It will be another golden decade if...

From Zhu Qiwen of the China Daily in the Business Section yesterday.
 
"Three decades of nearly double-digit growth have made China into a unique economic miracle. Will it be able to continue its long-term growth story into the new decade?  
 
The V-shaped rebound of the Chinese economy last year has seemingly convinced many observers to givetheir vote of confidence for the largest developing economy.
 
With its beginning as a poor developing country hampered by poverty and underdeveloped economies, China has ascended to the world's largest exporter and the third largest economy with a per capita GDP of about $3,500 by 2009.
 
There were plenty of bumps along the road. Yet, even the worst global recession in several decades did not stop the Chinese economy from expanding by 8.7 percent last year.
 
It is this resilience that has led people to believe that the country's catch-up story is far from over, though the size of its economy has already grown by so much.
 
Goldman Sachs economist Jim O'Neill forecasted last November that China will overtake the United States by 2027 - compared to a previous forecast of 2041 made in 2003.
 
Lu Feng, an economist of the China Center for Economic Research under Peking University came up with a bolder prediction. Based on the fact that the Chinese economy reached about $5 trillion by the end of 2009, accounting for 35.6 percent of the US economy, he reckoned that it is highly likely that the size of China's economy will exceed that of the United States before 2025.
 
China does seem to have a good chance of maintaining its rapid economic growth in the new decade.
 
First, fixed-asset investments will continue to serve as a powerful boost for economic growth as China presses ahead with urbanization and industrialization.
 
Thanks to the government's $586 billion stimulus package and unprecedented loans support, a 30-percent surge in investment over the previous year has contributed to more than 90 percent of China's 8.7-percent GDP growth last year.
 
The investment binge has given rise to domestic worries about overcapacity. Yet, since infrastructure construction such as high-speed railway and roads has taken a large part of the investments, economists argue that overcapacity will not become a serious problem anytime soon.
 
Some Chinese economists further point out that the last boom of infrastructure construction following the Asian financial crisis in the late 1990s had actually dismantled some supply-side bottlenecks. By doing so, it has enabled the Chinese economy to grow rapidly without triggering runaway inflation in the first decade of the 21st century.
 
As China's urbanization ratio remains below 50 percent and industrialization has yet to see its limits, growth of fixed-asset investments will more than likely remain healthy.
 
Second, China's export engine will keep humming as long as the global trade system is not completely undermined by protectionism.
 
Though rising protectionism in the West will clog up the wheel of China's export engine, Chinese economists believe that the huge gap of labor costs between China and developed economies as well as the rising productivity of Chinese exporters will help secure domestic companies' share in the international market.
 
Third, domestic consumption is rising steadily, much to the surprise of both Chinese companies and foreign producers.
 
Two numbers provide enough evidence: China's imports rocketed by a record 85.5 percent in January, while the Chinese bought 1.66 million cars, more than any month before.
 
One should certainly not read too much into these monthly figures. But they can help explain why auto sales jumped by over 40 percent to make China the world's largest auto market while refuting the false assumption that Chinese consumers have spent too little. As their incomes increase, consumers may have already grown into a critical source of economic growth more important than it has ever been acknowledged.
 
In theory, all the elements for another golden decade are thus ready for the Chinese economy.
 
Nevertheless, the magnitude of the challenges that China will face is not smaller than the opportunities it will enjoy in the new decade.
 
A metaphor to illustrate its rapid ascension to economic supremacy might be a high-speed train running at full steam rather than a bicycle that has to go fast to keep its balance.
 
On the one hand, it highlights the great impact that China's growing economic clout has brought about on the world, be it good or bad. And the challenge for China is whether it can properly adapt to the changing expectations placed upon it by other nations.
 
But more importantly, the metaphor sheds light on a key challenge China must face in the new decade.
 
For a high-speed train to travel safely and swiftly, all parts must move in accordance with the locomotive. However, a widening income gap between the rich and the poor as well as between rural and urban areas has emerged, undermining efforts to redesign the country's growth model to a more sustainable trend.
 
This is the root cause for China's unbalanced growth. How fast can China fix this will largely determine how far its economy can continue to advance in the new decade."
 
E-mail: zhuqiwen@chinadaily.com.cn