The Yomiuri Shimbun
China needs structural reforms to achieve stable economic growth
How can China’s economy shift onto a track of stable growth, while preventing itself from stalling?
Steering China’s economy as its growth continues to slow down has become an ever more difficult task.
China’s real gross domestic product grew 6.9 percent year on year in 2015, the lowest growth in 25 years.
The sluggish growth primarily stems from slackened investment and production activities, as efforts to get rid of excessive production capacity and real property inventory have made little progress.
Exports also declined 2.8 percent from the previous year. As the country’s price competitiveness weakened due to rising labor costs, its status as “the world’s factory,” exporting and selling low-priced products in great volume, has lost much of its luster.
China had set its full-year growth target at “around 7 percent.” The National Bureau of Statistics of China emphasized that “the 6.9 percent growth is still in line with the government target.” But the country’s high growth model led by investment and exports is already approaching its limits.
It is a matter of urgency for China to shift to a consumption-driven growth model, as advocated by the administration of President Xi Jinping.
The Chinese authorities said they will promote structural reforms, such as reducing the systemic oversupply of steel and coal. Temporary stimulus measures alone, such as increasing public spending, will not be sufficient. It may be necessary to force through reforms while overcoming resistance from state-owned enterprises and local governments stubbornly hanging on to their vested interests.
Better numbers needed
In stimulating consumption, developing new products and new services sought by consumers would be effective. In order to bring out the vigor of the private sector, which would serve as a pillar of innovation, it is essential to reorganize and shrink state-owned enterprises.
It is worrisome that China’s economic statistics lack credibility. There is strong suspicion that the Chinese authorities calculate statistics on the high side to make the nation’s economy look better than it really is. They should not relax their reform efforts, while patching things up for the time being with make-believe figures.
Concerns over the uncertain outlook of the Chinese economy and the yuan’s fall have brought about a vicious cycle in the international flow of money, becoming a serious risk factor for the global economy.
The projected decline in China’s oil demand, in line with its economic slowdown, has further dampened crude oil prices. Drops in crude oil prices are driving the “oil money” of the oil-producing countries in the Middle East, whose fiscal conditions have deteriorated, to return to their domestic markets, which is said to be a factor behind a worldwide decline in stock prices.
Further decline in the value of the yuan has accelerated an exodus of capital out of the country. Fears are rising that the performance of Chinese companies, burdened with debts denominated in foreign currencies, will deteriorate.
Also, in order to keep the yuan from weakening further, it is important to create an environment for foreign investment funds to go back to China again, by promoting financial system reforms, including easing regulations on currency trading and liberalization of interest rates.
Grasping the structural change in China’s economy, Japanese businesses also have to review their business plans so that they can meet the new needs of consumers and businesses in China.
(From The Yomiuri Shimbun, Jan. 20, 2016)