In November, President Xi Jinping and Prime Minister Li Keqiang will release their plans for reforming the Chinese economy during the Third Plenum of the Communist Party’s 18th National Congress. While the proposed changes to economic policy will most likely be quite general, there is still some hope for future growth in the Chinese economy.
The author of the article points out four reasons why he is hopeful about the economic reform plan. Firstly, he believes that Chinese leaders finally understand that the nation’s growth models are flawed, and in order to see needed growth, they must change their growth model. Recently Xi and Li have come up with new plans like a free-trade zone in Shanghai that will allow for greater fluctuation of interest rates and more foreign competition. If leaders continue to propose plans like this one, the nation will continue to see growth. Secondly, the current leaders in China are strong enough to bring about serious economic reform. For China to grow, the nation will need to see strong central leaders that have proved so critical in past success. Xi’s anti-corruption campaign proves that the leaders are not afraid to attack the political system in China head on. Thirdly, China’s economic position and slowed growth means that they have to act now. Although the nation’s output has expanded six times between 2002 and 2012, however, this has made the people complacent. China no longer has the luxury to assume that it can grow out of any economic downturns it meets. Growth has begun to slow down, the income inequality gap has expanded, and debts have gone up. Finally, the nation is waiting for economic change. With the new leaders, the people of China have high expectations that have yet to be met.
We can expect to see some major changes in the market prices for oil, gas, and natural resources, and overall more rational allocation of resources between central and local governments. The proposed changes will not only affect China’s economy, but will also have repercussions for the rest of the world’s developed economies. It will be interesting to see just how the rest of the world will respond to the reinvigorated Chinese economy.
Source: http://www.nytimes.com/2013/10/05/opinion/chinas-economy-back-on-track.html?ref=china&_r=0
Image: http://www.nytimes.com/imagepages/2013/10/05/opinion/1005OPEDsavage.html
As the Chinese complain about only 7-8% economic growth the US is overjoyed with 1% growth… What has the world come to. The Chinese government knows that economic growth brings stability for its party within China. If students become unemployed…demonstrations might occur more often and the Chinese Government tries its best to hide these from international entities. Everyone talks about how China is a growing powerhouse yet couldn’t America’s health care system be the next boom in growth for an already post industrial nation. Unfortunately, Congress seems to busy with personal agenda to look out how the economic shutdown has hurt the already faltering American Economy.
This transition to a somewhat more free market oriented (i.e.. interest rates, foreign competition…) economy could definitely induce some turmoil into China. That transition is not assuredly going to be a smooth one and will probably be at least somewhat painful at first. Long term it should help the Chinese economy mature into a more sustainable growth pattern. China is not guaranteed permanent competitiveness against other low cost industrializing countries.
How, exactly, would more flexible lending rates boost growth? Isn’t there a lot of “foreign” competition already? [How the Chinese leaders define this is vague – do they mean imports? Otherwise it’s an empty statement, as many markets are dominated by foreign firms, as we’ll read in American Wheels.
Now small businesses do face challenges accessing credit; the financial system is not as “deep” as elsewhere. Perhaps less regulation on interest rates will accelerate the growth of capabilities, but part would also need to be shrinking markets for lending to local governments, an issue we’ll read about in China’s Urban Billion and Hessler.
Finally, whether the government will remain able to use fiscal policy in the face of a severe downturn is a function of the tools at its disposal. So far I see no reason to think that has diminished, but all this is macroeconomics and I will postpone discussing such topics until later in the term.