Important stuff. Taken from the OECD Observer.
The Secretary General of the OECD has recently put out a bullish statement about the future of the Chinese economy.
Economic forecasting is a delicate exercise, but having just arrived back from Beijing, I am satisfied that all our predictions about the might of China in the global economy will come to pass, perhaps even sooner than many believe.
Admittedly, I have seen but a small part of the energetic and emerging dragon during my regular visits, but our first Economic Survey of China, released in Beijing on 16 September, provides an upbeat yet realistic appraisal of the country’s progress towards a fully fledged market economy. Indeed, with the contribution of the private sector to GDP edging towards 60%, China’s market economy now resembles some of the mature OECD economies as they were just two decades ago.
Of course, walking or driving the streets of Beijing or Shanghai, one gets the impression of a hustling, bustling economy in full flight, as evidenced by construction and crowded streets and stores, combined with western-style traffic jams. Nevertheless, China is not without serious problems, which it must address if it is to sustain growth rates of 9% per year. The reality is that the country is advancing at different paces in different regions, and the wealth gaps are widening. Moreover, despite its 1.3 billion people, China (like so many OECD countries) faces future problems posed by an ageing population.
One senses that the Chinese are fully aware of the challenges they face, many of which are underlined in another recent OECD study, Governance in China. They are aware that redefining the role of the state, modernising public management, adjusting relations between levels of government and consolidating the institutional framework for markets are key if China is to continue forging ahead.
We are also about to embark on an environmental review of China. The Chinese recognise the challenges of making rapid economic expansion compatible with environmental protection. Our work over several years on decoupling should prove useful.
There is then a fuller analysis here:
The pace of economic change in China has been extremely rapid since the start of economic reforms just over 25 years ago. According to official statistics, economic growth has averaged 9.5% over the past two decades and seems likely to continue at that pace for some time. National income has been doubling every eight years. Such an increase in output represents one of the most sustained and rapid economic transformations seen in the world economy in the past 50 years.
The size of the economy, when adjusted for differences in purchasing power, is already larger than all but one or two OECD economies, depending on the purchasing power parity used for comparison. While average incomes are still below those in other middle income countries, there are large parts of the country that resemble developed East Asian countries just one generation ago and are proceeding along a similar rapid catch-up path. Many industries have become completely integrated into the world supply chain and, based on current trends, China could become the largest exporter in the world by the beginning of the next decade, with as much as 10% of global trade compared with 6% at present.
This extraordinary economic performance has been driven by changes in government economic policy that have progressively given greater rein to market forces. The transformation started in the agricultural sector more than two decades ago and was extended gradually to industry and large parts of the service sector, so that price regulation was essentially dismantled by 2000 outside the energy sector. During this period, the government introduced a pioneering company law that for the first time permitted private individuals to own limited liability corporations. The government also rigorously enforced a number of competition laws in order to unify the internal market, while sharpening the business environment by allowing foreign direct investment in the country, reducing tariffs, abolishing the state export trading monopoly and ending multiple exchange rates.
The momentum towards a freer economy has continued this decade with membership of the World Trade Organization leading to the reform of a large number of China’s laws and regulations and the prospect of further tariff reductions. In 2005, regulations that prevented privately-owned companies from entering a number of sectors of the economy, such as infrastructure, public utilities and financial services were abolished. Overall, these changes have permitted the emergence of a powerful private sector in the economy.
