Question

How will China develop politically, economically, and socially during the next two decades? Explain.

Answer 1

China's global economic influence and power is unmistakeable. That said the economy is now in a slowdown phase and in the process of moving towards a different model of growth and development.

• For growth to be sustained China needs to achieve a re-balancing of her economy
  • Relying less on exports of low to medium value manufactured products and moving up value chains to produce and sell products with a high-knowledge and high-technology component
  • Driving more growth from household spending (consumption) on goods and services
  • Sustainability has become an essential part of China's development strategy
  • Addressing the pressures that come from rising inequalities of income and wealth.
• Success in improving sustainability through low carbon innovation and other technological breakthroughs can provide China with new sources of external demand as Chinese businesses export products and licence technology in green industries
• China remains a Communist state dominated by the Chinese Communist Party but it is also an increasingly open economy where trade accounts for over seventy per cent of GDP

China should complete its transition to a market economy -- through enterprise, land, labor, and financial sector reforms -- strengthen its private sector, open its markets to greater competition and innovation, and ensure equality of opportunity to help achieve its goal of a new structure for economic growth.

These are some of the key findings of a joint research report by a team from the World Bank and the Development Research Center of China's State Council, which lays out the case for a new development strategy for China to rebalance the role of government and market, private sector and society, to reach the goal of a high income country by 2030

• China is a unique blend of market and command economy, but the market is gaining importance
• For many years China has practiced export-led growth with exports exceeding 40% of GDP
• Investment has been a huge growth driver – it was 46% of GDP in 2010. By comparison, Japan in its 1970s boom topped out at 36%, while Korea's share peaked at 39% in the 1990s.
• The surplus on the balance of payments current account has fallen from over 10% of GDP in 2007 to less than 6% in 2011
• Korea, Japan, Germany and Switzerland run trade surpluses with China because they are able to export the high-value manufactured items, particularly investment goods, China needs
• The emphasis of China's growth policy is changing. A quote from Premier Wen Jiabao is central to this - 'China's economy needs to be put on the path of endogenous growth driven by innovation'

Outward FDI from China

• Partly because of trade surpluses, China has accumulated foreign-exchange reservesin excess of $3 trillion. These surpluses allow for outward overseas direct investment– much of the current focus is on China's investments in many African and Latin American countries.
• China is estimated to earn around $1bn per day interest income from their FX reserves
• In recent years China has given more loans to poor countries than the World Bank. In African countries such as Nigeria and Zambia, amounts from China of over US$100 million per year have been common. In Zambia, for instance, this has represented 1–1½ percent of GDP
• Chinese companies are preparing for investments in Western and Eastern Europe in engineering and technology as part of an effort to find new markets and gain greater control of global supply chains. In 2010 Geely (a Chinese car maker) purchased Volvo (Sweden). Lenovo (the world's largest manufacturer of personal computers) bought IBM's PC business
• Large scale investments by China in mining capacity is helping propel Peru into the world's second largest copper mining nation

FDI into China

• China continues to attract high levels of inward foreign direct investment
• China aims to lure more FDI in advanced manufacturing, as well as services including logistics, research and development, higher education and vocational training. This part of her aim to boost the service-side of the economy and to lift per capita incomes.

The Changing Pattern of Chinese Exports

• For much of the last twenty years China's export industries have been dominated by manufacturing and selling consumer goods to rich advanced countries
• But now China is shifting the emphasis of exports towards selling heavy industry products to developed and developing countries – for example overseas sales of giant earth movers, telecoms network gear and construction materials. Many of these are high-value and higher profit products which will make it easier for Chinese companies to pay higher wages to their employees.
• Much low-valued added production such as cheap textiles and household goods is shifting to countries such as Vietnam and Bangladesh.
• The other big change in the pattern of Chinese exports is a shift away from selling to rich, advanced, developed country markets towards fast-growing developing nations including Africa

Sustained and clean investments, clear strategy and delivery for cities China has to restructure rapidly to move to a more service-oriented and higher-technology economy, reduce its greenhouse gas emissions, and clean up the environment. This requires a shift 4 in what is produced, how and where. These efforts will provide significant benefits to China’s population, which has suffered greatly from poor air quality and congestion. Chinese cities will become more productive and attractive to a high calibre workforce. The shift in economic structure, technological innovations and the move to cleaner investments will be key elements in driving forward China’s growth.

. Investment in growth, labour and upskilling A more sustainable, clean growth model necessarily involves adjustment and dislocation of jobs as China phases out inefficient and polluting activities, a priority for the 13th Five-Year Plan (2016– 2020). However, this transition needs to be managed carefully. With continued investments in education and retraining, some of the socioeconomic consequences of the transition can be turned into investment in people and livelihoods. The new growth model holds vast opportunities for employment, skilled jobs in renewable energy and for innovation. Local service provision and taxation are driving sustainable growth Local infrastructure and public services are needed to sustain new ‘hubs’ and for private-sector activities to facilitate a shift in production and employment to the country’s interior or along international trade routes. Locally owned (own-source) tax handles are a key way to anchor spending, assure sustainable access to credit without build-up of liabilities and risk, and to mobilise private sector investments.

The domestic reform agenda to 2020 in China involves improving living standards in clean new cities and restructuring metropolitan areas to foster poverty reduction and the growth of inclusive employment opportunities. Financial and fiscal risks are to be managed through a combination of tax reforms and better information on the generation of liabilities by local governments and firms, including local utilities and SOEs. Tax reforms at the subnational level are needed to generate the appropriate incentives, and to finance investments and anchor sustainable access to credit. The structural reform agenda has at its core the innovation and adoption of new technology in both existing metropolitan areas and new cities in China’s interior. Highly skilled workers in the metropolitan areas will facilitate the adoption of cutting-edge technology. Key locations will be science parks and the Greater Bay Area, and in the potential development of a new ‘silicon valley’ mega hub. There is also a strong focus on the development of financial services as a core element of a modern service economy and one that is vital for innovation. Clean manufacturing can expand in the new interior cities, along with the new value-chains of the BRI’s overland connecting infrastructure, with markets in South Asia and the Middle East, Central Asia, Europe and Africa. Increasing trade with countries in the Western Hemisphere, particularly in Latin America, and with SE Asia, will likely continue to be promoted via the existing and enhanced coastal hubs and seabased connections. This trade is likely to increase significantly, enhanced by China’s stand on open markets and trade. At the same time, in a country the size of China, reforms and innovation to foster strong, sustainable and inclusive growth