Brighter days ahead for China's economy

The Chinese economy is in decline, the stock market remains in a downturn, the property market faces strict macro controls, and the purchasing managers' index for August has fallen to a new nine-month low, all of which is causing widespread concern. Many people at home and abroad have started to worry about China's economic prospects. For example, there is heated debate over whether China will suffer a "hard" or "soft" landing.

I would echo the comments of Stephen Roach, the former chairman of Morgan Stanley Asia, who wrote recently: "These worries are overblown. Yes, China's economy has slowed. But the slowdown has been contained, and will likely remain so for the foreseeable future."

I can't predict when the economy will rebound, but perhaps it is time for analysts to look at the longer term. Where will China stand in 20 years?

First, let's examine the prediction that its gross domestic product will become the largest in the world within a decade, and its economy will continue to improve over the next two decades. The Economist expects Chinese GDP to surpass America's by 2018, and even if China's growth rate were to drop to 5 per cent, this transition would only be delayed until 2021. Therefore, there is little need to worry about current GDP growth falling to 8 per cent. Other forecasts of when the transition will happen include 2016 (the International Monetary Fund) and 2020 (the Chinese Academy of Social Sciences). However, even if China's total economy exceeds that of the US, it will not mean China is stronger economically - it is harder to predict when China's comprehensive national strength will surpass that of the US.

Second, the renminbi is forecast to become freely convertible within 10 years and possibly will be competing with the US dollar in two decades. In recent discussions, it was thought this first step could be realised in five years. I believe it will probably happen by 2020, or when Chinese GDP becomes the largest in the world. The renminbi will surpass the euro and the yen to become the second-strongest global currency within three to five years after it becomes freely convertible. But there are too many uncertainties to predict whether it can challenge the dollar as the international reserve currency in the next two decades.

Third, it is said that Hong Kong is likely to exceed New York as a global financial centre within 20 years. As China's economy continues to grow and develop, the realisation of the first two predictions will provide a great boost for Hong Kong, and it is expected to gradually become the dominant global financial centre. To prepare for this, Hong Kong needs to deepen its co-operation with Guangdong, promoting Shenzhen as Hong Kong's "backyard", and, within five to 10 years, cancelling the restrictions on mainland residents who want to travel to Hong Kong, or, if necessary, retain only the work permit system.

It also needs to continuously enhance the level of financial co-operation with the mainland. For example, renminbi- denominated stocks need to be issued in Hong Kong as soon as possible.