Zhang Peng/Getty Images

Beyond Structural Reform in China

There is reason to believe that China’s supply-side rebalancing is moving in the right direction. But unless China’s leaders also tackle the challenges posed by market and bureaucratic inefficiencies, the objective of strong and sustainable growth will remain out of reach.

HONG KONG – Global markets have breathed a sigh of relief. Following the shock of the United Kingdom’s vote to exit the European Union, GDP data indicate that China’s economy seems to have escaped a slump, with annual growth averaging 6.7% in the first half of 2016. But that does not mean that China is in the clear. On the contrary, the success of the structural rebalancing that China needs to ensure sustainable long-term growth is far from certain.

To be sure, President Xi Jinping’s government is committed to structural reform. China’s leaders know that they can no longer rely on stimulating short-term demand. Already this year, annual growth in fixed-capital investment has fallen by 2.4 percentage points, to 9%, with the private-sector investment up by just 2.8%.

The plan now is to implement supply-side structural reforms aimed at boosting productivity and improving the functioning of both the market and the state. But, given China’s size and diversity, not to mention its deep integration into the global economy, communicating and implementing new policies across regions, sectors, and social groups will be very difficult. If China is to succeed, its leaders will need to think beyond their traditional top-down approach.

To continue reading, please log in or enter your email address.

Registration is quick and easy and requires only your email address. If you already have an account with us, please log in. Or subscribe now for unlimited access.

required

Log in

http://prosyn.org/yaElgtZ;
  1. An employee works at a chemical fiber weaving company VCG/Getty Images

    China in the Lead?

    For four decades, China has achieved unprecedented economic growth under a centralized, authoritarian political system, far outpacing growth in the Western liberal democracies. So, is Chinese President Xi Jinping right to double down on authoritarianism, and is the “China model” truly a viable rival to Western-style democratic capitalism?

  2. The assembly line at Ford Bill Pugliano/Getty Images

    Whither the Multilateral Trading System?

    The global economy today is dominated by three major players – China, the EU, and the US – with roughly equal trading volumes and limited incentive to fight for the rules-based global trading system. With cooperation unlikely, the world should prepare itself for the erosion of the World Trade Organization.

  3. Donald Trump Saul Loeb/Getty Images

    The Globalization of Our Discontent

    Globalization, which was supposed to benefit developed and developing countries alike, is now reviled almost everywhere, as the political backlash in Europe and the US has shown. The challenge is to minimize the risk that the backlash will intensify, and that starts by understanding – and avoiding – past mistakes.

  4. A general view of the Corn Market in the City of Manchester Christopher Furlong/Getty Images

    A Better British Story

    Despite all of the doom and gloom over the United Kingdom's impending withdrawal from the European Union, key manufacturing indicators are at their highest levels in four years, and the mood for investment may be improving. While parts of the UK are certainly weakening economically, others may finally be overcoming longstanding challenges.

  5. UK supermarket Waring Abbott/Getty Images

    The UK’s Multilateral Trade Future

    With Brexit looming, the UK has no choice but to redesign its future trading relationships. As a major producer of sophisticated components, its long-term trade strategy should focus on gaining deep and unfettered access to integrated cross-border supply chains – and that means adopting a multilateral approach.

  6. The Year Ahead 2018

    The world’s leading thinkers and policymakers examine what’s come apart in the past year, and anticipate what will define the year ahead.

    Order now