Charting the Course
China reviews the year gone by and sets new goals accordingly
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Special> NPC & CPPCC Sessions 2015> Exclusive
UPDATED: January 19, 2015 NO. 4 JANUARY 22, 2015
Betting on China

"We still have many reforms to go to shift from a high-growth economy to a medium-growth economy focused on quality and efficiency over speed," Tang said.

There have already been major social reforms such as relaxing the hukou (household registration) system, and one-child policy, and economic reforms such as expanding the Shanghai Free Trade Zone to allow more foreign investment.

There are five main areas for major reform this year, Tang said: maintaining economic stability, nurturing areas of new growth, poverty elimination, improving geographical income imbalances such as in the northeast region, and strengthening social welfare.

In terms of local debt, China's new budget law passed in August 2014 aims to correct the course of leveraging before it becomes a serious problem, said Hu Yifan, chief economist at Haitong International Securities Group Ltd. The size of the debts is still manageable and the resources of regional governments are still strong. Tax revenues are growing despite the economic deceleration and the Central Government is still seen as a last resort for indebted local governments. A bailout fund established for local government debt would help avoid any regional risks, she said.

Optimistic outlook

According to Lin, of the three drivers to growth--exports, investment and consumption, China must choose one path. Certainly China would be able to maintain its growth if the world economy continues a strong recovery and exports rise, but external demand is not reliable. Second, domestic consumption is already growing faster than in any other country, and will not be sustainable without income growth, he claimed. Income growth relies on technological innovation, industrial upgrades and improvement in infrastructure. Therefore investment is the key to stable economic growth.

"Certainly, if you want to use investment as a driver for growth and to make the growth sustainable you need to have good investment opportunities, which give you a high economic and social return," Lin said. "Luckily, China still has plenty of opportunities for that kind of good investment."

As a middle-income country, China will still gain much from improvements in infrastructure, industrial upgrading and environmental protection. For example, only about 53 percent of people in China live in urban areas compared with an average of more than 80 percent in high-income countries---leaving plenty of room for further urbanization and growth of the market economy.

"When a high-income country has an economic slowdown it is very hard to find good areas for investment, but as a middle-income country we have plenty of room for further investment opportunities," Lin stated.

China also has plenty of resources to fund an investment-led drive to economic growth, with $4 trillion in foreign reserves and a private savings rate of close to 50 percent of the annual GDP. It is not overly optimistic to expect China's economy to have decades of stable growth ahead, Lin claimed.

Regional benefits

Naysayers notwithstanding, China's success will lift hundreds of millions out of poverty and contribute to a stronger global economy, Lin said. Those who fear a Chinese collapse should breathe easy. Typical forecasting models that are used for other countries don't apply because China is still developing and has specific conditions that are different from the developed world.

"The current economic growth is good for China, good for the United States and good for the rest of the world," Lin said.

Perhaps the first countries to benefit from China's economic growth are those along the Silk Road Economic Belt that will receive much of China's outbound global investment, said Qin Xiao, Chairman of the Boyuan Foundation and former Chairman of China Merchants Bank.

The initiative is expected to drive overseas investment for the next decade, including $76 billion in 2013. The region will also benefit from Chinese expertise in infrastructure development and will strengthen Chinese exports.

China's outward direct investment (ODI) is relatively high in mining and the financial sector, and there is a big potential for growth in utilities. Currently, the United States is the main target for most ODI stock, have totaled $21.9 billion. By 2025, China's ODI should have totaled $350 billion to $400 billion, second only to the United States, Qin said.

Email us at: yushujun@bjreview.com

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