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China's economic development traces the journey of a young man as he grows to maturity. |
In his first steps he worked hard and made many sacrifices to be useful to the world. The growth model was export to earn savings for capital investment to build capacity. During that period, savings per GDP rose sharply whilst relative consumption dropped and exports plus fixed investment shot up.
The first test of life came during the last global downturn in 2008-9. External demand slid but the government quickly put in restorative measures to fill the vacuum by stimulating domestic demand so much so the current account surplus per GDP which had risen 10 percent in ten years from 1998 to 2007 had dropped to 2.8 percent in four years from 2007 to 2011, all the more amazing without any hard landing that the western naysayers had been braying about (praying for, some may say).
Those restorative measures were a cocktail of monetary, fiscal and credit stimuli. But because of the emerging nature of her economy which had delimited disposable incomes at each level, the net effect of the efforts to shift the savings to investment imbalance was more an accumulation of capital investments than a comparative increase in private consumption. In fact, the share of consumption in GDP had fallen from 50 percent to 34 percent in the last two decades while the investment rate had increased from 30 percent to 50 percent in the same period.
The reforms that are now being executed will lubricate the next stage of the young man's journey. They are necessary because he is maturing faster than any other nation on this planet. Just as the young man will by destiny become a strong adult in order to contribute more to global society and economy, China will by destiny reclaim her past as the world's economic and geopolitical superpower. The only detail to address is whether that will be achieved in the next ten years or twenty.
But she has to be nimble in the next few months. In shifting focus towards her own internal economy, her pugilistic agility has created a challenge - how to optimize the usage of her capital stock which has been piling up from years of reinvestment by surplus capital.
That usage will in turn depend on her ability to trigger and spark more domestic demand and consumption. Which will depend on the reforms that the CPC has arrayed. Thus the CPC must be fully and strongly supported in all its efforts. It has never wavered from the great and timeless vision for this nation with one fifth of the human race.
There are essentially four reform areas - market barriers and monopolies, resources pricing, fiscal policy and financial deregulation. Basically to increase the efficiency of market distribution of enablers. Plans have been detailed, targets identified, and measures started. Findings of the pilot tests on market relaxation will be rolled out scientifically and consonant with macro targets to sustain GDP growth no lower than 7.5 percent and to cap CPI no higher than 4 percent this year.
These calibrations also mean that the young man now to be a major adult must strap down to avoid the past roly-poly days of chasing hot money; he must put what he has earned to more productive use to expand business and create more employment which will spark consumption and demand. Use Chinese ingenuity to surmount transient problems. Galvanize local effort to support national objectives. Return the greatness of China's nationalism. Remove those layers of lard, flex the shaolin muscles again, exercise personal integrity, honesty and hard but smart work.
Today the whole world depends on China to show the way. The summit is within reach. Banish the dividers. Stay focused, work together, move forward as One.