I spent a week in Beijing, where I talked with Chinese officials and attended the China Development Forum, the major annual gathering of Chinese and senior foreign officials and top business executives. The Chinese government had just released its 13th five-year plan and officials were eager to explain what it means for China’s future.
Although the latest plan contains a seemingly endless list of specific projects and goals, the major new theme this year is “supply-side restructuring,” a term that includes a wide range of policies aimed at boosting economic growth and living standards. The term “supply side” is intended to distinguish the new policies from the traditional demand-side measures of easy money and a slightly larger fiscal deficit that are already aimed at strengthening economic activity.
High on the list of supply-side policies is eliminating some of the excess capacity of state-owned firms in the steel and coal industries. This means shedding about 4 million workers, a number equal to about 0.5 percent of China’s workforce.
The plan authorizes a special fund to provide assistance to those who are unemployed. Experts believe that much more downsizing is needed, but the authorities are starting small to see how it works and to monitor the public’s response.
China also plans to shift millions of people from low-productivity agricultural areas to dozens of new cities, accompanied by ambitious plans to build 50 new airports and thousands of kilometers of new roads and railroads. The authorities also tout the “One Belt, One Road” initiative, which is to use Chinese financial assistance and resources to develop ports, railroads and highways linking China with other parts of Asia, central Asia and potentially even Europe.
The foreign-policy goal is to expand Chinese influence in the region and beyond. It would also provide an opportunity to export some of China’s excess industrial capacity.
In addition, officials intend to stimulate innovation through research and development, including by lowering tax rates for high-tech firms. Tax reform would also extend China’s value-added tax to the service sector and financial reforms would eliminate the limits on interest rates that banks can pay on deposits and charge on loans.
At the same time, there is substantial confusion about China’s new foreign-exchange regime. In recent years, the yuan’s decline relative to the US dollar has prompted complaints from US firms that compete with Chinese products. However, the yuan has also strengthened by 25 percent relative to other advanced-country currencies since 2010. The authorities promise to allow the market to determine the exchange rate and that there is no reason for a sustained decline. However, officials continue to report the yuan’s movements relative to the US dollar, because they fear that emphasizing exchange-rate management relative to a currency basket would suggest further declines relative to the US dollar, an expectation that would increase capital outflows.
Policies to improve the environment are also high on the government’s agenda for the next five years. The public is eager for cleaner air, rivers and land. To achieve this, the government is to adopt new regulations and create “green bonds” to finance remediation and low-carbon energy sources. Chinese automakers are being encouraged to produce hybrid cars and the government is warning foreign auto companies that it plans to take steps to reduce their market share if they do not conform.
China is still a low-income country, with per capita GDP of US$14,000, about one-fourth of that in the US. Although Beijing and Shanghai are relatively prosperous, there is still much poverty. It is revealing that to achieve the five-year plan’s goal of eliminating poverty by 2020, which requires reducing the number of poor people by 55 million, the poverty line is defined as just US$354 a year, or less than US$1 per day.
Chinese corporations’ high level of debt could be a source of financial instability, although several officials said that they were not worried. Government data show that the ratio of bank loans to GDP is about twice that of the US. More worrying, the share of nonperforming loans might be dangerously high.
However, even if that share is higher than official statistics indicate, China’s bad-debt problem is very different from that of the West. China’s largest corporate debtors are state-owned firms and their creditors are state-owned banks. So resolving the bad debts would involve transferring the losses from the state-owned banks to the government. Because government debt is relatively low — about 17 percent of GDP — it would not be difficult for the government to absorb the losses. If necessary, it could also deal with the excess debts that local governments, encouraged by the central authorities, incurred in 2008 and 2009.
While China remains a complicated puzzle, the authorities are clearly pursuing pro-market reforms designed to produce real annual growth of 6.5 percent or more during the next five years, leading to the doubling of real per capita income by 2020 that the Chinese Communist Party called for in 2010. If that target is missed, it would not be for a lack of effort on the part of the Chinese government.
Martin Feldstein, a professor of economics at Harvard University and president emeritus of the National Bureau of Economic Research, chaired former US president Ronald Reagan’s Council of Economic Advisers.
Copyright: Project Syndicate
There is a modern roadway stretching from central Hargeisa, the capital of Somaliland in the Horn of Africa, to the partially recognized state’s Egal International Airport. Emblazoned on a gold plaque marking the road’s inauguration in July last year, just below the flags of Somaliland and the Republic of China (ROC), is the road’s official name: “Taiwan Avenue.” The first phase of construction of the upgraded road, with new sidewalks and a modern drainage system to reduce flooding, was 70 percent funded by Taipei, which contributed US$1.85 million. That is a relatively modest sum for the effect on international perception, and
At the end of last year, a diplomatic development with consequences reaching well beyond the regional level emerged. Israeli Prime Minister Benjamin Netanyahu declared Israel’s recognition of Somaliland as a sovereign state, paving the way for political, economic and strategic cooperation with the African nation. The diplomatic breakthrough yields, above all, substantial and tangible benefits for the two countries, enhancing Somaliland’s international posture, with a state prepared to champion its bid for broader legitimacy. With Israel’s support, Somaliland might also benefit from the expertise of Israeli companies in fields such as mineral exploration and water management, as underscored by Israeli Minister of
Chile has elected a new government that has the opportunity to take a fresh look at some key aspects of foreign economic policy, mainly a greater focus on Asia, including Taiwan. Still, in the great scheme of things, Chile is a small nation in Latin America, compared with giants such as Brazil and Mexico, or other major markets such as Colombia and Argentina. So why should Taiwan pay much attention to the new administration? Because the victory of Chilean president-elect Jose Antonio Kast, a right-of-center politician, can be seen as confirming that the continent is undergoing one of its periodic political shifts,
On Sunday, elite free solo climber Alex Honnold — famous worldwide for scaling sheer rock faces without ropes — climbed Taipei 101, once the world’s tallest building and still the most recognizable symbol of Taiwan’s modern identity. Widespread media coverage not only promoted Taiwan, but also saw the Republic of China (ROC) flag fluttering beside the building, breaking through China’s political constraints on Taiwan. That visual impact did not happen by accident. Credit belongs to Taipei 101 chairwoman Janet Chia (賈永婕), who reportedly took the extra step of replacing surrounding flags with the ROC flag ahead of the climb. Just
RSS