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Home » Opinion » Chinese Views
Beware of business as usual in new plan
By Sun Lijian |
August 5, 2010, Thursday
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Print Edition
Print Edition
THE key to breaking the grip of the world economic crisis lies in the swift building of a universal consensus on what generates growth in a new economic climate.
China, for its part, is executing a two-pronged strategy - developing "regional economy" and nurturing "strategic emerging industries" - in its search for new sources of growth.
The recent inclusion of eight major economic zones, including the Yangtze and Pearl River deltas and the Bohai Sea Economic Rim, and 13 regional development plans, into the national economic blueprint, conforms with Beijing's stated aim of ditching the export-oriented model that it had relied on for decades before the crisis exposed its downside.
Obviously, China's new economic strategy can be expected to offset the adverse effects caused by its outdated growth model, but economic planners should beware of some pitfalls as they chart their road map.
Given China's current level of development, the country must tread cautiously and progressively in this new strategy. Otherwise, the exploration of a healthy growth formula will degenerate into a new form of wasted resources. It might even breed abuses of power and official corruption.
Moreover, China's lack of talent, resources, and institutional backing has left it without the tools to cope with the challenges posed by ongoing economic restructuring.
Caught up in the throes of transition, some stakeholders, instead of tackling a pile of increasingly intractable problems themselves, may shift this burden to future generations. There is a dilemma that many local chieftains are facing when formulating what is known as the "urbanized economy."
On the one hand, if some local authorities don't fully exploit the limited resources at their disposal, the comparative advantage their jurisdictions command over others' is so minimal that it would negate the case for colossal construction of an "urbanized economy."
On the other hand, official emphasis on urban construction may temporarily even out the difference in growth rates between regions.
In the long run, however, this supposedly balanced approach to development will come at the expense of high-octane growth in areas with relatively abundant resources and clear-cut comparative advantage. Therefore, the authorities should discourage some regions from canvassing for national development funds for projects that neither suit local conditions nor hold much promise.
Local boosterism, appropriate or not, prompts an outflow of migrant labor from established industrial cities. A shortage of labor in those cities is then followed by a succession of wage hikes, upsetting the national economic reconfiguration.
Ever-lower profit margins will cause capital flight from industrial sectors to the financial market, where returns on investment come faster.
Governments without a long-term vision will likely join others in churning out a series of vanity projects and thereby squandering precious resources. My recent visits to some localities have shown that a lot of them, despite their lack of human or material capital, or of both, have invested heavily in renewable energies, only to find that the manufacturing of clean energy products is even less environmentally friendly than traditional industries.
In their fight with local competitors for overseas orders, these producers engage in a fierce price war. This internecine strife has been blamed in the past for Chinese exports' low added value. As it still rages now and then, industrial upgrade may become empty talk.
(The author is executive vice dean of the School of Economics at Fudan University. Shanghai Daily staff writer Ni Tao translated and edited his article originally written in Chinese.)
China, for its part, is executing a two-pronged strategy - developing "regional economy" and nurturing "strategic emerging industries" - in its search for new sources of growth.
The recent inclusion of eight major economic zones, including the Yangtze and Pearl River deltas and the Bohai Sea Economic Rim, and 13 regional development plans, into the national economic blueprint, conforms with Beijing's stated aim of ditching the export-oriented model that it had relied on for decades before the crisis exposed its downside.
Obviously, China's new economic strategy can be expected to offset the adverse effects caused by its outdated growth model, but economic planners should beware of some pitfalls as they chart their road map.
Given China's current level of development, the country must tread cautiously and progressively in this new strategy. Otherwise, the exploration of a healthy growth formula will degenerate into a new form of wasted resources. It might even breed abuses of power and official corruption.
Moreover, China's lack of talent, resources, and institutional backing has left it without the tools to cope with the challenges posed by ongoing economic restructuring.
Caught up in the throes of transition, some stakeholders, instead of tackling a pile of increasingly intractable problems themselves, may shift this burden to future generations. There is a dilemma that many local chieftains are facing when formulating what is known as the "urbanized economy."
On the one hand, if some local authorities don't fully exploit the limited resources at their disposal, the comparative advantage their jurisdictions command over others' is so minimal that it would negate the case for colossal construction of an "urbanized economy."
On the other hand, official emphasis on urban construction may temporarily even out the difference in growth rates between regions.
In the long run, however, this supposedly balanced approach to development will come at the expense of high-octane growth in areas with relatively abundant resources and clear-cut comparative advantage. Therefore, the authorities should discourage some regions from canvassing for national development funds for projects that neither suit local conditions nor hold much promise.
Local boosterism, appropriate or not, prompts an outflow of migrant labor from established industrial cities. A shortage of labor in those cities is then followed by a succession of wage hikes, upsetting the national economic reconfiguration.
Ever-lower profit margins will cause capital flight from industrial sectors to the financial market, where returns on investment come faster.
Governments without a long-term vision will likely join others in churning out a series of vanity projects and thereby squandering precious resources. My recent visits to some localities have shown that a lot of them, despite their lack of human or material capital, or of both, have invested heavily in renewable energies, only to find that the manufacturing of clean energy products is even less environmentally friendly than traditional industries.
In their fight with local competitors for overseas orders, these producers engage in a fierce price war. This internecine strife has been blamed in the past for Chinese exports' low added value. As it still rages now and then, industrial upgrade may become empty talk.
(The author is executive vice dean of the School of Economics at Fudan University. Shanghai Daily staff writer Ni Tao translated and edited his article originally written in Chinese.)
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