With uncertainties growing constantly greater, the economic situation we are facing today is getting more confusing and intricate. Given this reality, how China directs its 2012 economic policies will be an issue of great importance, because the direction will not only dictate policy in the coming 12 months of 2012, but also the whole period running up to 2015, or the 12th Five-Year Plan period as officially marked.
The coming 12 months will constitute the second year of this period. If China fails to secure substantial progress in structural readjustment and development pattern modification within these months, it may well fall short of its targets set for the period--an outcome that would seriously jeopardize the sustainable development of its economy and society as a whole. Should the time come when its economic and social development becomes unsustainable, it may be too late for it to do anything, because what it will run into by that time will not just be an economic crisis. It will be a social crisis or a political crisis.
Present-day domestic and global economic markets are facing the same challenge:a slowdown of growth. Our world is still deep in crisis, one that has evolved from a financial or market crisis to a government debt or economic crisis. This situation will not see any change in the foreseeable future. It will last for another five years, at least, or even longer. Surrounded by such a global economic environment, and haunted by an irrational structure, insufficient motives for system reforms, absence of factors for innovation, and stagnation of the private sector, the Chinese economy will be doomed to slow down.
How this slowdown will be seen is where people’s opinions have come to diverge. Does economic slowdown mean greater risks and hazards or rare opportunities? If the former is the case, maintaining of growth would surely be set as the direction of macro economic policies and the policy track followed since 2008 would be taken once again. If the latter is the case, structural readjustment and development pattern modification should get the spotlight in macro economic policies.
In my personal opinion, a slowdown of the economy signifies rare opportunities. It may be seen as a great opportunity for structural improvement and acceleration of development pattern modification, for the following reasons:
First of all, structural readjustment and development pattern modification can be administered only when an economy goes downhill. They can never be carried out when an economy scales upwards. When an economy is going upward, all sectors and companies will be netting or expected to net profits, and the market will not come under any pressure. From a micro perspective, no company will feel the need for transformation or upgrading. In most cases, they will simply seek quantitative expansion on their original bases. From a macro point of view, no sector will feel the need of transformation or upgrading. All trades and sectors will drive for horizontal development, basing on their original selves. There will not be any mergers, acquisitions, restructuring, or flow. In other words, there will not be any reshuffle of existing sectors or trades, with their economic scale, industrial concentration ratio, and market composition and efficiency remaining the same and unchanged. Under such circumstances, it is unlikely for the economic structure to undergo any readjustment automatically under the market force. Even if regulatory measures are administered by the government, such as capping of output, the effect of structural readjustment will still be fairly limited. Also, structural readjustment made through administrative measures will lead to serious results. On the contrary, structural readjustment during the downhill course of an economy will bring the market force into full play. If supplemented with government actions, excellent results will be harvested in efforts to remodel the development pattern.
Secondly, the Chinese economy is still growing at a fairly fast speed, with a growth rate of more than 9 per cent expected for this year. This allows for a fairly big space for downhill movement and sufficient time for structural readjustment and development pattern modification. If we suppose it comes down by any average annual rate of one percentage point and reaches the bottom rate of 7 per cent, we will get a timeline of more than two years for structural readjustment.
Or if it comes down by half a percentage point a year, we will get a timeline of four years. When the economy goes downhill, people lower their expectations and feel pressured, the flow of resources will speed up, and restructuring will gain momentum. All of these factors will create favourable conditions for structural readjustment and development pattern modification. When economic growth remains high, there is no need to worry about its slowdown. On the contrary, all policy measures should be exploited to make the best of the opportunity from the slowdown to quicken the pace of structural readjustment and development pattern modification in a planned way and by stages. The real estate industry, the heavy polluters and the big energy and resource consumers, for instance, should be relentlessly curbed, while service providers, micro businesses, and industries generating handsome added value should be encouraged and supported. Once government and market forces come together and set out in the same direction, structural readjustment and development pattern modification will surely get a big boost.
Thirdly, the Chinese economy is sloping down instead of nose-diving. Moreover, the 2008 stimulus package has not been fully implemented, with some construction projects still waiting for follow-up investment to complete. Most importantly, there is a great potential for both investment and consumption in China due to its on-going urbanization drive, although economic and social reforms are absolutely needed to accelerate tapping of this potential. Social reforms, in particular, are indispensable for structural readjustment and development pattern modification. Social reforms include innovations in social management, and restructuring of the household registration system, the employment system, the education system, the training system, and the scientific and technical system. The ultimate goal of social reforms is to promote equal access to opportunities, stimulate social vitality and creativity, and revitalize the economy.
There is still one more issue of concern, namely, employment. Will China see its unemployed grow by big numbers or its migrant workers flock back home as they did near the end of 2008 and in early 2009? I personally do not believe the current slowdown of its economy will lead to any serious unemployment. It has already become a common expectation that China’s economic growth will slow down due to sluggish external demand, and the Chinese society as a whole has already come up with due remedies. The export-oriented enterprises along its eastern coastal areas, for instance, have not only prepared themselves psychologically for the slowdown, but also taken some concrete actions such as redirection of their business antenna to rising markets or simply to the domestic market. In addition, the central government has enacted policies to support small and micro businesses, an effort that will surely help in job creation. If more preferential policies are worked out for micro, small and medium-sized enterprises, and the environment for starting businesses is further improved, even more job opportunities will be created.
When I propose that the focus of China’s 2012 policies should center on structural readjustment and development pattern modification, I am not preaching a laissez-faire attitude to the free fall of economic growth. Rather, I am calling for achievement of growth through structural readjustment and development pattern modification. It is my belief that the better our work in structural readjustment and development patter modification, the slower the fall of our economic growth. This more we leverage the economic slowdown for promotion of structural readjustment and development pattern modification, the steadier and smoother the economic slowdown will be. On the contrary, if our policy focus is put on growth, and little or no progress is made in structural readjustment, any growth propped up with government efforts will be short-lived. Once the government withdraws its support, the economy without an internal engine will only see an acceleration of its slide. Obviously, any efforts to maintain growth today will result in steep economic downfall tomorrow, in just one or two years, perhaps.
Based on this, I would like to conclude that structural readjustment is also one way to maintain growth, and a more effective and lasting way, too. With this understanding, I suggest that betterment of structure, stabilization of economy, and advancement of reforms be established as China 2012 macro economic policies.
Liu Shangxi is Vice Director of Research Institute for Fiscal Science at the Ministry of Finance
This article was originally published by www.caixin.cn
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