Reasons to remain hopeful for 2012, despite concerns

PUBLISHED : Monday, 02 January, 2012, 12:00am
UPDATED : Monday, 02 January, 2012, 12:00am


Like the rest of the world, mainlanders happily rang out 2011, a year marked by natural disasters, man-made tragedies including the deadly Wenzhou train crash and accidents of overcrowded school buses, rising social discontent, and falling stock and property prices amid a slowing economy.

At first glance, however, the year ahead is shaping up to be even more unpredictable, despite the arrival of the auspicious lunar new year of the dragon later this month.

Politically, the mainland is bracing for a power transition later this year when the current leadership under President Hu Jintao and Premier Wen Jiabao makes way for a younger crop of leaders, which could limit the policy options of the outgoing leaders.

And, more importantly, on the economic front a slowing economy and falling property prices have raised serious concern at home and abroad over the possibility of the mainland economy heading for a hard landing. Such a scenario will have disastrous implications for the global economy, already weighed down by deepening economic gloom in Europe and the US.

However, there are also good reasons to remain hopeful. While concerns over the mainland's political and economic landscape are legitimate, fears of an economic hard landing or worse are overplayed.

After more than 30 years of double-digit growth, which propelled the mainland economy to be the second largest in the world, the mainland's is set to grow at between 8 and 9 per cent in coming years. Most economists expect the economy to grow at about 8 per cent this year, with many seeing such a deceleration as a cause of concern.

In fact, slower growth is good for China and the rest of the world because it places less pressure on the environment and energy. More importantly, it will present a good opportunity to rebalance the economy towards one that is more consumption-based, and away from its traditional engines of exports and government spending. That also partly explains why the government will continue to maintain tight controls over property prices.

According to some estimates, the mainland's consumer spending is a little more than one-third of its gross domestic product, about half the level in the United States, signalling a vast scope for expansion.

There has been a long-standing view that it would be difficult for the mainland to boost consumer spending as a main engine of growth, because its people are reluctant to spend, due to their deep concerns over an inadequate social security network and expensive education and medical care.

But that view is less convincing if one witnessed the shopping malls of Hong Kong or London during this holiday period. Mainlanders are seen crowding department store counters and queuing outside boutique stores, snatching up luxury goods, jewellery and cosmetics without batting an eyelid.

That is a powerful testament to mainlanders' spending power and should also serve as a timely reminder to leaders in Beijing to examine why their people are unwilling to spend at home.

Moreover, the central government can greatly boost consumption by further cutting personal income taxes for individuals and corporate and value-added taxes for businesses. It can certainly afford to, as it is expected to ring in record fiscal revenues of 10 trillion yuan (HK$12.17 trillion) in 2011.

Meanwhile there will be rising speculation over the mainland's leadership transition and if that will stall the policymaking process. The worry is unnecessary. The new crop of leaders including Vice-President Xi Jinping and Vice-Premier Li Keqiang are already key players in the government. Li, who is widely expected to replace Wen as premier, has recently repeatedly stressed the importance of encouraging domestic consumption as the new engine of growth.


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