/> />

China Will Become a More "Normal" Economy

Source: Getty
Op-Ed Financial Times
Summary
China will become more "normal" in 2013, moving away from its unbalanced, unsustainable, and uncoordinated economic structure. However, this will make China more susceptible to business cycles and could undermine its current authoritarian model.
Related Topics
Related Media and Tools
 

China will become more 2013 will be remembered as the year China became a more “normal economy”. What does normality mean for China? Soon-to-depart Premier Wen Jiabao’s oft-cited quote that China’s growth is “unbalanced, unsustainable and uncoordinated” is a good place to start.

China was an abnormal economy with its state-led capitalist approach that produced double-digit growth rates, no major financial crises and average wage increases of 12 per cent annually for decades. But the drivers of this impressive economic transformation will no longer be available to the new leadership. Beijing cannot simply open the monetary floodgates to stimulate the economy as was done in previous downturns.

Rates of growth in the 7-8 per cent range will become the norm and the key question is whether growth will be of higher quality – more balanced, sustainable and coordinated?

China is in fact already rebalancing – internally, externally and spatially. Internally, if consumption continues to increase at 9 per cent annually and investment growth declines from over 15 per cent to 6-7 per cent, the consumption and investment shares of the economy will become more “normal”. Externally, the current account balance will also continue to moderate as domestic demand increases with urbanisation and investors diversify by shifting more of their funds abroad. China will also become spatially more balanced as the interior will grow much faster than the coast and urbanisation will accelerate.

China’s growth can also be more financially and environmentally sustainable with further reforms. Actions to strengthen the banking sector are already underway but its fiscal system needs to be transformed to take on more responsibility for channeling resources. And China’s Five Year Plan provides a platform to achieve environmental sustainability by sharply increasing energy efficiency and curbing pollution.

In a normal market-driven economy, coordination is less about the state managing all key activities but more about strengthening its regulatory role to give the private sector room to spur innovation and efficiency.

But as a normal economy, China also becomes more vulnerable to business cycles. It can no longer maintain stability by controlling key economic prices such as interest and exchange rates and limiting capital movements. Its vested interests will be grounded less in the links between the Communist party and the state-owned banks and enterprises but as in the west China will become more vulnerable to private interests and “crony capitalism”.

Without state-led investment taking the lead, the economy will be susceptible to Keynesian risks of lack of demand. Corporate profits will be squeezed by higher interest rates and rising wages. Efficiency will be more important than capacity in the future.

Normality will also undermine the authoritarian nature of the old model which served China well when the priority was simply to push out more infrastructure investment and ensure that the requisite resources were available. China will now need a less heavy-handed administrative system that will promote entrepreneurship All this will call into question the existing governance system and may well prove to be the catalyst for far-reaching political reforms.

 This article was originally published by Financial Times.

End of document

About the Asia Program

The Carnegie Asia Program in Beijing and Washington provides clear and precise analysis to policy makers on the complex economic, security, and political developments in the Asia-Pacific region.

 

Comments

 
Source http://carnegieendowment.org/2013/01/02/china-will-become-more-normal-economy/eyvw

Carnegie Oil Initiative

More from The Global Think Tank

In Fact

 

45%

of the Chinese general public

believe their country should share a global leadership role.

30%

of Indian parliamentarians

have criminal cases pending against them.

140

charter schools in the United States

are linked to Turkey’s Gülen movement.

2.5–5

thousand tons of chemical weapons

are in North Korea’s possession.

92%

of import tariffs

among Chile, Colombia, Mexico, and Peru have been eliminated.

$2.34

trillion a year

is unaccounted for in official Chinese income statistics.

37%

of GDP in oil-exporting Arab countries

comes from the mining sector.

72%

of Europeans and Turks

are opposed to intervention in Syria.

90%

of Russian exports to China

are hydrocarbons; machinery accounts for less than 1%.

13%

of undiscovered oil

is in the Arctic.

17

U.S. government shutdowns

occurred between 1976 and 1996.

40%

of Ukrainians

want an “international economic union” with the EU.

120

million electric bicycles

are used in Chinese cities.

60–70%

of the world’s energy supply

is consumed by cities.

58%

of today’s oils

require unconventional extraction techniques.

67%

of the world's population

will reside in cities by 2050.

50%

of Syria’s population

is expected to be displaced by the end of 2013.

18%

of the U.S. economy

is consumed by healthcare.

81%

of Brazilian protesters

learned about a massive rally via Facebook or Twitter.

32

million cases pending

in India’s judicial system.

1 in 3

Syrians

now needs urgent assistance.

370

political parties

contested India’s last national elections.

70%

of Egypt's labor force

works in the private sector.

70%

of oil consumed in the United States

is for the transportation sector.

20%

of Chechnya’s pre-1994 population

has fled to different parts of the world.

58%

of oil consumed in China

was from foreign sources in 2012.

$536

billion in goods and services

traded between the United States and China in 2012.

$100

billion in foreign investment and oil revenue

have been lost by Iran because of its nuclear program.

4700%

increase in China’s GDP per capita

between 1972 and today.

$11

billion have been spent

to complete the Bushehr nuclear reactor in Iran.

2%

of Iran’s electricity needs

is all the Bushehr nuclear reactor provides.

78

journalists

were imprisoned in Turkey as of August 2012 according to the OSCE.

Stay in the Know

Enter your email address in the field below to receive the latest Carnegie analysis in your inbox!

Personal Information
 
 
Carnegie Endowment for International Peace
 
1779 Massachusetts Avenue NW Washington, DC 20036-2103 Phone: 202 483 7600 Fax: 202 483 1840
Please note...

You are leaving the website for the Carnegie-Tsinghua Center for Global Policy and entering a website for another of Carnegie's global centers.

请注意...

你将离开清华—卡内基中心网站,进入卡内基其他全球中心的网站。