China’s economic growth seen as stable, not surging
“Some may think the economic growth has bounced back from the bottom since the fourth quarter last year and will regain high-speed growth above 9 percent – but they are too optimistic,” said Liu Shijin, deputy director of the Development Research Centre of the State Council, speaking at the 2013 China Development Reform in Beijing.
China’s quarterly GDP growth was down to a three-and-half-year low of 7.4 per cent year-on-year in the third quarter in 2012, but rose to 7.9 per cent in the fourth quarter.
Liu said the potential growth rate of the world’s second-largest economy will be sustained at 7 to 8 per cent in next two years, from a double-digit growth over the last decade, and will eventually stabilise at 6 to 7 per cent.
But this is not necessarily bad news: Economies that have successfully transformed to a high-income economy, such as Japan’s and South Korea’s, have experienced a similar transition. When their national income reached a certain level, their growth rates were lowered by 30 to 40 per cent.
Zheng Yongnian, director of the East Asian Institute at National University of Singapore, who was also speaking at the forum, said if China could maintain a 6 to 7 per cent growth rate for 10 to 15 years, the country could transform to a high-income economy just like Japan and South Korea did.
However, if the country fails to do so, and lacks necessary reform, it will be stuck in a middle-income trap similar to the situation in Thailand and the Philippines, he said.
“China’s policy stance now should focus on preventing the economic growth rate from sliding too fast, rather than raising it to a higher level,” Liu said. But China still has adequate measures to boost growth, he said, such as urbanisation, technological upgrades, and boosting domestic consumption.
Liu said China’s urbanisation level could grow another 20 percentage points, up from the current level of 52 per cent, and this will generate 30 per cent more consumption by more than 200 million residents.
Meanwhile, if the country’s industrial added value reaches a level equal to that of the United States, it will increase by 70 per cent.
Another important contributor will be the optimism of foreign firms.
“In our recent survey, more than 70 per cent of the participants with operations in China plan to increase their investment here over the coming five years,” said Dennis Nally, chairman of global consulting firm PricewaterhouseCoopers. More than 80 per cent anticipate their revenues in China will increase in 2013, PwC’s survey showed.
“Foreign investment will remain a key to China’s economic well-being, as the country moves up the value chain, shifting from ‘made in China’ to ‘designed in China’ and finally to ‘innovated in China’,” Nally said.
Stephen Roach, senior fellow at Yale University’s Jackson Institute of Global Affairs, noted that the per-capita capital stock was only 13 per cent of that of the US and Japan. Therefore, much more investment is needed in the next few years to improve the country’s productivity.
Nobel laureate Joseph Stigliz said a larger share of the future GDP will go to the workers, and more public spending is needed for healthcare, education and building livable cities.