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Reform calls for high value-added products
Source: Xinhua |
March 7, 2011, Monday
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Print Edition
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CHINA plans sweeping economic change, focusing on transforming the economic development model, to boost growth in a sustainable manner.
The transformation is also the key goal of China's 12th Five-Year (2011-2015) Program, but Chinese and foreign experts said in interviews with Xinhua that it will take at least five years or even much longer before the goal can be achieved.
"The transformation of China's economic development model is an essential and core part of China's multi-decade process of reform, and it is perhaps the most challenging and difficult part," said Robert Kuhn, a renowned expert on China from the United States.
Chinese leaders and economists have said many times that the current growth model is not sustainable due to excessive dependence on exports and investment, and lukewarm domestic consumption and lack of innovations.
Transforming the development model is one of the focal points of the ongoing annual sessions of the Chinese People's Political Consultative Conference (CPPCC) and the National People's Congress (NPC).
"China has no choice. The transformation is the only way to continue economic development, improve standards of living for all citizens, and create a sustainable economy in terms of energy utilization and pollution control," said Kuhn, author of "How China's Leaders Think."
"All of these were serious problems, and they can only be solved in parallel, at the same time, not in series. Trying to solve each problem separately will not work," he told Xinhua in an e-mailed message.
Although the Chinese government has long recognized the need for economic transformation, it has only been the last several years that concerted efforts have been made, said Kuhn.
"This is only natural because China's economy needed to grow to a certain size to even make the prospect of economic transformation rational. To try to effect the transformation with the economy at low levels would have been counterproductive," Kuhn said.
"We do see progress. Companies like Huawei, ZTE, and Haier are powerful innovators and brands; China's telecommunications industry is world class and it is changing the lives of all people, not just the rich," said Kuhn.
John Ross, a visiting professor at Antai College of Economics and Management, Shanghai Jiaotong University, pointed to the shrinking trade surplus and rising spending on Research & Development.
China's trade fell sharply from US$296 billion in 2008 to US$183 billion in 2010. A huge effort has gone into improving environmental conditions, including clearly placing protection of the environment above the most rapid growth in heavy industry and power supply, Ross said.
However, "there is still a long way to go before China's economy can grow in a balanced manner," said Wang Jun, a macro-economy researcher at the China Center for International Economic Exchanges (CCIEE), a think tank under the country's top economic planning body.
"Stating the theory and effecting the transformation are two different things," Kuhn said. "For example, creating products with higher value added, whether through innovation or branding, is a much more difficult matter than being the low-cost producer based on cheap labor."
Higher gross margins
"If China is to balance income, then workers need higher wages, but companies can only pay higher wages if their products have higher gross margins," said Kuhn, who also pointed to potential job losses as another major risk arising from the transformation.
"From a macro-economic perspective, transformation always means dislocations: many millions of workers will have to lose their jobs while newer jobs are being created," he said.
"What happens to the laid-off workers? How are they retrained and cared for? There could be trouble for social order. Hence, all consequences of economic transformation must be considered," said Kuhn.
The critical success factors in China effecting economic transformation are mechanisms to encourage the commercial success of innovation, such as better intellectual property rights laws and enforcement, Kuhn said.
Echoing Kuhn, Wang Jun of the CCIEE expected the key in transforming the economic development model to lie in a series of mechanism reforms.
"All mechanisms should be designed and adjusted to facilitate the transformation of economic development models, rather than just aiming to produce fast and large-size gross domestic product (GDP)," said Wang.
The reforms should take place in the finance and taxation system, the system for assessing the performance of local governments and officials, income distribution system, the pricing mechanism of natural resources and environmental protection mechanism, said Wang.
Kuhn also stressed the role of an improved social system under which consumers would have confidence in health care and retirement, which would enable them to spend more, thus driving the domestic economy.
It takes time to change all the current mechanisms that are results of long-term development, so transforming the economic development pattern is a long-term task, not only a goal for the next five years, but also for the next whole decade or even two," said Wang.
The transformation is also the key goal of China's 12th Five-Year (2011-2015) Program, but Chinese and foreign experts said in interviews with Xinhua that it will take at least five years or even much longer before the goal can be achieved.
"The transformation of China's economic development model is an essential and core part of China's multi-decade process of reform, and it is perhaps the most challenging and difficult part," said Robert Kuhn, a renowned expert on China from the United States.
Chinese leaders and economists have said many times that the current growth model is not sustainable due to excessive dependence on exports and investment, and lukewarm domestic consumption and lack of innovations.
Transforming the development model is one of the focal points of the ongoing annual sessions of the Chinese People's Political Consultative Conference (CPPCC) and the National People's Congress (NPC).
"China has no choice. The transformation is the only way to continue economic development, improve standards of living for all citizens, and create a sustainable economy in terms of energy utilization and pollution control," said Kuhn, author of "How China's Leaders Think."
"All of these were serious problems, and they can only be solved in parallel, at the same time, not in series. Trying to solve each problem separately will not work," he told Xinhua in an e-mailed message.
Although the Chinese government has long recognized the need for economic transformation, it has only been the last several years that concerted efforts have been made, said Kuhn.
"This is only natural because China's economy needed to grow to a certain size to even make the prospect of economic transformation rational. To try to effect the transformation with the economy at low levels would have been counterproductive," Kuhn said.
"We do see progress. Companies like Huawei, ZTE, and Haier are powerful innovators and brands; China's telecommunications industry is world class and it is changing the lives of all people, not just the rich," said Kuhn.
John Ross, a visiting professor at Antai College of Economics and Management, Shanghai Jiaotong University, pointed to the shrinking trade surplus and rising spending on Research & Development.
China's trade fell sharply from US$296 billion in 2008 to US$183 billion in 2010. A huge effort has gone into improving environmental conditions, including clearly placing protection of the environment above the most rapid growth in heavy industry and power supply, Ross said.
However, "there is still a long way to go before China's economy can grow in a balanced manner," said Wang Jun, a macro-economy researcher at the China Center for International Economic Exchanges (CCIEE), a think tank under the country's top economic planning body.
"Stating the theory and effecting the transformation are two different things," Kuhn said. "For example, creating products with higher value added, whether through innovation or branding, is a much more difficult matter than being the low-cost producer based on cheap labor."
Higher gross margins
"If China is to balance income, then workers need higher wages, but companies can only pay higher wages if their products have higher gross margins," said Kuhn, who also pointed to potential job losses as another major risk arising from the transformation.
"From a macro-economic perspective, transformation always means dislocations: many millions of workers will have to lose their jobs while newer jobs are being created," he said.
"What happens to the laid-off workers? How are they retrained and cared for? There could be trouble for social order. Hence, all consequences of economic transformation must be considered," said Kuhn.
The critical success factors in China effecting economic transformation are mechanisms to encourage the commercial success of innovation, such as better intellectual property rights laws and enforcement, Kuhn said.
Echoing Kuhn, Wang Jun of the CCIEE expected the key in transforming the economic development model to lie in a series of mechanism reforms.
"All mechanisms should be designed and adjusted to facilitate the transformation of economic development models, rather than just aiming to produce fast and large-size gross domestic product (GDP)," said Wang.
The reforms should take place in the finance and taxation system, the system for assessing the performance of local governments and officials, income distribution system, the pricing mechanism of natural resources and environmental protection mechanism, said Wang.
Kuhn also stressed the role of an improved social system under which consumers would have confidence in health care and retirement, which would enable them to spend more, thus driving the domestic economy.
It takes time to change all the current mechanisms that are results of long-term development, so transforming the economic development pattern is a long-term task, not only a goal for the next five years, but also for the next whole decade or even two," said Wang.
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