Issues for economic growth model

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By Liu Yuhui (China Daily)
Updated: 2009-10-21 08:24

China should look at the emerging global economic rebalancing in the context of an unprecedented world economic recession and expedite adjustment of its economic structure and transformation of its long-controversial growth model.

The G20 Pittsburgh summit in late September was of symbolic significance given that it has opened the adjustment of the staggering global economic order and prompted major countries to profoundly reflect on the global recession and work together for a sustainable and balanced development of the world economy. The onus to promote a balanced world economy is not on any one nation. All should take common responsibilities in this process and carry out unblocked coordination of their stances instead of being manipulated by any single superpower.

As a responsible and fast-growing country, China has neither shirked its obligations in global economic development nor abandoned its right to safeguard its national interest. For the sake of the steady development of the global economy as well as for the benefit of its own economic security, the country should accelerate transformation of its long-established economic growth model as an imminent problem yet to be addressed.

The United States attributed the outbreak of the global financial crisis to the world's economic imbalance, which, it said, had largely resulted from the rapid development of such emerging economies as China and Brazil, in the aftermath of the outbreak of the crisis. It has therefore called for global economic rebalancing to pull the world out of recession. China has its own understanding about the causes of the crisis but it also believes it unavoidable for the world economy to be rebalanced in the post-crisis era.

China's misgivings toward Washington's "crisis responsibility" are understandable given that the country's fast-growing and export-driven economy is likely to be most affected in the forthcoming global rebalancing campaign. At the Pittsburgh summit, participating nations reaffirmed their explicit support for free trade and opposition to protectionism. However, practices indicate that, in the absence of forcible and binding rules and regulations, the US and European countries would easily eat their words according to domestic political and economic demands, and turn to protectionism as the main means to protect their less competitive homeland industries and drive employment growth.

Following the US imposition of intolerably high tariffs on China's tires, similar cases against Chinese products in steel, textile and other fields are expected to follow in succession. As the world's largest exporter, China feels ever-growing pressure from the uncontrolled protectionist behavior of its major trading partners.

The imbalance in the world economy has been used by the US as an important excuse to force China into concessions on some of its macroeconomic and monetary polices. Also, the US is moving towards contracting its consumption demand, as is indicated by its declining credit and monetary supply. Washington has also cut down its import and current account deficits by nearly half from the same period last year. In addition, US household savings have kept growing at a double-digit rate in the past months. The quantitative easing monetary policy adopted by the Federal Reserve doesn't mean an expansive credit policy. When US President Barack Obama said that the US should not continue to be in the position in which China, Germany and other large exporters sell their products to the US while the US has nothing to sell, his stance was crystal clear: The US will strive to develop itself into a producer from a consumer.

In this context, China should not be over-optimistic about the US and European economies turning better or get motivated to slow down its steps toward economic structural adjustment. Whether Western countries can sustain their initial economic growth would be largely decided by whether they can really activate their slackened domestic demand. The terrible balance sheet and the rising aging population in Western countries will likely offset the positive effects of their short-term stimulus packages.

Since its major trading partners also strive to become manufacturers, China should try to change its past excessive dependence on the mushrooming global trade and develop itself into a self-reliant and internally-driven economy. The days for an export-fueled rapid growth may be gone forever.

To check overcapacity, the Chinese government has chosen to inject a lot of liquidity into the market, contributing a lot to its recovery. However, the investment spree in this short period has also created enormous potential risks of a more imbalanced structure.

It is expected that the Chinese government will be courageous enough to face the impact of the contracted external demand and global rebalancing on its economy. Premier Wen Jiabao has made it clear that the country would make it a top priority to push for economic structural adjustment and focus on spurring domestic demand and consumption. At the last three cabinet executive meetings, the same message has been sent out: The country would strive to push for its economic structural adjustment, including curbing overcapacity, developing a low-carbon economic model and supporting the development of small- and medium-sized enterprises.

Compared with other major economies, China enjoys a broader market and more advantages for industrial upgrading. The debts of the Chinese government, its enterprises, citizens and financial bodies are still at a comparatively secure level.

We have good reasons to believe the world's third largest economy will surely go through the ongoing global economic rebalancing and gain larger development if it can take hold of the chances produced by the change of the global economic order, expedite reform of some rigid and outdated political and economic institutions, optimize its currently unreasonable wealth distribution structure and tap domestic demand.

The author is a researcher with the Chinese Academy of Social Sciences.

(China Daily 10/21/2009 page8)