You Nuo

Looking for post-crisissolutions

By You Nuo (China Daily)
Updated: 2009-12-01 08:12

The meeting of the Political Bureau of the Communist Party of China Central Committee on Friday seems to have laid down all the principles for the national economy for next year. There will be heavy limitations on what China can do to guide its economy away from the crisis to the uncharted waters of the post-crisis era (a phrase often being used by officials nowadays).

The focus areas are quite clear, namely government-led growth (a developing country like China needs to maintain a certain rate of GDP growth), government-engineered social security reforms, including increased welfare spending, and overall stability.

Speed, social security and stability will be the main subjects government economists will be talking about from now to March, when these principles are shaped into programs and sent to the legislature for approval.

The government announced a $586-billion stimulus package in November 2008 to mitigate the impact of the global financial crisis, maintain GDP growth and safeguard jobs. The stimulus has worked so far.

But what about next year? Despite seeing moderate growth in the past months, exporters still face lots of limitations. Unfortunately, it doesn't make sense to try to significantly raise exports in such a dangerous time.

So like this year, growth in 2010 will be mainly generated by the domestic economy, and again government investment programs will lead it. That means China is yet to find a way to overcome the limitations to consumer spending. Plus, consumption-driven growth is still a distant dream.

It is still difficult to say when consumer spending would replace government investments to become the primary driving force of the economy. Maybe, it will never be so as long as the government continues to take care of the all-round development programs. Low export growth and low domestic consumption have left little room for new economic policies and changes. This is something China has to break away from to ensure growth in the post-crisis era.

Admittedly, deep government involvement in the economy can be good for maintaining stability. But if an economy, of 1.3 billion people and the third largest in the world, still depends on the government in almost every major aspect, it would remain clumsy and at times could be crushed under the weight of an over-bloated bureaucracy. This is not a very good guarantee for sustainable development.

Economists in government think tanks have so far proposed that spending on subsidies and aid programs be increased because in a way they provide social security and maintain social stability. But they have not yet identified middle-class (and higher economic level) consumers' spending power as the leading factor that boosts the economy.

If feedback from society on the would-be new economic program is collected from now till March (which should be the case), people could come up with proposals that have better potential to tap the middle-class consumers.

There is a social cost, too. If young professionals and white-collar workers cannot expect to use their earnings to build a decent life - to at least own a house - they will not be willing to spend their money on other goods and services.

The fact is that no matter how much steel-and-concrete infrastructure Chinese cities have built, they have remained primarily hardware cities, or cities with a lot of new hardware but not much software, or services. Lots of things, from super malls to multi-level roads, have been built on government loans. But most of the flea markets, and streets and small alleys selling and offering traditional ware and services are either dying out or just about surviving.

Now that urban property, from Beijing and Shanghai to Chongqing and Nanjing, is rapidly becoming too expensive for the average wage earner, urban middle-class consumers will tighten their purse further, at least for the next few years. At this point, people still do not see any chance of consumption-driven growth on the horizon.

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(China Daily 12/01/2009 page9)