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No need to overreact to China's temporary economic slowdown
By Ni Tao |
July 17, 2013, Wednesday
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Print Edition
Print Edition
FOR a long time, Chinese growth has been the envy of the world, especially of developed economies, many of which are suffering recessions to varying degrees.
But as Chinese growth loses steam, will it still inspire envy and awe?
It is reported that China's GDP growth slipped to 7.6 percent in the first half of this year. The conspicuous slowdown of the Chinese economy to less than 8 percent has generated gloomy prognostications for the nation's efforts to bao ba, or achieve the 8 percent growth target.
In the past, bao ba was a political imperative that, if not accomplished, might herald soaring unemployment, depression and social unrest. But this time, we should be less jittery about slower growth, warned a Chinese strategic thinker.
Many observers and business people tend to overreact to the slightest sign of economic contraction because they are not mature enough to see vagaries as a natural part of the market, said Long Yongtu, former vice minister of China's Ministry of Foreign Trade and Economic Cooperation, the precursor of the Ministry of Commerce.
Long is more famously known as China's chief representative during its crucial WTO membership talks.
At a lecture at Shanghai Jiao Tong University on Saturday, Long said myths still persist over the "dire consequences" of growth falling below 8 percent. But it is high time we downplayed this economic indicator, as the nation's leadership is holding firm in its bid to transform the economy from one centered on quantity to one more quality-oriented, he said.
While some inefficient and polluting industries - previously big taxpayers - are now being phased out, it is necessary to bear the resultant pain and refrain from demanding stimulus packages like the 4 trillion yuan (US$654 billion) in fiscal boosts adopted in 2008.
With the side effects of the generous package still being acutely felt, in terms of repetitive and wasteful construction, China cannot tolerate another 4 trillion yuan package, no matter how desperate some industries are for cash. For instance, Chinese leaders didn't rally to the rescue of some banks afflicted recently by a credit crunch - a move analysts interpreted as a sign of economic reform.
Misinformed views
While the abrupt, massive cash-flow disruptions have led some to think China will relive the nightmare in 2008 of the collapse of Lehman Brothers, Long said these misinformed views are shaped by little awareness of how the Chinese financial system works.
With the world's No.1 savings rate and foreign reserves, the Chinese state has adequate funds to execute a bailout of its stricken banks, but it chose not to intervene to increase money supply for reasons that Long suspected had to do with the leadership's attempt at a stress test - to see if conditions for economic restructuring are ripe.
Only in times of adversity can we muster enough will to tackle the restructuring issue, which was delayed indefinitely by the comforts derived from the last stimulus, said Long.
He believes that it takes great entrepreneurship to turn the mammoth Chinese economy around, in addition to official restraint from overreaction to slowed growth.
The Chinese economy must be built on solid rock, not on quicksand. It is medium- and small-sized businesses that constitute the blood and flesh of the economy. In the future, they deserve more policy attention and financing, noted Long. As a globe-trotting ex-official and thinker, Long has met prominent business leaders worldwide. His comparison of Chinese and foreign companies led him to conclude that Chinese entrepreneurship has yet to play a role in the rise of China Inc.
Lack of soft power
Despite the heft of the economy, Chinese firms haven't developed the influence, or in Long's words, soft power, commensurate with their size.
One big reason is that China's deep-rooted agrarian culture inhibits the creation of a seafaring culture in countries such as Britain and Holland. Chinese firms are tempted to look inward and engage in internecine strife, which saps their competitiveness, said Long.
At this point, he quoted Bill Gates, who said once at the Bo'ao Forum - of which Long was the secretary general until 2010 - that a firm's competitiveness is dependent upon high-caliber talent plus less internal friction.
A few Chinese firms have established their global footprint, but to go truly global, in mentality and entrepreneurship, they have to stop indulging in the vicious game of cannibalism.
Meanwhile, no efforts can be spared to guarantee a stable global environment, a prerequisite for China's growth, in accordance with late leader Deng Xiaoping's political teaching.
Inheritance of this legacy requires that today's leadership exhibit the utmost political wisdom in dealing with trade and economic disputes, to prevent them being politicized at all costs, argued Long. At a time of China's rise and Western decline, increased criticism, fear and denigration of China can only be natural. Again, we must caution against overreaction, he added.
But neither can we, out of self-doubt, subscribe to the view of Chinese decline. The economic dislocations are temporary. Long compared China to a young man, who may catch a cold but recovers quickly. As long as the country continues its ascent, the pains of the adjustment can be overcome, he said.
But as Chinese growth loses steam, will it still inspire envy and awe?
It is reported that China's GDP growth slipped to 7.6 percent in the first half of this year. The conspicuous slowdown of the Chinese economy to less than 8 percent has generated gloomy prognostications for the nation's efforts to bao ba, or achieve the 8 percent growth target.
In the past, bao ba was a political imperative that, if not accomplished, might herald soaring unemployment, depression and social unrest. But this time, we should be less jittery about slower growth, warned a Chinese strategic thinker.
Many observers and business people tend to overreact to the slightest sign of economic contraction because they are not mature enough to see vagaries as a natural part of the market, said Long Yongtu, former vice minister of China's Ministry of Foreign Trade and Economic Cooperation, the precursor of the Ministry of Commerce.
Long is more famously known as China's chief representative during its crucial WTO membership talks.
At a lecture at Shanghai Jiao Tong University on Saturday, Long said myths still persist over the "dire consequences" of growth falling below 8 percent. But it is high time we downplayed this economic indicator, as the nation's leadership is holding firm in its bid to transform the economy from one centered on quantity to one more quality-oriented, he said.
While some inefficient and polluting industries - previously big taxpayers - are now being phased out, it is necessary to bear the resultant pain and refrain from demanding stimulus packages like the 4 trillion yuan (US$654 billion) in fiscal boosts adopted in 2008.
With the side effects of the generous package still being acutely felt, in terms of repetitive and wasteful construction, China cannot tolerate another 4 trillion yuan package, no matter how desperate some industries are for cash. For instance, Chinese leaders didn't rally to the rescue of some banks afflicted recently by a credit crunch - a move analysts interpreted as a sign of economic reform.
Misinformed views
While the abrupt, massive cash-flow disruptions have led some to think China will relive the nightmare in 2008 of the collapse of Lehman Brothers, Long said these misinformed views are shaped by little awareness of how the Chinese financial system works.
With the world's No.1 savings rate and foreign reserves, the Chinese state has adequate funds to execute a bailout of its stricken banks, but it chose not to intervene to increase money supply for reasons that Long suspected had to do with the leadership's attempt at a stress test - to see if conditions for economic restructuring are ripe.
Only in times of adversity can we muster enough will to tackle the restructuring issue, which was delayed indefinitely by the comforts derived from the last stimulus, said Long.
He believes that it takes great entrepreneurship to turn the mammoth Chinese economy around, in addition to official restraint from overreaction to slowed growth.
The Chinese economy must be built on solid rock, not on quicksand. It is medium- and small-sized businesses that constitute the blood and flesh of the economy. In the future, they deserve more policy attention and financing, noted Long. As a globe-trotting ex-official and thinker, Long has met prominent business leaders worldwide. His comparison of Chinese and foreign companies led him to conclude that Chinese entrepreneurship has yet to play a role in the rise of China Inc.
Lack of soft power
Despite the heft of the economy, Chinese firms haven't developed the influence, or in Long's words, soft power, commensurate with their size.
One big reason is that China's deep-rooted agrarian culture inhibits the creation of a seafaring culture in countries such as Britain and Holland. Chinese firms are tempted to look inward and engage in internecine strife, which saps their competitiveness, said Long.
At this point, he quoted Bill Gates, who said once at the Bo'ao Forum - of which Long was the secretary general until 2010 - that a firm's competitiveness is dependent upon high-caliber talent plus less internal friction.
A few Chinese firms have established their global footprint, but to go truly global, in mentality and entrepreneurship, they have to stop indulging in the vicious game of cannibalism.
Meanwhile, no efforts can be spared to guarantee a stable global environment, a prerequisite for China's growth, in accordance with late leader Deng Xiaoping's political teaching.
Inheritance of this legacy requires that today's leadership exhibit the utmost political wisdom in dealing with trade and economic disputes, to prevent them being politicized at all costs, argued Long. At a time of China's rise and Western decline, increased criticism, fear and denigration of China can only be natural. Again, we must caution against overreaction, he added.
But neither can we, out of self-doubt, subscribe to the view of Chinese decline. The economic dislocations are temporary. Long compared China to a young man, who may catch a cold but recovers quickly. As long as the country continues its ascent, the pains of the adjustment can be overcome, he said.
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