• Thu
  • Dec 18, 2014
  • Updated: 1:25pm
PUBLISHED : Thursday, 18 July, 2013, 12:00am
UPDATED : Thursday, 18 July, 2013, 4:17am

What China can learn from the US economic recovery

Hu Shuli says just as post-crisis adjustments have paid off in the US, restructuring is the right remedy for a slowing Chinese economy


Hu Shuli is editor-in-chief of Caixin Media Company, editor-in-chief of the weekly magazine Century Weekly, executive editor-in-chief of the monthly journal China Reform and dean of the School of Communication and Design at Sun Yat-sen University. She founded CAIJING magazine, a business and finance review, in 1998.

The end of the Sino-US strategic and economic dialogue this year has left us with plenty to think about. The economic health of both countries, for one, is of great concern, and debate is fierce on where things stand and where they're headed.

China's economic data has cast a chill over the land of late, the summer heat notwithstanding. Both exports and imports unexpectedly declined in June, with import growth slowing considerably in the second quarter, according to the General Administration of Customs. Stripping out the cyclical Lunar New Year effect on such trade, the last time a double dip happened was in October 2009, when the global financial crisis was really biting.

The official purchasing managers' index also fell in June, to just a touch above the 50-point level that indicates growth, while HSBC's PSI survey fell to a nine-month low, underscoring the slowdown in manufacturing. Meanwhile, the producers' price index has been in decline for 16 straight months.

These numbers show that while China's overall economy remains stable, it is increasingly under pressure. In this context, Finance Minister Lou Jiwei's comment that China could endure a slowdown to 6.5 per cent growth was interesting.

This is not a time to lose our head or our confidence. China should be worried, but some straight thinking would show that hopes for a turnaround lie in structural reform.

The pain of reform is unavoidable; enduring it will test our leaders' resolve

America's experience proves this point. Just a few years ago, the US economy had seemed hopelessly depressed. After the body blow of a financial meltdown, the economic adjustments were many and painful. Yet, three years later, a recovery is clearly under way. Various economic indicators are picking up, with some even topping the pre-crisis figures.

The job numbers are particularly eye-catching: the economy added some 195,000 jobs in June, and this works out to an impressive average of nearly 200,000 new jobs every month for the past quarter. As a result, the unemployment rate is likely to fall below 7 per cent in a year, and the US Federal Reserve is waiting for the right moment to ease off its bond-buying stimulus.

Rising employment and a recovering housing market have once again made consumption an engine of growth in the US. And as financial uncertainties decreased, businesses have also become more willing to invest. In one forecast, the US economy is expected to grow by 2.5 per cent in the second half of the year, and by over 3 per cent next year.

The resurgence of the US economy offers China an opportunity - and a lesson. For many years, the US has been a driver of global growth. China - as a beneficiary of globalisation - would be wise to see the opportunities it now offers.

And what can China learn from the twists and turns of the US recovery? At the time the crisis hit, the government responded with monetary easing and fiscal measures in a bid to stabilise the financial system. As the downturn got worse, it turned to tax cuts and health care structure to stimulate demand. In the process, both the financial industry and real economy went through painful deleveraging. As one Fed official put it, after the financial shake-up and regulatory reform, the US financial system has never been healthier.

When the global storm hit, China was on the periphery, itself struggling with cyclical adjustments and the challenge of transforming its model of development. It rolled out a 4 trillion yuan (HK$5 trillion) stimulus package in response, which stabilised the economy but delayed the needed economic restructure. With the stimulus came an explosion of credit, and an accompanying surge in asset prices that were then beginning to taper off. No wonder the economy heated up.

Given their access to credit, state-owned enterprises took the opportunity to expand at the expense of the private sector, the growth driver of the real economy. Meanwhile, the government's invasive industrial planning and local governments' intervention combined to worsen the problem of excess capacity. These problems in the real economy are now showing up as financial risks.

Seen in this light, the problems now faced by the Chinese economy are part and parcel of the necessary pain of deleveraging. To solve them, China must not go back to the old model of investment-led growth.

China's new leadership understand this, thankfully, and have resisted reaching for a stimulus even as the growth rate slows. Premier Li Keqiang recently underlined the symbiotic relationship between growth and restructuring. Growth creates the conditions for restructuring, while restructuring in turn unleashes potential for economic growth, he said. We could not agree more.

The pain of reform is unavoidable; enduring it will test our leaders' resolve. It's also their duty, and the only way the full potential of China's economy can be realised.

This article is provided by Caixin Media, and the Chinese version of it was first published in Century Weekly magazine. www.caixin.com


For unlimited access to:

SCMP.com SCMP Tablet Edition SCMP Mobile Edition 10-year news archive



This article is now closed to comments

China has learned all too well from the US. They printed much more money than the US per its GDP - BAD
They both play with numbers, the jobless rate in US if including people who gave up looking for jobs will still be above 10%.
"US financial system has never been healthier." - at the expense of what? how about everyone, so the financial big cats can continue to gamble with other peoples money and get paid huge bonuses even when they **** up because the gov't will jump in with tax payers money to bail them out.
IF the message of this article is for China to reform than you could not have written it worse by using the US as an example, whose QE is still going on as we are speaking. Take that away the healthy financial system might just go bullocks again. The US financial system maybe in healthiest shape ever but its also corrupted as ever. Too big to fail banks are now ever bigger and so are their CEO's bonuses.
When US prints money, they say quantitative easing. When China prints money, they say the Chinese is printing money. We have learned. yes. And US is still printing money, do you all know that ? Bernanke talked about tapering, but really ? Did you know what he say about the interest rate recently ??
I can point my fingers on many more things.
We need an article of this sort : What US can learn from the China economic recovery
Voila !
You truly must be a fool. No wonder all gov't are printing money as fast as they could because the health of the economy truly depends on the how high the stockmarket can go when billions are being pump into the market literally interest free. Whats the difference between that and China pumping money to build useless expensive infracture? hey it bump up GDP numbers so it MUST be a recovery. You sir must be a parasite from the financial indsutry, whom gets the benefits at the expense of everyone & never have to be responsible for what you are doing. What a dream life.
BTW of course its harder to find a place to buy after they corrected by more than 50% in some cases even by 80%. If that happens to HK or China or anywhere else (which I hope will happen to HK soon) it will pretty hard to find a place to buy too, because now the average people can finally buy a home without getting into or excessive debt.
and thankyou for pointing out how our gov't is actually the biggest land lord and how their policy of high land policy is driving all other industries to death. (except tycoons of course)
You know you are a fool when you use the Stockmarket as a barometer of health of the economy. Seriousily for real?
Since you love efficiences so much, do tell why is the US healthcare system so inefficient? As a matter of fact its one of the most inefficient in the world. Compare to HK's its literally garbage. By pouring money in obamcare it only make it even more inefficient.
Printing money and lending at low interest rates while giving no interest on saving accounts without corresponding growth in production leads to inflation, which with easy credit has largely contributed to ridiculously high property prices in HK and silly increases all over the world in the last 20 years. Finally, the results will start to show and the 2008 financial crisis will occur again, except that this time, it won't be the banks who suffer from lack of liquidity (because our governments bail them out with OUR tax money). It will be the ordinary people who find that their modest increases in income cannot keep pace with higher residential, commercial and retail rents, higher mortgage rates and massively inflated property prices.
It would take vision and imagination by talented people to turn the HK Govt. away from its historical dependency on high property property values deliberately skewed by rotten policy decisions and build the economy on a sounder, more realistic and sustainable basis. The HK property tycoons have never had a tighter stranglehold over HK's people because our political system has been corrupted by them. They were always parasites and always will be.
there is an economic recovery in america?
tell the 20% unemployed about this (that 8% lie promulgated by government is a joke)
What will Hk unemployment be if our min wage is $78 HKD per hour? In US most city are paying that as min wage. Hk managed to have a low employment rate because we hire a bung of low pay skill workers such as guards and gas station attendants that many developed countries already replaced it by technology. Our building cost is Usd $500 per sq ft claimed by SHK, vs in USA many city housing cost including land is around Usd $100 to 120. But their min wages is around Hk$78. So guess who got ripped of? Who is inefficient?
Hey, in US many cities restaurants are busy than Hk Monday to Sunday, seriously. Finding a house to buy is getting more difficult. Dow n S&P is all time high, u don't call that recovery?


SCMP.com Account