China on the move, towards a dream
The debate is over. After six years of weighing the options, China is now firmly committed to implementing a new growth strategy. At least, that is the verdict I gleaned from the just-completed annual China Development Forum, China’s most important dialogue with the outside world.
There were no surprises in the basic thrust of the strategy — a structural shift in China’s investment- and export-led growth model towards a more balanced consumer-based and services-led economy. The transformation reflects both necessity and design.
It is necessary because persistently weak global growth is unlikely to provide the solid external demand for Chinese exports that it once did. But it is also essential, because China’s new leadership seems determined to come to grips with a vast array of internal imbalances that threaten the environment, promote destabilising income inequality and exacerbate regional disparities.
The strategic shift is also a deliberate effort by Chinese policymakers to avoid the dreaded “middle-income trap” — a mid-stage slowdown that has ensnared most emerging economies when per capita income nears the US$17,000 (S$21,000) threshold (in constant international prices). Developing economies that maintain their old growth models for too long fall into it, and China probably will hit the threshold in three to five years.
BUILDING BUYING POWER
Three insights from this year’s China Development Forum deepened my confidence that a major structural transformation is now at hand that will enable China to avoid the middle-income trap.
First, a well-articulated urbanisation strategy has emerged as a key pillar of consumer-led rebalancing. This was emphasised by China’s new senior leaders — Executive Vice-Premier Zhang Gaoli and Premier Li Keqiang — in the Forum’s opening and closing remarks, and considerable detail was provided in many of the working sessions.
Urbanisation is a building block for consumption, because it provides powerful leverage to Chinese households’ purchasing power. Urban workers’ per capita income is more than three times higher than that of their counterparts in the countryside.