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China leap-frogged the US to become the world’s biggest trading nation last year as measured by the sum of exports and imports of goods, official figures from both countries showed in early February this year. Inevitably, the world now has high stakes in the future direction of China’s economy.
Over the last eleven years, China’s global ranking of trade in goods has risen from the 6th place to 2nd; its outward direct investment has been growing at an annual rate of over 40 per cent. In an average year China imports over $750 billion worth of goods, creating large number of jobs and investment opportunities for its trading partners. It’s not surprising; China is now contributing over 20 per cent of the world economic growth.
Denouncing the myth of the “Beijing-Consensus”
China has had frictions, and much publicised ones at that, with the global financial and trading architecture that the US helped create. However, few serious Chinese policy-makers and scholars are enamoured by the so-called China model or the Beijing Consensus (as it was dubbed by Joshua Cooper Ramo in 2004, an American consultant, a pun on the idea of a declining “Washington consensus”).
More importantly, the Chinese leadership has been even more cautious and pragmatic on this issue. They have rubbished ideas of China exporting a “China-model” as part of its foreign policy.
In March 2011, China’s Premier Wen Jiabao met with Chinese and foreign journalists and stressed that China is still jostling with economic reforms, and does not view its own development path as a pattern.
Indeed, China’s development strategy is a hybrid consisting of several interrelated intuitional arrangements. As Sebastian Heilmann argued, an “intriguing interplay between development planning and policy experimentation” contributed to China’s economic success. Perversely enough, such success of China’s development actually seems to be strengthening some reasonable elements of the “Washington Consensus”. The much acrid debate on the 30 years history of the “Washington consensus” through which the US provided loans to other nations conditional on privatisation, deregulation and other forms of structural adjustment, still has not died out.
In the curious juggling act, admittedly, the Chinese government has been consciously letting market forces play an essential role in resource allocation. At the same time, the importance of strengthening macroeconomic control by the state has also been emphasised. This is a classic safeguard from certain intrinsic deficiencies of the market mechanism.
Interestingly, the Chinese government is also promoting reforms in areas with monopoly, so as to lower the threshold for market access, reduce market barriers, and support and encourage the development of the private sector and foreign enterprises. China’s private enterprises topped 40.6 million around January end in 2013, according to the State Administration for Industry and Commerce (SAIC).
It has made consistent efforts to establish modern corporate institutions of Chinese SoEs and promote them to become qualified market players. After continuous price reform, the prices of 98 per cent of all products are now completely decided by market forces, with the exception of a few crucial items.
China more self-reflexive than ‘outsiders’ presume
In China, most high-level policy makers and the central intelligentsia share a deeper and more incisive understanding of the difficulties and challenges resultant from the stagnation of necessary reforms than the ‘baiting’ outsiders.
Despite the extraordinary achievements China has made, Chinese leaders are always keenly aware that China is still a developing country whose growth is like sailing upstream. It has no choice but to deepen economic reforms and continue to integrate itself into the global economic system.
There are binaries galore. China, in-spite of being the second largest economy in the world, its GDP per capita stands at only $5,432, ranking only around the 100th place in the world.
Uneven regional development and wide income disparity continue to haunt China. The coastal areas are developed, the cities are prosperous, but the west of China lags behind economically, and the urban/rural income ratio is as high as 3.23 to 1. For all its manufacturing strength, China is still at the lower end of the value chain. 90 per cent of China’s export commodities are OEM products. 20 per cent of the retail price of every cell phone and 30 per cent of that of every computer go to foreign patent owners. There is still a long way to go from “made in China” to “created in China.”
China is the world’s biggest energy consumer, has the world’s biggest new car market and the largest foreign currency reserves. But since the outbreak of the global financial crisis, China has become more aware of the drawbacks of completely free market economy. The country has strived to look for sustainable, equitable economic and social development in a highly globalised world. And, China is not alone in facing this challenge in the world, as most developing economies would vouch for.
20 years of socialist market economy
China is willing to choose and uphold a development path, but one that is well-suited to its national conditions, on the road towards market-oriented economic reforms.
China still has a long way to go to achieve full industrialisation. The urbanisation rate is now around 50 per cent, which indicates enormous potential. The socialist market economy has a history of 20 years now, and is set for more reform and improvement, as vowed by the new leadership of Xi Jinping. It has been more than a decade now since China’s accession to the WTO, and the gradually increasing level of internationalisation of China will make for stronger global competence.
For a relatively long period of time in the foreseeable future, industrialisation, urbanisation, marketisation and internationalisation are going to maintain sound macroeconomic fundamentals of China, and keep the Chinese economy buoyant.