Business Times: Tue, Jul 10
[SINGAPORE] China will be able to avoid a hard landing despite the current steep slowdown in its economy, said Deputy Prime Minister Tharman Shanmugaratnam yesterday.
The world's second largest economy is expected to ease policy by just enough in a "calibrated package" to achieve a soft landing, but not so much as to create the source of imbalances seen in its 2008 and 2009 stimulus package.
"I believe China will be able to avoid a hard landing in its economy," said Mr Tharman, who is also Minister for Finance, at the opening session of the FutureChina Global Forum. "The size of the stimulus will from all indications be smaller at a few hundred billion yuan compared to the 4 trillion yuan (S$799 billion) in 2008-2009."
Mr Tharman said there was a more selective front-loading of investment projects this time around, and focused on the priorities set by the Beijing government in its 12th five-year plan, which include areas such as social housing, utilities and clean energy. At the same time, there are positive signs in China's economic fundamentals, with long-term demand seen returning to the housing market while the banks remain well-capitalised.
"We have entered the final phase of interest rate liberalisation in China which will effectively provide a fairer playing field for private enterprises especially," Mr Tharman said.
But one major challenge that is looming on the horizon is that posed by an ageing population.
"China will be the first country to grow old before becoming rich; and the first country to be a de-facto global power before becoming rich," Mr Tharman observed.
The "4:2:1" phenomenon in China - increasing numbers of couples responsible for the care of one child and four parents - could push China from saving surpluses to deficits as it invests in needed infrastructure and capabilities, he said.
Two other major trends facing China that Mr Tharman touched on were urbanisation and productivity convergence.
China's productivity is only 18 per cent of that of the United States, and one-quarter of that in Asian newly industrialised economies, he said, so there is tremendous room for catch up. "Urbanisation will however be the major driving force for overall productivity," Mr Tharman said.
As a ballpark estimate, about 50 per cent of the population are living in urban areas and this is expected to reach two-thirds by 2030, he added. This will also spur demand for everything to do with quality urban living, and hence reshape China's production structure itself. Other economies will plug themselves into the new supply chains that feed into these new areas of demand.
Another keynote speaker Wu Jianmin, executive vice-chairman of China Institute of Innovation and Development Strategy in China, stressed the peaceful development of China, which does not want follow the footsteps of the former colonial powers, the Soviet Union nor form alliances that could lead to a new cold war era.
But its peaceful development is not widely understood, according to Clyde Prestowitz, president of Economic Strategy Institute of the US, who noted that the defensive moves by the US on the military front may result in a self-fulfilling prophesy. He also expressed concern that China may over-invest.
China's economic restructuring is "inevitable and necessary" as export-driven industries are faced with waning orders, added China Merchant Bank president and CEO Ma Weihua. But this will pose new dilemmas to policymakers and challenges to the banking sector.
Banking experts and observers at panel discussions agreed that a banking crisis was not on the horizon.
Standard Chartered CEO and executive vice-chairman Lim Cheng Teck pointed out that the Beijing government has sufficient tools in its policy arsenal to mitigate vulnerabilities in the banking system - the key vulnerabilities being local government debts, real estate and small-and-medium enterprises. "These vulnerabilities are being recognised early and steps are being taken early to address these issues," Mr Lim said.
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