Unlike the West, where former US President George H.W. Bush once mockingly referred to the vision thing, China takes economic strategy very seriously. That much was clear at the recent China Development Forum (CDF) in Beijing, an important gathering held each year since 2000, immediately after the conclusion of the annual National Peoples Congress. Originally conceived by former Premier Zhu Rongji one of modern Chinas most strategy-minded reformers the CDF quickly became a high-level platform for engagement between senior Chinese policymakers and an international line-up of academics, foreign officials, and business leaders. It is, in essence, an intellectual stress test forcing Chinese leaders to defend newly formulated strategies and policies before a tough and seasoned audience of outside experts. Its not always easy to distil a singular message from an event like this, especially as the CDF, once a small intimate gathering, has morphed into a Davos-like extravaganza of some 50 sessions spread out over three days. But, having attended 16 of the 17 meetings (I missed the first one), my sense is that CDF 2016 was especially rich in its strategic implications for Chinas daunting economic challenges. And, as I saw it, the elephant in the room was the core identity of Chinas economic model a producer-led versus a consumer-led model. Chinas 30-year development miracle 10% real annual GDP growth from 1980 to 2010 was all about the countrys prowess as the ultimate producer. Led by manufacturing and construction, China enjoyed a uniquely powerful impetus. In 1980, exports and investment collectively accounted for 41% of Chinese GDP; by 2010, the combined share was 75%. The export portion increased the most by nearly six-fold, from 6% in 1980 to a pre-crisis peak of 35% in 2007 as new capacity and infrastructure, low-cost labour, and accession to the World Trade Organization made China the worlds greatest beneficiary of accelerating globalization and surging trade flows. Yet the producer model was not the definitive formula for achieving Chinas aspirations of becoming a moderately prosperous society by 2020. This realization was foreshadowed by the now-famous Four Uns critique of former Premier Wen Jiabao, who back in 2007 correctly diagnosed the producer model as unbalanced, unstable, uncoordinated, and unsustainable. Those, of course, were code words for surplus saving, excessive investment, open-ended resource demand, environmental degradation, and mounting income inequalities. A new model was needed not only to escape such pitfalls, but also to avoid the dreaded middle-income trap that ensnares most fast-growing developing economies when they reach income thresholds that China was rapidly approaching. Wens critique triggered an intense internal debate that resulted in a key strategic decision to rebalance the Chinese economy by shifting to a consumer-based model, as framed by the 12th Five-Year Plan of 2011-2015. This new approach stressed three major components: a shift to services to boost job creation; accelerated urbanization to raise real wages; and a more robust social safety net to provide Chinese families with the security needed to channel their newfound income from fear-driven precautionary saving into discretionary consumption. The results of the now-completed 12th Five-Year Plan were impressive especially in light of the formidable challenge that structural change implies for any economy. But thats where Chinas strategic focus is most effective providing an over-arching framework to guide the economy from point A to point B. But this journey is far from complete. While Chinas targets for services and urbanization were exceeded, the end results fell short on many aspects of building a more robust (that is, fully funded) social safety net. As a result, personal consumption inched up from just 35% of GDP in 2010 to only about 37% in 2015. Notwithstanding the unfinished business of consumer-led rebalancing, China now appears to be embracing yet another shift in its core economic strategy driven by a broad array of supply-side initiatives that range from capacity reduction and deleveraging to innovation and productivity. That emphasis was formalized in Premier Li Keqiangs recent Work Report, which outlined the new strategy of the just-enacted 13th Five-Year Plan (covering the 2016-20 period). In identifying the top eight tasks for 2016, Li put supply-side reforms at number two second only to the governments focus on economic stability in countering Chinas growth slowdown. By contrast, emphasis on boosting domestic demand long the focus of Chinas consumer-led rebalancing strategy was downgraded to third place on the so-called work agenda. In China, where internal debates are carefully scripted, nothing happens by accident. In the keynote speech at this years CDF, Vice Premier and Politburo Standing Committee Member Zhang Gaoli drove this point home, emphasizing the need to direct supply-side initiatives at Chinas main threat. By contrast, there were only passing mentions of consumer-led rebalancing. Maybe I am guilty of splitting hairs. After all, every economy needs to focus on both the supply and the demand sides of its growth equation. But this shift in emphasis in the 13th Five-Year Plan as well as in the debate and messaging at this years China Development Forum appears to be an important signal. I worry that it could indicate a premature shift away from the consumer-led model back to Chinas comfort zone of a producer model that has long been more amenable to the industrial engineering of central planning. Strategy is Chinas greatest strength, lending credibility to its commitment to structural transformation. Yet much remains to bring the Chinese consumer to life. Yes, it is a tough challenge. But de-emphasizing that strategic commitment could call into question a crucial shift now required of Chinas core economic identity.
Top Stories
RELATED ARTICLESMORE FROM AUTHOR
【法律解碼】評估澳門《信託法》的進展:是否不負眾望?
第15/2022號法律(澳門《信託法》)於2022年12月1日正式生效。澳門自此成為葡語系首個設立在岸信託法的司法轄區,亦是繼《中華人民共和國信託法》、“台灣地區信託法”及《受託人條例(香港法例第29 章)》後,大中華地區第四部信託法。儘管澳門《信託法》至今已生效逾一年,但據了解,該法尚未得到有效實施,。因此有必要就當前的挑戰和未來的出路展開探討。
OPINION – Investing in Diversification!
As the lights of the Great Hall of the People in Beijing, where the “Two...