Reform, not growth, is key to China's future, says Nobel laureate Michael Spence
Nobel laureate says revamping the mainland's state-owned enterprises is more important to development than meeting monthly data figures
Reform of China's state-owned enterprises sector is more important to economic development than maintaining a target level of GDP growth or the risk of an investment bubble forming, Nobel laureate Michael Spence told the South China Morning Post.
Without reform China cannot raise returns on capital, enhance industrial efficiency or unlock the sustainable, consumer-driven growth that Beijing says is needed to replace an investment-driven, export-oriented model of the past three decades that is running out of steam.
If nothing has happened in five years, then they are stalling for a reason
"When I look at China, to the extent that the data permits it, I look at the shifting structure of the economy and to the extent that one can do this from a distance sometimes, to look at the reforms that seem to me to be the critical underpinnings to support the structural transformation. At least on a short-term horizon, that is more important than the growth," Spence said.
Investors have become increasingly obsessed with trying to pinpoint China's bottom line for economic growth in order to gauge whether a wave of stimulus might be unleashed to maintain a level of job creation that analysts broadly believe underpins the official growth target.
China reported last month that gross domestic product growth slowed to an 18-month low of 7.4 per cent year on year in the first quarter, just missing the government target of 7.5 per cent.
The State Council had announced a clutch of tax breaks and infrastructure spending two weeks before the release of the data, leading markets to declare it a "mini-stimulus" and intensifying speculation about a fresh round of investment spending.
Large-scale spending would clearly prop up growth in the near term, but it would also add to what the International Monetary Fund and others already believe is a dangerous imbalance towards investment in the Chinese economy.