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APPROACHES OF CHINA’S ECONOMIC POLICY OF THE XXI CENTURY

 
25.05.2012 11:41
Автор: Mykhaylo Ornat, researcher at Department of International Finance, Ternopil National Economic University
[Секція 8. Світова економіка та міжнародні відносини;]
Chinese economic miracle can be considered as one of the most outstanding social transformations in human history, all this within a long period of stable and peaceful social environment, except for the demonstrations in June, 1989 in the Tinanmen Square. China differs from the US or Europe in having a sufficiently large state sector, and a nationalized core banking system, that it can directly set the economy's overall investment level – the state sector is too small in the US or Europe to achieve this. This combination of market system and state sector is what gives China its greater economic strength than the US or Europe [1].
China’s economic policy enshrines a commitment to transforming China’s development model. A top priority is commitment to moving from the current low-efficiency, high-growth model of development to a more balanced approach that addresses a wider range of concerns. The targets of the new model include economic growth, structural adjustment, social services development, carbon mitigation and environmental protection, and transparency and governance reforms.
Strong export oriented strategy of China has been showing its amazingly positive results. China exports were worth 149.9 Billion USD in January of 2012. Export growth has continued to be a major component supporting China's rapid economic growth. Exports of goods and services constitute 39.7% of its GDP. China major exports are: office machines & data processing equipment, telecommunications equipment, electrical machinery and apparel & clothing. China’s largest exports markets are European Union, United States, Hong Kong, Japan and South Korea [2].
The Chinese government faces numerous economic development challenges, including: sustaining adequate job growth for tens of millions of migrants and new entrants to the work force; declining its high domestic savings rate and correspondingly low domestic demand; fight against corruption and other economic crimes; containing environmental damage and social strife related to the economy's rapid transformation [1].
The Chinese government is seeking to add energy production capacity from sources other than coal and oil, focusing on nuclear and alternative energy development. The economy appears set to remain on a strong growth trajectory in 2012, lending credibility to the stimulus policies the regime rolled out during the global financial crisis. The government vows to continue reforming the economy and emphasizes the need to increase domestic consumption in order to make the economy less dependent on exports for GDP growth in the future [5].
Two economic problems China currently faces are local government debt, which swelled as a result of stimulus policies, and is largely off-the-books and potentially low-quality and inflation - which, late in 2011, surpassed the government's target of 3% [2].
Without transformations in governance, the shift to a new development model will be impossible. Horizontal reforms will have to clearly define the border between government and the market by limiting government power and improving the functioning of the market. Vertical reforms will have to establish a balanced relationship between different levels of government to prevent intergovernmental opportunism [3].
As long as state owned enterprises (SOEs) monopolise competition, it will be impossible to have fair markets in China. The fundamental reason why SOEs should be restructured is not, as many argue, their inefficiency, but the need to build fair, competitive markets. The American Chamber of Commerce recently stated, ‘The United States should focus less on China’s currency practices and more on the threat to US companies posed by Beijing’s support for state owned enterprises’. Chinese government needs to reform the distorted pricing systems for factors of production, and the tax, investment, and fiscal policy systems [3].
These new approaches to Chinese economic policy will not be easy to achieve while two main impediments persist. During early reforms, benefits were spread widely throughout the community. After decades of reforms, the ‘cake’ is much bigger, stakeholders have become diversified, and the privileges of vested interest groups have been largely institutionalized. Reforms that benefit the majority but not vested interest groups will be opposed. Secondly, easier low-level reforms have been mostly completed. [1].
New approaches of Chinese economic policy are aimed to overcome the following fundamental risks. The high-export, high-investment economy is unbalanced and unstable, and the accumulation of existing risks will become dangerous in time. Another risk is from the potential slow-down of growth. Although China is on its way to becoming the world’s economic powerhouse, this will not be enough to convince the world to embrace its success. Its values and institutions need to be acceptable to the rest of the world as well. Existing risks are masked by high growth. For instance, huge local government debt is underwritten by sale of government land, the high revenue of which is based on high growth.
Economic success will not be enough to guarantee the legitimacy of party rule. As we can see in China, the regions with more social conflicts are not the poor regions, but the regions with a relatively more advanced economy. Reforms directed to build-democratic processes and the rule of law are needed to deepen the legitimacy of the China’s Communist Party. Some analysts see competition among ambitious regional leaders in China as potentially providing a similar impetus for economic growth and institutional evolution [5].
Conclusions
Over the past two decades, China has achieved the fastest economic growth of any national economy. If that growth continues, China could become the world’s largest economy during the first half of the 21st century. The World Bank estimates that by 2020 China could be the world second largest exporter and importer and its consumers may have a purchasing power larger than all of Europe’s. China is becoming the biggest economy in the planet with a population whose main objective in life is to become prosperous. The fact is that China is changing so fast that is difficult to keep abreast of developments.
China's economic diplomacy will face growing challenges in the form of trade and exchange rate disputes, as well as the task of protecting overseas investment interests.

Bibliography:
1. Why is China growing so fast? -Zuliu Hu, Mohsin S. Khan. - International monetary Fund.
2. Yongsheng Zhang Governance of China and the momentum of reforms. September 7th, 2011, DRC, the most recent edition of the East Asia Forum Quarterly, ‘Governing China’.
3. http://www.theodora.com/wfbcurrent/china/china_economy.html
4. http://www.china.org.cn/china/index.htm
5. Juan Antonio Fernández .The Chinese Economic Reform.


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