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Poised for far-reaching changes
The Business Times
2010-07-12
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After three decades of headlong growth, China is facing new economic challenges and social developments, reports VIKRAM KHANNA

ON any checklist of issues that would have a profound potential impact on the global economy, what changes happen in China over the next decade, and how they happen, would rank very high.China is the world's third largest economy as well as the fastest growing. It is among the top three exporters, the biggest market for several commodities, the top destination for foreign direct investment and the epicentre of the global supply chain for a wide variety of manufactured goods.

Following the opening up of China's economy in 1978, the country has made spectacular economic progress which has produced one of the fastest social and economic transformations in human history. More than 500 million people have been lifted out of poverty and living standards have risen dramatically.
 
But after three decades of relentless growth and transformation, China's economy and society could be, yet again, poised for far-reaching changes.
 
Economic growth which has averaged a torrid 11 per cent over the last five years could be on the verge of slowing – although it would still remain high. The World Bank projects that China's economy will grow by 9.5 per cent in 2010, before moderating further to 8.5 per cent in 2011.
 
The forces making for slower growth include the gradual withdrawal of the accommodative monetary policies and fiscal expansion that were pursued after the global economic crisis of 2008/09, and a slowdown of investment – which amounts to close to 50 per cent of GDP currently and accounts for more than 90 per cent of China's growth.
 
China's policymakers are also grappling with a real-estate boom, which has reached bubble proportions in some cities. There are also rising inflation and wage pressures, which, together with a possible appreciation of the currency, would threaten to erode China's much vaunted competitiveness.
 
The changing competitiveness picture plus the prospect of slower growth in China's major export markets for the foreseeable future underline the need for China's policymakers to engineer a deep structural shift, which is slowly getting under way. This is the shift from a relatively high dependence on exports as a source of growth to domestic consumption. But this in turn needs a strengthening of social safety nets, as well as financial reforms which would free up more resources for consumption. It would also entail some dislocation as industries are forced to shift their focus away from exports to the domestic market.
 
China is also faced with social pressures in the form of land-related and labour disputes, a public backlash against corruption, rising income inequality, still-wide gaps between rural and urban areas and between coastal and inland provinces. In the area of information too, the spread of the Internet and mobile telephony poses challenges to China's government, which has sought to control the spread of information and to suppress dissent. China's government itself is also faced with the prospect of adapting to a new age of greater pluralism and heightened social awareness.
 
In this four-page special feature, to commemorate the FutureChina Forum, we bring you some of the key changes and new developments underway in contemporary China.
 
 
Courtesy of The Business Times, 12 July 2010.
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