Can China's economic planners rise to the challenge?
G. Bin Zhao surveys the obstacles to growth ahead of key Beijing meeting
G. Bin Zhao
Five of the Communist Party Central Committee's past seven third plenums have discussed macroeconomic policies relating to reform and opening up, and economic development.
Thus, it can be expected that Xi Jinping and Li Keqiang will continue along the same path. This time, the main theme will probably be the "adjustment and regulation" of policies. To predict the areas of focus, we need to look at the major obstacles to growth over the next five to 10 years.
First, the current economic system has seriously hampered sustainable development. Even after 35 years of refinement and improvement, the pace of change is still not well co-ordinated; in particular, a system that favours public ownership over private enterprise is totally inconsistent with the trend towards a market economy.
In addition, numerous complex and inefficient regulations interfere with the basic laws of the market. For example, the slow development of China's stock market has made it impossible for a large number of companies to list. Data released last month shows 754 companies were awaiting approval for an IPO; that could mean some 7.5 trillion yuan (HK$9.5 trillion) of capital requirements are not being met.
Restricting companies' financing activities will retard growth. Improper supervision is the main problem; too much government power and too many regulations only create the conditions for corruption.
Second, there is an urgent need to tackle the high levels of pollution; industrial and economic development based on high energy consumption and a deteriorating environment is unsustainable.
According to official statistics, since the beginning of the year, pollution has affected one quarter of China's total land area and about 600 million people. Air quality is now a serious threat to the health of millions of people and so the need to address environmental pollution is now actually greater than the need for more economic development.
Third, the income divide is growing, leading to increasingly acute social conflicts. Asset and resource allocation remains opaque, irregular and uneven; at the same time, there is a huge amount of hidden income which affects real income distribution.
Through their access to power, the privileged minority gains enormous wealth while the middle class and low-income people continue to suffer from the high costs of housing, health, education, pensions, and so on.
Fourth, the overall economic structure is irrational. Some core areas are inefficient, which impedes industrial upgrading and restructuring. As a result of monopolies and policy interventions, some key industries have excessive control over production materials and large amounts of capital, thereby limiting the ability of competing industries to develop.
Other obstacles, such as the ageing population, also restrict development. The demographic dividend that has been helping to drive economic development will gradually disappear; in fact, future labour shortages will become a bottleneck for growth.
Then there is China's overdependence on exports, the lack of domestic demand, regional development imbalances, and the central and local government fiscal and taxation disparities, to name but a few more hurdles.
Clearly, the only way to tackle these issues, and ensure China's sustainable development, is to deepen reforms.
G. Bin Zhao is executive editor at China's Economy & Policy, and co-founder of Gateway International Group, a global China consulting firm. David Hale, the chairman of David Hale Global Economics, also contributed to this article