China's economy may be booming, but experts warn the ghosts of the traditional economic structure are threatening the country with under-employment and a decreasing growth rate.
In its drive to maintain sustained economic progress, China could learn a lesson or two from the United States, said Zhou Qiren, a research fellow with the Peking University's Chinese Economy Research Center, in an article in the People's Daily.
Three major factors, namely, large investment in information technology, dynamic restructuring of economic entities and persistent reform in market management, are what have contributed to the development of a new economy in the United States.
The United States is the world's leader in the field information technology (IT), which draws a large amount of investment. Statistics show that 30 percent of the non-government investment in the United States has flown to the IT industry throughout the 1990s.
In recent years, enterprising people have realized that information is a sort of product which can be shared, and sold.
However, the spread of information is not a cheap endeavor. Sorting, storing and delivery of information all require large amounts of money, as does education of the general public on the methods of information transfer.
On the other hand, the United States has come to realize that investing in IT can ultimately reduce the cost of utilizing information, since IT makes information transfer so much easier and more efficient. This ultimate reduction in cost, combined with increased efficiency, has allowed the United States to make better general use of its time and resources. The development of IT has also allowed the country to lower the cost of co-ordinating economic activities. By injecting hefty financial input into the IT industry, the United States has benefited significantly from the field and emerged as the most developed country in this area.
Radical restructuring of economic organizations has also contributed to the fast but steady development of the US economy.
The reform of economic structures led to reallocation of resources in the 1980s, a move which launched the new economy. The overall effect was to make the economy more fluid.
Employment in Pittsburgh, the traditional center of the US steel industry, fell by 80 percent in 10 years. AT&T, a US communications service corporation, also set a record by dismissing 1 million employees in three years. Enterprise bankruptcy and reorganization and the free movement of personnel from one company to another are also common in Silicon Valley.
Reorganization of enterprises in the United States in the last two decades has led to a situation in which resources flow to the entrepreneurs who can best react to changes and opportunities in the market.
Continuous reform in market administration is another important factor. The United States was the first country to release control on such sectors as telecommunications, electric power, infrastructure facilities, water supply and the financial system. Eliminating administrative monopoly and allowing these sectors to sharpen their competitive edges in the market allowed the new economy to progress tremendously.
Other factors, such as a strong capital market, have also been instrumental in the creation of the new US economy, Zhou said.
The crucial point, according to Zhou, is that the new economy has never been planned by the US government. There has never been any industrial policy in the country to define or lend special support to a leading industry.
Rather it has been the spontaneous movements of market that have led to the economic growth, low inflation and high employment the United States currently enjoys. "New economy" is only a term for the changes brought about by the market itself.
Zhou asserted that as the biggest developing country, China has made achievements in economic growth since reform efforts were launched in the late 1970s. However, it is hard to maintain growth on the basis of a traditional economic structure. New opportunities should be seized, through cautious action, to break through the predicament.
The government should not set many restrictions on the new economy. Non-governmental economic activities should be encouraged. The government should limit itself to legislating against problems that emerge during the development process.
Pressure put on China's natural resources by its traditional economic growth also calls for the development of new economy, based on a series of adjustments in education and governmental behavior, Zhou concluded.
(China Daily 11/13/2000)