China economy

An overly rosy glow?

Not even China's officials are as optimistic about the future of their economy as the OECD in its latest report

PUBLISHED : Wednesday, 27 March, 2013, 12:00am
UPDATED : Wednesday, 27 March, 2013, 5:45am

When the Organisation for Economic Co-operation and Development (OECD, the club of rich economic nations) produces a major economic report, the rest of the world usually listens with great respect.

But in its report on China released last week, the Paris-based OECD is far more bullish than any China bulls, so that you have to wonder whether someone slipped something into the morning congee or the late night mao-tai that the visiting officials must have enjoyed to help them see their China experience more positively.

As this newspaper reported on Saturday, the OECD predicts that China's growth will be 8.5 per cent this year, rising to 8.9 per cent next year, and China will become the world's biggest economy in 2016.

The OECD had a useful chart putting China's 30-year growth into international perspective, and showing that it was the fastest the world has ever seen, even in per capita terms.

In the 1982-2011 period China grew by more than 9 per cent a year, more than a full percentage point superior to the closest rival, South Korea in 1966-95 and far ahead of Japan's 6.3 per cent between 1951 and 1980 or Hong Kong's 6.1 per cent between 1962 and 1991.

So much for history and a story of undoubted success. The OECD is more bullish over China's future than the country's own official targets, which aim for 7.5 per cent growth this year and 7 per cent growth in the five years to 2015.

Angel Gurria, the former Mexican minister who is head of the OECD, commented that China "is the one country that always lowballs their growth [targets]. At the OECD we always say we're going to grow half a per cent more, one per cent more than we actually do." Surely, that's far too flippant a remark for a serious comment on a serious subject by a serious organisation.

But, surprisingly, the OECD shows the same optimistic mood in predicting continuing economic success for China and in so doing brushing over the obstacles that are worrying China's own economic leaders. Over the current decade, the OECD predicts 8 per cent annual growth for China.

Richard Herd, the head of the OEDC China desk, was not concerned about the high levels and high dependence on investment, which worries Zhu Min, the deputy managing director of the International Monetary Fund and former deputy governor of the People's Bank of China.

"The level of investment in the private sector is well founded by the rates of return, and in infrastructure, we still think there are tremendous needs," Herd said in Beijing. "We're positive on investment in the sense that we see rates of return remaining quite high."

Similarly, the OECD report plays down concerns of other commentators about heavily indebted local governments and the rise of a dark shadow banking system.

It points out that the Chinese government has big cash reserves as well as fiscal flexibility, which allow it to deal with potential trouble and prevent a crisis.

The report did suggest that China needs a series of economic, financial and regulatory reforms, but also noted that many of these had already been set in motion.

OECD optimism is in stark contrast to the message given over the weekend by vice-premier Zhang Gaoli, who is also a member of the Politburo standing committee, who warned that failure to make sweeping reforms, including a reduction in state control, would consign the economy to years of low growth.