thye Woo, who has written a book titled A New Economic Growth Engine For China, suggested that China would achieve its greenest shoots from undertaking three huge reforms:

  • First: Overhaul its financial sector by setting up small banks to lend money to individual entrepreneurs.

This would create vibrant small and medium-sized enterprises that would churn new economic activity and break the stranglehold of China’s many monopolistic state-controlled companies.

  • Second: China’s new leaders can “give something back to its farmers” by reforming land policy to let them own land.

That was a big task, he noted, because local officials saw land privatisation as taking power away from them, and so would likely retaliate by allocating undesirable plots to farmers.

  • Third: China should polish its diplomatic skills and get on better with the rest of the world. “To be truly rich, you have to trade with the world and when you are a relative outsider, you must have superb negotiation skills to boot,” he said.

In the meantime, Dr Shen noted, China’s growth headaches would actually benefit Southeast Asia because its public and private companies were keen to expand in the region.

Economist Chua Hak Bin of Bank of America Merrill Lynch in Singapore said the Chinese will be joined by Japanese manufacturers, who are pulling their money out of China after strident protests there, last year, triggered by Japan‘s unilateral decision in September to “nationalise” the Diaoyu/Senkaku islands, which China also claims as its own, by buying over the three isles that were privately owned.

More nationalistic, not more hawkish?

Regarding China’s increasing assertiveness towards Japan over these islands, Peking University’s international studies Zhu Feng said that Beijing was merely reacting to Tokyo’s renewed territorial claims, so the Chinese response had not been “strategically weighed”. He added that China’s new leaders were “more nationalistic” than their predecessors but not necessarily more hawkish.

Institute of Southeast Asian Studies senior fellow Ian Storey, however, stressed that the Diaoyu/Senkaku dispute was by far the “more dangerous” of China’s two sea spats, as it was between “two well-armed countries with historical animosity”.

“Last year,” Dr Storey told delegates, “I asked the chief of the Japan Defence Force what conflict resolution mechanism he had with the People’s Liberation Army, and he said: ‘None.'”

By Cheong Suk-Wai,  Senior Writer –
Source: ISEAS (Institute of South East Asian Studies) – The way forward for China’s economy

Categories: Finance & Economy

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1 reply


  1. China January PMIs signal mild recovery in place « China Daily Mail

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