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China Economy

China seeks Western take on its policies as it invites scholars to point out problems hindering country’s progress

External advisers set to assess country’s latest five-year plan at government forum on Saturday

PUBLISHED : Friday, 18 March, 2016, 11:56pm
UPDATED : Saturday, 19 March, 2016, 1:32am

As the storm surrounding China’s economic prospects ebbs, Beijing is inviting selected Western scholars to give their views on the latest five-year plan and ways to avoid the middle-income trap.

After almost four decades of uninterrupted growth, the Chinese economy’s ultimate fate remains a matter of debate – just as many experts forecast a rich, powerful China as those who see the communist state crumbling.

Key takeaways from China’s 13th five-year plan and annual reports

As China’s growth slows amid excess capacity, labour tensions and heavy pollution, its government is rolling out a slew of measures, including industrial restructuring and technological innovation, to set the country’s growth on track.

Invited external advisers see immediate issues to be tackled, like state ownership and weak demand. They also point out that long-term changes are needed.

Joseph Stiglitz, a Nobel Prize-winning economist, told the South China Morning Post on the sidelines of an academic symposium at Tsinghua University on Friday that he would advise the government to do more to boost aggregate demand.

“Unless there is adequate demand, if you move people from low productivity to unemployment, it doesn’t increase growth,” the Columbia University professor said before his expected attendance at a high-level government forum in Beijing on Saturday.

China’s key issue right now was demand, and supply-side measures such as cutting corporate income tax might fail to spur investment, he said.

Better, faster, stronger: China's new ambitious five-year plan aims to make the nation more efficient

In the long run, Stiglitz said, the political system should “co-evolve” with its economic system to ease social tensions.

“It would be difficult to run a modern economy if you try to control every aspect of the internet,” he said.

Jan Svejnar, a former economic adviser to late Czech president Vaclav Havel, said China’s gradualist approach in transforming its planned economy to a market-based one had “turned out better”, compared with the big-bang privatisation programmes in the former Soviet bloc.

Svejnar, director of Columbia University’s Centre on Global Economic Governance, said China was moving towards government decentralisation. “China is definitely in that direction.”

Michael Spence, another Nobel laureate, said China was “well on the way” to shifting to the growth pattern that would underpin its ­future prosperity.

The “unsettled” issue in policymaking was about state-owned enterprises, including state firms in the financial sector, he said.

“One thing China has been very good at is managing the process – making steady progress and not trying to do everything at once,” Spence said.

There was also a “learning curve” for China to interact with the rest of the world, as evidenced by Beijing’s improved communication on its economic policies, he said.

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The European Union Chamber of Commerce in China urged the government to continue its reforms and market opening to ensure the five-year plan’s success.

“It would be detrimental to China if the ambitious growth targets that have been set by the National People’s Congress were achieved at the expense of its reform agenda,” the chamber said.

China has long pledged to deleverage, reduce its high stock of unsold housing and retire idle, obsolete manufacturing capacity as part of key tasks in its so-called structural reforms. But there are concerns some of its pledges will remain unfulfilled.

Zhu Haibin, chief China economist with JP Morgan, expected little progress in deleveraging in the absence of a solid plan.

“We hope the government will set up a mechanism on bankruptcy and liquidation of zombie firms,” Zhu said. “But in reality, the government favours restructuring and consolidation, which may add to risks in zombie companies, and that’s what we’re worried about.”