Why China should slow down
Updated: 2011-07-08 16:09
(chinadaily.com.cn)
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Slower economic growth will provide rare opportunities for the Chinese government to tackle many of the structural and policy impediments to sustainable growth, said Pei Minxin, professor of government and an adjunct senior associate at the Carnegie Endowment for International Peace, in an op-ed piece on the website of Singapore's The Straits Times on July 7, 2011.
Based on World Bank estimates, economic growth will be 9.3 percent in 2011, a percentage point lower than last year's, and it will fall further in 2012, to 8.7 percent. The World Bank also projects an average annual potential growth rate of 8.4 percent between last year and 2015 and 7 percent between 2016 and 2020.
According to Pei, an aging demographic tops the list of factors that will dampen China's growth prospects. The second reason for a lower growth rate is the decline in total factor productivity growth, which has been quite high in the last three decades, he noted. And the last is China's investment-driven growth model that is simply not sustainable.
But this is not a doomsday scenario for China, Pei said. When growth slows, the Chinese government can channel more resources to "social services, particularly in education, health care and environmental protection," which will enable China to "achieve more balanced and higher-quality growth."
Also, tough times will force Chinese policymakers to wean inefficient state-owned enterprises off various forms of public support, such as cheap capital and monopoly protection, said Pei. "At the moment, these behemoths consume a disproportionate amount of capital, channeled through the state-owned banks, even though their contribution to the economy is below 40 percent. In a slow-growth environment, Beijing will not be able to waste precious resources on uncompetitive SOEs."
Finally, slower economic growth will compel Beijing to abandon the growth model that has delivered high rates but also incurred enormous waste and social costs, said Pei. As Chinese growth has been "resource-intensive and extremely detrimental to the environment," economic restructuring in an era of slow growth should allow Beijing to "re-orient its economy away from this self-destructive path."