The ambitions are cutting excess industrial capacity, destocking property inventory, corporate deleveraging, lowering corporate costs and improving innovation capacities. But there are too few signs of decisive action in pursuit of these lofty ambitions. Today, the Chinese economy has reached a major turning point, as reflected in its current slowdown. And this growth is being heavily doped by government spending, rather than any inherent dynamism.
The only way that China can continue to climb the development ladder and global value chain GVC and become an advanced economy is by reigniting its productivity genie. With less and less workers, China must lift its productivity. To meet its productivity challenge, China must remove more of the shackles of central planning and communism, and become an open market economy, which it is not at all today. Local governments promote favored firms. SOEs have access to subsidized credit, energy and other inputs. They are often tasked with political objectives like maintaining employment.
Corporate bankruptcies are avoided by banks rolling over company loans and using local subsidies. It is not surprising that they have accumulated many nonperforming loans. Small and medium enterprises which could provide new dynamism to the economy struggle to obtain finance. Evolving from a manufacturing-based economy to an innovation powerhouse requires a holistic approach to the innovation ecosystem, including nurturing talent and technological readiness. It also requires an open society with freedom of speech and academic freedom, which is less and less the case in China today.
Little real reform has actually occurred, apart from stuttering reforms to financial markets. Clearly the government is concerned about social stability risks due to job losses that might result from reform in light of growing labor and other social unrest. It is also struggling with local government and SOE vested interests which might lose from reform. It also seems that the Chinese Communist Party is still in the midst of a power struggle on the reform agenda and other issues.
There is also a political agenda which is overriding economic imperatives. To preserve his political authority in the lead-up to the 19th National Congress of the Communist Party of China, held in the autumn of , President Xi could not risk an economic slowdown. All of this means that the Chinese government is chasing economic growth at all costs by employing monetary and fiscal stimulus, and adding further to debt, rather than implementing much needed structural reform. During the election campaign and before his inauguration, Donald Trump had much to say about China when it comes to trade, exchange rates, South China Sea, North Korea, climate change and so on.
But the Chinese know very well that American presidents say one thing during election campaigns and other things once they are in office. As we have argued earlier, China is able to exert its market, financial and military power in many ways. Apple has removed apps from its China store that helped Internet users evade censorship, and has agreed to open a data center in China which may give Beijing access to troves of personal and industry secrets. And now that China is the leading trading partner of most Asian countries, the Chinese government routinely employs trade sanctions to express its displeasure at the actions of other Asian governments, as countries like Japan, Korea and the Philippines have experienced.
China also froze political relations with Norway and blocked many business ties and joint research and academic relationships after the Nobel Peace Prize was awarded to Chinese dissident Liu Xiaobo in It took six years of quiet diplomacy in order to renormalize China—Norway ties. China regularly uses its enormous foreign exchange reserves to buy subservience from Southeast Asian countries concerning the South China Sea dispute.
Beijing is also openly buying political influence in countries like Australia and the US. It has also been using its growing military strength to intimidate its Southeast Asian neighbors and to threaten India.
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While it has been able to transform economic weight into economic, political and military power, China remains a fragile superpower which seems externally strong, but is internally weak. China is also very weak in terms of soft power. No country aspires to the Chinese economic or political model. And China has extremely few friends, in contrast to its emerging rival, India. India is indeed a country with a great deal of potential. Indian companies like Infosys, Mahindra, Mittal, Reliance and Tata succeed famously on world markets.
The Indian movie industry produces more films than any other country. And yet, the Indian economy was for many years a chronic underperformer. This was typical of many countries at the time, which sought to achieve economic independence through inward-looking policies, once they had achieved political independence. A financial crisis in the early s triggered a wave of economic liberalization and reform.
India suffers from hunger more than most every other Asian country, even North Korea and Bangladesh. And like most countries which aspire to great power status, India is spending heavily on its military and space program. India has suffered from rising inequality like most Asian countries. But it is also undeniable that India has made immense progress. What is more, the transition of power from one party to the other went very smoothly.
Indian governance may have its problems, notably widespread corruption, but its elections do work well. Prime Minister Narendra Modi has been now leading the country for over four years. He promises so much, based on his successful pro-business leadership as chief minister of Gujarat state for over a decade. By some estimates, half of the Indian population would be functionally illiterate. Even at the elite level, not one Indian university figures in the world top Improving human capital will be critical for taking advantage of the half a billion young Indians who will enter the labor force over the next decade.
Social discrimination is also rife in India, with a long list of victims like lower castes, religious minorities like Muslims and Christians, indigenous and tribal groups, and women. A major element that has been lacking in India compared with East Asia has been the development of a strong manufacturing sector. The services sector, especially business process outsourcing and tourism, has been a key driver of the economy. The East Asian model of urbanization and industrialization can be very effective for countries with large pools of lower-skilled labor.
The model involves a structural transformation of the economy as low-productivity rural labor moves to urban areas to work in export-oriented factories. Special economic zones and economic corridors are also being developed. The timing is right for India to become an industrial power, as China is now suffering from increasing wages, and investors like Japan are looking for new low-cost locations.
For example, the implementation of a national goods and services tax will help transform fragmented India into a common market. Korean companies in particular are very successful in India. In particular, Narendra Modi and his BJP party remain very popular and could stay in power for some time, which should enable India to make serious progress in its ambitious reform program. In short, India is a slow burner compared with China, but it is moving decisively ahead. But it is now a democracy, which has achieved a solid economic performance, and which rapidly implemented a bold decentralization of government.
It then hitched its wings to the — commodity price boom, driven by rapid growth in China and India. The Indonesian government squandered the sharp rise in public revenues during this boom period, with much of the windfall being consumed via fuel subsidies which benefited higher-income families disproportionately. Manufactured exports have slipped back in importance, and Indonesia has experienced deindustrialization.
Commodity-driven growth was also accompanied by further environmental degradation and rapid deforestation, along with illegal logging and fishing. The Indonesian economy now stands at a critical juncture, as commodity prices have fallen back again since , and its oil and gas production is in long-term structural decline. Like India, Indonesia is a difficult country in which to do business, being ranked only 91st out of countries surveyed by the World Bank, much worse than its neighbors Malaysia 23rd and Thailand 46th.
And also like India, Indonesia has a large youthful population entering the workforce over the coming years, who requires employment opportunities. His decision to abolish most fuel subsidies was courageous, even if it was facilitated by the sharp fall in world oil prices. He is pushing hard to improve infrastructure. And he has launched a multitude of reform programs, though implementation is lagging greatly. But Jokowi faces very difficult political opposition in the parliament to advance his reform agenda.
Indonesia has an immense policy agenda for it to continue a path of strong economic growth and poverty reduction, and to exploit the opportunities of the ASEAN Economic Community. Investments in infrastructure, education, health and social security all require public revenues for financing. But oligarchs and many others are reluctant to pay their taxes. But the results so far are a mere drop in the bucket of this massive problem. In a clear sign that religious pluralism and tolerance is now under threat in Indonesia, in May Ahok was sentenced to two years in prison for blasphemy.
His crime was to say that Muslim clerics had used a Koranic verse to mislead voters by telling them that Muslims were not allowed to vote for a Christian. This mood will likely spill over to national politics, as the Jakarta governor election traditionally sets the tone for the country. Indonesia has great potential to succeed in its development challenge.
But for a country burdened by an oligarchic democracy, and many other political and social hurdles, it will be very difficult to realize this potential. With famines ravaging the country, and the loss of Cold War support from the former USSR, the government had to do something to get the country moving.
A long series of policy changes have included opening the economy to international trade and investment, and allowing private property rights and private enterprise. Vietnam also has an education system that delivers impressive results. Vietnam has thus been able to attract large flows of FDI. Like all middle-income countries, Vietnam now faces the challenge of taking its economy to the next level. This will require deeper and more challenging policy reforms. Vietnam is still ranked below Indonesia, Malaysia, the Philippines and Thailand when it comes to competitiveness, 71 rule of law 72 and corruption.
Vietnam was to be perhaps the greatest beneficiary of the TPP. Currently, all unions must be affiliated with the government-connected trade union confederation. It can only be hoped that the efforts currently underway to save the TPP by remaining 11 signatories will achieve success. Corruption is reportedly rampant, starting at the top with the prime minister and his cronies, and is getting worse. One creative trick is buying jobs that provide opportunities for corruption.
More serious efforts are also required to reform the SOE sector. While their role has declined, they still account for one-third of GDP, half of exports and over a quarter of domestic government revenue. And as they benefit from access to cheap capital, close connections to government regulators and policymakers, weak corporate governance, and limited competition, they are much less efficient than the private sector. SOEs control key industries of the economy, including electricity, petroleum and gas, mining and quarrying, the water supply, and banking.
Reform has become urgent because a number of SOEs are showing signs of financial distress, while state-owned banks are accumulating significant amounts of nonperforming loans.
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And many SOE bosses like them in light of the opportunities for corruption. In short, Vietnam is still very much in transition from a centrally planned to a market-based economy. And a much greater sense of urgency and leadership will be necessary for Vietnam to continue its very rapid economic development.
The criminal justice system is controlled by the CPV. Freedom of expression, association and assembly are tightly controlled. Like most authoritarian regimes in Asia, the CPV faces increasing challenges to maintain its grip on power. With prosperity and education, there are growing calls for democracy and greater freedoms, and also protests against corruption, especially by the younger generation in this very young country. The Internet and various forms of social media provide an effective vehicle for expression and protest. This political system not only has great costs in terms of political and human freedoms.
Such restrictions on freedom also limit the capacity for innovation and productivity to become new drivers of economic growth, as do restrictions on academic freedom. Its people are well-educated, diligent and aspirational. But a new wave of high economic growth of Chinese proportions would require leadership like that of Deng Xiaoping to open up and reform the economy more seriously, and leadership like that of Xi Jinping to root out the systemic corruption that is dragging the country down.
Most regrettably, such leadership is not on the horizon. Yet no large Asian economy has caught up with world leaders like the US and Germany in terms of GDP per capita, and economic, business or technological sophistication. And there is no likelihood of that happening in the foreseeable future. Asia is suffering from stunted development. But while Asia has achieved a dramatic reduction in poverty, the region is a long way short from having a middle-class society, as we examine in the next chapter. CNBC Next largest retail market: Take a wild guess.
Nyshka Chandran, 13 February World Bank The East Asian Miracle: economic growth and public policy. Buchanan, Ian Is regional economic integration enough? Akamatsu K. A historical pattern of economic growth in developing countries. Journal of Developing Economies, 1 1 :3—25, March—August. Asian Development Bank March Acemoglu, Daron, and James A.
Robinson The Long View: how will the global economic order change by ? February Trends in World Military Expenditure, April The Chinese people have gained considerable achievements in the cause of national development while maintaining political and social stability over the past few years. The economic structure has been constantly improved with the strong development of emerging industries in addition to the massive construction of infrastructure, including high-speed rail, roads, bridges, seaports, airports, and others.
Regarding external relations, China attaches significant importance to developing relations with powerful and neighbouring countries, while playing the leading role in cooperative mechanisms established by China.
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The relationship between Vietnam and China continues to develop positively. The two countries regularly maintain high-level bilateral meetings and exchanges in order to enhance the political trust between the two sides. High-ranking leaders of the two countries have reached a common perception of continuing to promote the comprehensive strategic cooperative partnership between Vietnam and China in a sustainable and healthy manner. In August, nominal retail sales grew 7. Urban fixed asset investment expanded 5. The result reflected a stronger contraction in the primary sector and a slowdown in investment in the secondary sector.
Major Economies. South-Eastern Europe. Sub-Saharan Africa. Central America. Monetary and Financial Sector. Precious Metals. Region Reports. Country Reports.
Annual Subscriptions. Economic Forecasts from the World's Leading Economists. China Economic Outlook September 17, The economy continues to falter in the third quarter after GDP growth slowed to a near three-decade low in the second quarter. Available data for August reveals that the official manufacturing PMI remained in negative territory for the fourth consecutive month.
Lower output and overall new orders, especially from overseas, are reducing purchasing activity and capping job creation. Moreover, exports contracted again in August after rebounding in July, while imports continued to drop on low oil prices and subdued domestic demand. Meanwhile, trade disputes escalated again in late August following the U. Although China and the U. Although authorities are using monetary and fiscal tools to support overall growth, the stimulus is nowhere near the scale adopted in the wake of the global financial crisis.
FocusEconomics panelists see the economy growing 6. Sample Report 5 years of China economic forecasts for more than 30 economic indicators. China Economy Overview Economic Overview The Chinese economy experienced astonishing growth in the last few decades that catapulted the country to become the world's second largest economy.
China weathered the global economic crisis better than most other countries.
The massive stimulus program fueled economic growth mostly through massive investment projects, which triggered concerns that the country could have been building up asset bubbles, overinvestment and excess capacity in some industries. The global downturn and the subsequent slowdown in demand did, however, severely affect the external sector and the current account surplus has continuously diminished since the financial crisis. In order to tackle these imbalances, the new administration of President Xi Jinping and Premier Li Keqiang, beginning in , have unveiled economic measures aimed at promoting a more balanced economic model at the expense of the once-sacred rapid economic growth.
At the Third Plenum of the 11th Central Committee of the Communist Party of China, held in December , Deng announced the official launch of the Four Modernizations—agriculture, defense, industry and science and technology—which marked the beginning of the reform and opening-up policies. The measures included, among others, breaking down the collective farms, opening up China to foreign investment, encouraging business entrepreneurship, establishing Special Economic Zones and introducing market incentives in the state-owned companies.
In early s, Jiang Zemin—the third generation of Chinese leadership—became the new paramount leader of the country and his administration implemented substantial economic reforms. Under his mandate, most of the state-owned companies, except large monopolies, were privatized or liquidated, thus expanding the role of the private sector in the economy at the cost of leaving millions unemployed. During the same period, President Jiang and Premier Zhu Rongji reduced trade barriers; ended state planning; introduced competition, deregulation and new taxes; reformed and bailed out the banking system; and drove the military stratum out of the economy.
They increased subsidies, scrapped agricultural taxes, slowed privatization of state assets and promoted social welfare.