China tran­si­tion de­serves global pa­tience

The Pak Banker - - BUSINESS -

"Pa­tience is bit­ter, but its fruit is sweet." The adage from Jean-Jac­ques Rousseau should be made fa­mil­iar to those im­pa­tient with China's eco­nomic tran­si­tion.

Pes­simism may pre­vail as China's growth eases, but re­wards will go to those with con­fi­dence and pa­tience. Rapid growth over the past few decades has cat­a­pulted China into the po­si­tion of be­ing the world's sec­ond­largest econ­omy, show­er­ing ben­e­fits on global in­vestors as well as the coun­try's own peo­ple.

But the in­vest­ment-led model that pro­pelled the de­vel­op­ment has reached its lim­its. A mul­ti­tude of prob­lems -- high debt lev­els, in­dus­trial over­ca­pac­ity and en­vi­ron­men­tal degra­da­tion at home and sub­dued global de­mand -- mean an im­per­a­tive of bring­ing the econ­omy onto a more sus­tain­able path. The an­swer is trans­form­ing the econ­omy into one that draws strength from con­sump­tion, ser­vices and in­no­va­tion.

Such a tran­si­tion is bound to be painful and pro­tracted. As China trades quan­tity for qual­ity, dou­ble-digit growth of the econ­omy would not be easy. Wor­ries about China's eco­nomic fu­ture have al­ways been a facile ex­pla­na­tion for the world's hard­ships, in­clud­ing the global mar­ket rout last week. It would be more ad­vis­able for peo­ple to stop play­ing the blame game and take time to see the Chi­nese econ­omy in per­spec­tive.

Firstly, China has been proac­tively re­tool­ing its econ­omy, be­fore too late. The coun­try is try­ing to pull off a man­aged slow­down -- a re­bal­anc­ing act that re­quires wis­dom, vi­sion and courage. The re­form strate­gies and mea­sures crafted by pol­i­cy­mak­ers so far in­di­cate that China is pro­gress­ing in the right di­rec­tion.

The coun­try is not con­tent with be­ing the world's fac­tory and is toil­ing for in­dus­trial up­grades; the mar­ket is promised a de­ci­sive role; un­prof­itable "zom­bie" en­ter­prises have been or­dered to make ear­lier ex­its; car­bon taxes have been in­tro­duced to en­cour­age clean en­ergy tech­nolo­gies.

Se­condly, China's growth is still rel­a­tively fast. The newly-added eco­nomic out­put in 2015 was more than the GDP of Swe­den or Ar­gentina. IMF data showed China con­trib­uted 35 per­cent of the world's eco­nomic growth in the past five years and the fig­ure will stay around 30 per­cent in the years lead­ing to 2020. Thirdly, there have been signs that the ef­forts for more sus­tain­able growth are pay­ing off.

In 2015, con­sump­tion con­trib­uted 66.4 per­cent of China's GDP, up 15.4 per­cent­age points from 2014. Hi-tech in­dus­try de­vel­oped much faster than the in­dus­trial sec­tor as a whole and en­ergy con­sump­tion per unit of GDP is fall­ing. The mo­men­tum is marked. Dur­ing the Spring Fes­ti­val hol­i­day week, for ex­am­ple, cin­e­mas took 3 bil­lion yuan ($460 mil­lion), up 67 per­cent from last year.

Of­fi­cial data on Thurs­day also of­fered re­lief. Con­sumer in­fla­tion picked up in Jan­uary and the con­trac­tion in pro­ducer prices eased. Na­tional law­mak­ers will in March con­vene to dis­cuss is­sues that have sig­nif­i­cant bear­ing on econ­omy and so­ci­ety, with the 13th Five-Year Plan to 2020 be­ing un­veiled. As China stays com­mit­ted to the painful but nec­es­sary re­forms, a more ro­bust econ­omy is likely within reach. That mer­its pa­tience.

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