Is China prepared to rely on market reforms, rather than outright fiscal stimulus to sustain its economy for the next decade?
China is currently at the beginning of its second decade of National Economic Plan, which was originally targeted to see its economy growing by an average of 7.5% for the next decade. However, during the post Global Financial Crisis (GFC) of 2008 – 2009, China’s growth has shrunk from its peak of an average of 8.0% to 9.0% per annum, with growth at the higher end of the 9.0% during the country’s hosting of the Beijing Olympics in 2008, to its current average of 7.2% to 7.5%, based on the data as of the first quarter of 2013. Private sector economists, including Goldman Sachs, and JP Morgan, have pencilled the annual growth rate to come in at approximately 7.5% to 7.6%, and the International Monetary Fund (IMF), in its annual forecast report of world economic growth released in late April/early May 2013, called for an annual growth of approximately 8.2%. The potential of a ‘hard’ landing in China has been averted largely because of China’s repeated intervention to curb speculative housing growth, and as well as the coordinated engineering of China’s economic growth by policy makers as it has been doing for the past few decades since President Deng Xiaoping’s market reform era in the 1980s.
Recently, the issue over sustainability of China’s economic growth has been in the forefront of many economic forecasters, including the private sector economists who tracked closely on China’s economic transition for the past decade. The highlight of the topic is being put into attention, when according to a story published on Bloomberg.com, that highlighted the concerns and attitudes towards the overall economic growth in China, namely with the newly elected Premier Li Keqiang, announcing during the week beginning Monday, May 13, 2013, that the Chinese government has pledged to reduce the government’s role in the handing of its economic development, and is reluctant to rely solely on stimulus policies that will counter the slowdown, currently seen its domestic economy due to the economic events that are currently taking place in Europe, and the United States showing signs of an improving job market, albeit at a slow pace as many might think otherwise due to the lack of job prospects available to college degree holders, and rising income inequalities among many American households, the uncertainties surrounding the government budget debate currently, the forecasted high health care burden costs that are expected to take on by the American people due to the implementation of the Obama Care Programme nation-wide.
The question is whether such a move by the Chinese leadership is indicative of getting serious on implementing free-market policies and allowing Chinese corporations to take on greater world recognition through entrepreneurial policies that are pro-business, and market friendly, rather than draconian measures that stifle market progress to sustainable growth. State-owned enterprises (SOEs) are expected to be gradually privatized, which has been a closely watched by political observers as an indication of whether the Chinese leadership is able to start liberalising its domestic sectors. So far, progress has been quite slow on this front due to the widespread corruption, and uncertainties among business owners of these SOEs on whether their businesses could rely on the continued Chinese government support upon privatisation.
With the change of the Chinese leadership in April 2013, the plans towards the eventual market liberalisation are currently underway whereby the list of major priorities drawn up include: To start the process of eliminating widespread corruption, curbing the growing environment pollution that choked most of the major Chinese cities such as Beijing and Shanghai in April, focusing on the food safety issues that have been rampant in the past few years due to unscrupulous business tactics that cause harm to consumers, fostering social cohesion which came as a result of the rapid urbanisation, curbing the housing price speculation which has resulted in many Chinese households being priced out of the market which till date has not been made much success especially over the weekend of May 19, 2013 where Blommberg.com highlighted in a report published by China’s National Bureau of Statistics that showed that increases in housing prices for cities such as Guangzhou, Beijing, and Shanghai were the biggest since a change in data methodology in January 2011, and rising affluence among many Chinese people, which has resulted in a widening gap between the rich and poor.
There are hopes that the recent remarks made by Premier Li will become a testament of the Chinese leadership’s plans to move China’s economic policies towards more pro-business, and gradually reduce their tight grip over the major economic policy functions such as infrastructure building. Although China is trying to move away from their influence in much of the economy, it is still expected to take some time for the change of policies get implemented as there is often a time lag between government policy making, and overall implementation.