China growth model shift serves world’s interests

17 january 2013

WASHINGTON — The gradual slowdown that China has experienced in recent months allows more leeway for its economic rebalancing which is also in the world’s interests, said an expert on China studies in Washington.

Slower growth would make it easier for China to carry out necessary adjustment of its growth model, one of the top priorities in its 12th Five-Year Plan, said Pieter P. Bottelier, a senior adjunct professor of China studies at the School of Advanced International Studies of the Johns Hopkins University, in a recent interview with Xinhua.

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Bottelier, who served as the chief of the World Bank’s resident mission in Beijing during the 1990s, predicted that by the end of this year, the economic situation in China would be better thanks to “a lot of positive things” that are under way.

China’s economic growth slowed to 7.6 percent in the second quarter, marking the slowest pace of growth in more than three years. The slowdown has raised concerns that the growth engine would stall and that the Chinese government would miss the 7.5 percent growth target this year.

“I am not pessimistic. I think it is good for China to grow at somewhat slower rate,” Bottelier said, arguing that more emphasis now should be placed on the economic adjustment rather than the headline growth rate.

He commended the top leaders in Beijing for their taking a longer term perspective on the economic rebalancing while being cautious on the stimulus plan.

Though there is fiscal room to prop up the economy, Chinese policy makers have pulled back on the stimulus as they seek to curb the property market bubble and inflation. And the effort, in Bottelier’s view, has made real progress.

In one of his research papers about China, Bottelier said the slowdown should in fact be welcomed because growth would likely be both robust and more sustainable through continuous adjusting efforts. The long-term trend for China’s economy is toward a “slower, though still impressive pace”.

Bottelier estimated that if current developments continue, China’s economy will eventually look more “normal” in its pattern of growth, and its economic growth rate may stabilize around 7 to 8 percent for the next few years.

“We have a difficult time right now, a lot of uncertainty, a lot of gloominess, particularly in the manufacturing sector. But the adjustment has to be done,” he stressed.

He said that facing the international headwinds, including the financial woes in the euro area and the anemic growth in the United States, if China wants to maintain good economic growth, it cannot depend too much on external demand, but more on internal consumption demand, which has to become a stronger driving force for the economy. “I believe it is happening,” he added.

He cited the financial reform programs in Wenzhou, as well as the Chinese central bank’s decision to widen the daily exchange rate trading band for the renminbi, as developments in the right direction.

“Now it is the time to push the financial sector reforms, which had been delayed for a long time,” Bottelier said, adding that raising interest rates would increase the income that people would have on deposits in banks, and bring a level playing field for the small and medium-sized enterprises.

In his view, environment protection is also one dimension of the notion of sustainability, which requires a lot of changes in thinking and effective enforcement of the environment protection laws by governments of all levels in China.

In addition, strengthening the social security system as much as possible would also do much good to unleash the domestic demand and give people more sense of security.

A lot of new initiatives showed that the Chinese government is moving in the right direction, he said, “but I would like to see it going a little faster.”

The professor said he still went to China from time to time even after he finished his job in Beijing, and was fascinated by the great changes that took place in China.

The world has benefited much from China’s growth, he said, adding that China’s pursuit of the right economic objectives is not only important for China but for the whole world.

Bottelier said China has made “enormous contributions” in pulling the world out of the 2008 financial crisis, because of China’s big economic scale and the capability to resume robust growth. “Without China, the world could not have recovered so quickly,” he said.

Looking into the future, Bottelier said more balanced trade situation and bigger role of domestic consumption in economic growth would be good for China as well as the whole world.