As President Xi Jinping leads China’s delegation to the annual World Economic Forum in Davos Switzerland, people there and everywhere will want to know from him and his delegation what lies ahead for China’s economy.
The question is hard to answer. Economic and political uncertainty abounds in many parts of the world and China’s economy has never been more globally intertwined. An unusually high degree of uncertainty is facing us in the management of international political relations, trade, currency values, cross-border capital flows, etc. The American President-elect Donald Trump seems inclined to deemphasize globalization and to accept “protectionism” as an instrument of economic policy. The whole world seems to be on the cusp of big-time change. There will be important, but unpredictable elections in many countries in 2017.
I got to know China, at least a little bit, when I had the privilege of serving as head of the World Bank’s office in Beijing in the early and mid-1990s. It was an exciting time for all of us, including our Chinese counterparts all over the country.
We were like brothers and sisters, fellow-soldiers in combat, fighting for the same purpose: China’s economic development. Even though Deng Xiaoping was already very old then and no longer actively involved in managing the country, his “reform and opening up” spirit pervaded everything we did.
I had worked with many developing countries around the world, but never experienced such determination to succeed, such willingness to work long hours and assume responsibility for one’s actions and decisions, such eagerness to learn from international experience and such skillful, pragmatic efforts to modernize the economy, as in China. It was an exhilarating experience.
The results of China’s development efforts over the past 35 years are well known: abject poverty was sharply reduced, a sizeable middle class has emerged, housing, social services and social security have been much improved. Even remote villages got electricity, water, decent roads and Internet access. China became the world’s largest economy (measured in terms of domestic purchasing power; the 2nd largest if measured in terms of international purchasing power), as well as largest exporter (soon also largest importer) and manufacturer, measured in terms of gross output value. In spite of the economic slowdown in recent years China still accounted for close to one-third of global growth – its contribution was about 50% during the years of the Great Recession (2008-’09). China is also becoming innovative. For example, it is already a world leader in developing alternative sources of energy, nano-technology, certain pharmaceuticals and in mobile payment services. Its influence on the world economy is now so great that the powerful upturn in domestic housing sales and construction in 2016 (following the boom in mortgage lending and government efforts to reduce inventories of unsold housing) was enough to revive global commodity markets in the second half of last year. China’s economic achievements and technological progress command great respect around the world.
But economists don’t agree on what lies ahead for China’s economy in 2017. Many, including me, are worried that not enough has been done to deal with the economic problems of recent years and that these problems (including serious overleveraging and excess capacity in many industries, (especially SOEs) and large-scale, only partially controlled, shadow banking) may trigger financial instability. Others are more relaxed, pointing out that China has often faced serious problems in the past, but always took the right corrective action and came out on top, without a crisis.
How can China’s delegation to Davos convince the world that the country will address its current economic challenges more effectively and will remain a constructive factor in the global economy? Under Deng Xiaoping’s leadership, China embarked on a breathtaking “reform and opening up” reform process that has yet to be completed, as the Third Plenum of 2013 implicitly acknowledged. Whenever serious problems developed in the past, debates on what went wrong, usually focused on the question whether the reforms had relied too much on “regulation by markets” or not enough. Sometimes the prevailing opinion was the latter. But there is a risk of depending too much on regulation by markets. In my view, market fundamentalism – a belief that markets can solve all problems – is definitely wrong, but I also feel that China has not yet exhausted the benefits that market reforms can bring. While markets are terribly important, we should also realize that China needs better institutions to guide the economy and a more genuine “rule-of law” system to support those institutions. No country has ever built a perfect political-economy system and in reality, there will probably never be an end to the need for further reforms. The best China can do in my opinion is to continue the reform process set in motion by Deng Xiaoping and to concentrate especially on institution building. This will contribute to greater domestic and international confidence in China’s economy.
(The author is Former international economist at the World Bank, including four years as chief of the World Bank’s Resident Mission in Beijing.)
(Source: People’s Daily/NewsGhana.com.gh)