Transcript China
PEET STRYDOM COLLOQUIUM EMERGING MARKETS, GROWTH RESILIENCE OR HITTING A LOW GROWTH TRAP? Introduction The global economy is slowing o o Will China have a hard or soft landing. How will / can policymakers deal with it? This seminar is concerned with a much broader question: Is the current slowdown the end of catchup growth? Can China get stuck in a middle-income trap? What will be the role of the developmental state? Global slowdown The rise of China is a familiar story: Gapminder.htm But growth is slowing: What part is cyclical and what part structural? Chinese slowdown There are many causes of the current slowdown. Exports and investment account, respectively, for 30% and 40% of China’s GDP growth, which means that the economy is particularly vulnerable to weakening external demand and accumulation of non-performing loans caused by excessive and wasteful spending on fixed assets. Can, or should policymakers respond? Keynesian vs. (neo-) Austrian views. Chinese slowdown To assess the risks and options for China, one must understand China’s “Made in the World” production system, which rests on four distinct but mutually dependent pillars: World factory. China infrastructure network. Chinese financial services supply chain. Government services supply chain. With the onset of the current global crisis, and changes in demographics, urbanization, and resource constraints, all four pillars are now under stress. Can China adjust? A new consumption-based growth model for China? Reflected in the government’s recently approved 12th FiveYear Plan. If this view is right, the solution is straightforward: China can correct its imbalances by increasing its citizens’ incomes (by cutting taxes, raising wages, or increasing social spending), so that they can consume more. But what if there are underlying constraints? Can China adjust? Can China adjust? Export dependence partly reflects the high degree of difficulty of doing business in China. Official corruption, insecure property rights, stifling regulatory restraints, weak payment discipline, poor logistics and distribution, widespread counterfeiting, and vulnerability to other forms of intellectual-property theft. In “the ease of doing business” China is ranked 91st, behind Mongolia, Albania, and Belarus. It is particularly difficult to start a business in China (151st), pay taxes (122nd), obtain construction permits (179th), and get electricity (115th). All of these obstacles increase transaction costs and make it difficult for entrepreneurs to thrive in domestic markets. Can China adjust? In order to enjoy the same low transaction costs that they have in exporting, China’s entrepreneurs need a much better business environment. The key governance question is: which top-level architecture would enable the country to adopt the reforms needed to meet global and domestic pressures? Can China adjust? China 2030 report states that reforms are required: Land Labour Energy Competition Banking Capital markets SOEs Taxes and spending China as a developmental state John Knight defines the development state as one that gives overriding priority to rapid economic growth. There can be differences in degrees of democracy or dictatorship, nature and extent of state intervention in the economy, strength of industrial policy. The evolution of reform in China. Institutions: "regionally decentralised authoritarianism". China as a developmental state How China grew fast: Rapid capital accumulation. Conditional convergence from a low base. Sectoral change High physical capital investment. Structural reforms: expansion of trade, privatisation of production, transfer of labour out of agriculture. High confidence, high investment, high growth. China as a developmental state Sustainability of this model will depend on: Power of the top leadership. Strength of bureaucratic, business and military vested interests. There are many threats: Adverse shock, a bubble, financial collapse. Social instability. Conclusions China will continue to lead global growth. But possibly at lower rates. Inclusive economic (and political) systems will matter for future growth. What does it mean for South Africa? For our resource exports, for our manufacturing sector… For Africa?