Blog China reforms key to global growth
As it expands its links to the international investment community, China has undertaken a range of initiatives to strengthen its financial system, ensure more sustainable growth and shore up trade. The much-discussed “One Belt, One Road” (OBOR) is one such initiative, through which China is earmarking billions of dollars to boost infrastructure along trade routes that cover more than 60 countries.
“You have to pay special attention to [the progress of reforms] this year,” said Fan Jianping, a research fellow at the State Information Centre of China and a speaker at the 20th Credit Suisse Asian Investment Conference (AIC).
The success – or otherwise – of these economic and financial reforms in China will have significant impact on growth, trade and investment domestically and around the world. This is because the country is both a source and a destination of capital, as well as a key driver of change and financial innovation.
China’s stock markets are too large for investors to ignore, as is the country’s role in the global political economy. In the post-Trump, post-Brexit world, China has emerged as a champion of globalization and a source of growth.
In the global arena, China faces the challenge of negotiating a new status quo with the Trump administration. Common ground is needed as neither side will benefit from a trade war. The harsh rhetoric of President Donald Trump has not gone unnoticed. The “Twitter President”, according to Professor Jing Huang, Lee Foundation Professor on US-China Relations at the Lee Kuan Yew School of Public Policy, has sent mixed signals about the future of what may be the most important bilateral relationship in the world.
In the wake of the “Lianghui” or “Two Sessions” – the annual March gathering of the National People’s Congress and the Chinese People’s Political Consultative Conference – one key message from China’s leadership has been a desire to minimize volatility.
“If you read or listen to (Premier) Li Keqiang’s work report you can see that they are very confident about what they are doing,” Professor Huang said. The leadership “gave a very clear signal that in economic development down the road, stability trumps growth,” he further noted to Credit Suisse’s Head of China Macro Research, Vincent Chan.
The shift towards stability in China is happening after decades of growth that has seen the country emerge as the second largest economy in the world. It is not just sheer size that makes China too big to ignore. The country’s progress in financial reform and new technologies has also been impressive, said Charles Li, CEO of Hong Kong Exchanges and Clearing (HKEx). Li suggested that China’s technology-enabled infrastructure might play a key role in the future of international stock markets.
“In the future, the most important momentum is going to come from local governments and also the State owned enterprises,” said Xiao Geng, Professor of Practice in Finance and Public Policy at Hong Kong University.
Reforms are likely to address three key areas.
One is the need to achieve ongoing, sustainable growth, even if at a slower rate. Credit Suisse’s Vincent Chan expects the Chinese government to continue investing in infrastructure to maintain growth above 6.5% even as industrial investment stabilizes and exports rebound.
A second area is the move away from an over-reliance on real estate as a catalyst for growth, as cooling efforts are already underway.
A third area of focus for the government will be employment and the need to address the imbalances created by an aging workforce and a reversal in the flow of migrant labor out of the major urban centers.
“Looking ahead, we have to recognize that economic growth will be more prudent; it will not be by leaps and bounds,” said Fan. “From an economic point of view, investment will take the lead.”
Fan expects growth to continue as new sectors, such as services, replace old ones, such as manufacturing, and the dynamics between the urban and rural areas shift to facilitate sustainable growth.