Despite the generally acknowledged economic growth of China, some Chinese and foreign economists are still suspicious about its economic stability.
As a matter of fact, China’s economy can undoubtedly maintain an annual increase of 7 percent for at least next five years unless there are exceptional occurrences.
The key elements of China’s economy have begun and will continue to take on features of diversification and decentralization, which is conducive to overall economic stability and helps avoid violent ups and downs resulting from both the planned economy and laissez-faire free market economic systems.
The changes of employment structure over the past 20 years or so clearly show this diversification and decentralization process. Employees at government departments, state-owned enterprises and institutions accounted for 78 percent of urban employment in 1978. The figure dropped to 63 percent in 1991 and further to 32 percent in 2001.
Corresponding to the more diversified economy, China’s GDP growth tends to be increasingly stable. Before 1992 when the concept of a market economy was proposed, China’s economic growth had been uneven. The high point was 15.2 percent in 1984 while the lowest was 3.8 percent in 1990. In contrast, after 1992 the annual growth discrepancy narrowed significantly: the figure mounted to 12.6 percent in 1994 and bottomed out to 7.8 in 1998. As a consequence, in the coming five years, the number of the public-employed will continue to dip by 10 percent and macroeconomic stability will be further safeguarded.
The regional diversity in economy also contributes to the country’s macroeconomic stability. For instance, natural disasters generally only affect part of the vast Chinese territory and the rest of the country remains safe. By the same token, consumption indices vary heavily from region to region; but economic disparities among regions redound to macroeconomic stability. For instance, they are helpful for the country to assimilate and weaken the impact of shrinkage in foreign demand. China’s marked regional economic discrepancy and its positive effects will linger and even strengthen in the next three to five years.
The ever-growing scale of China’s economy also helps create stability. With the sixth largest economy in the world, China won’t encounter any particular obstruction setting back its growth rate for the next three to five years. China has set development as its top priority and with no strong counter-reform forces within itself, it can and will promote reforms smoothly. In view of the crying demand from the country’s growing population, environmental and ecological preservation efforts and its goal to become a developed country, China needs an annual GDP growth not less than 5-6 percent in coming years. Drafters of the tenth “Five-Year Plan” decided it should be 7 percent.
The sound and stable growth prospects in the world economy in the next three to five years will have positive effects on China’s economic stability. Statistics show that, from 1990 to 1995, the global economy grew by 2 percentage points on average each year and the maximum growth discrepancy among the five years exceeded 100 percent, while the corresponding figures for the latter five years are 3 to 3.5 percentage points and less than 50 percent. With a foreign trade volume of US$509.8 billion and total FDI of US$46.8 billion (14.9 percent more than that in 2000) in 2001, China’s economy is building closer links to the world economy as a whole.
Unlike the situation in Russia and Eastern Europe, China’s central government still has considerable political as well as economic resources such as state-owned enterprises in its hands and with this it can effectively avert any potential economic turbulence. Even if the government’s influence abated for some reasons, for instance, the breakups of big monopolies, during the tenth “Five-Year Plan” period the general situation won’t change.
Traditional Chinese culture has a prominent aspect: the pursuit of stability. This is one of the reasons why China’s economy can develop smoothly while many reform measures toward a market economy are not yet in place. Despite its transition to a market economy, high stability still remains an essential feature of the Chinese society. A survey by the Horizon-China published on the June 11, 2001 issue of the China Business Times showed that the establishment of an ideal social security system had become the primary concern for most Chinese people.
China is not the Republic of Korea, Japan, or any Southeastern Asian countries such as Indonesia, Malaysia or Thailand; it has many qualities that they don’t have. And these qualities will ensure that China can resist any potential financial crisis and maintain an annual economic growth of 7 percent in the next five years. Though slight or moderate economic risks cannot be absolutely ruled out, they surely won’t grow into an economic crisis.
(The author Gu Haibin is a professor of economics at the Renmin University of China)
(china.org.cn, translated by Chen Chao January 20, 2003)