China Perspectives: Part Two
by Nicole Loewensohn
China’s famous philosopher and political theorist, Confucius, stated ‘when it is obvious that the goals cannot be reached, don’t adjust the goals, adjust the action steps’. Whilst China has pursued economic growth, there has been consistent acknowledgement that the current route to prosperity may not be viable. With this in mind, the latest five-year plan for China’s development has been released, outlining clear and sustainable goals; however the implementation of new policy may prove difficult. Recently Mr. Xi Jinping was appointed vice-chairman of China’s Central Military Commission, confirming his selection as successor to Mr. Hu, the country’s party chief and President. The change of leadership is expected to occur in 2012, yet the track-record for smooth political transition has not always been positive. Whilst political and economic reforms are currently on the agenda, political paranoia lurks at many corners.
Nevertheless, the key objectives of the five-year plan suggest that China is well and truly on its way to a sustainable future, primarily through a change in the growth pattern. Firstly, as expected, there is going to be a stronger focus on domestic consumption and the services sector, as opposed to industry and investment. This is where policymakers face a tough decision. The rising trade surplus suggests that China’s artificially low currency is preventing structural rebalancing of the economy, yet raising the value of the Yuan would cause a fall in exports, which may create unemployment and squash any rise in domestic consumption. A significant revaluation of the currency looks unlikely, but without removing price distortions and influencing wages it may be difficult to achieve growth in domestic demand and the relatively small services sector.
The other key objectives of the five-year plan are increasing the role of the private sector, urbanisation and regional development. Progress in these areas would undoubtedly help in boosting domestic consumption, but there is a long way to go. The government must be willing to allow private firms to compete with state-owned enterprises (SOEs), especially in areas such as financial services and infrastructure. This could be achieved through a reduction in red tape, giving easier access to finance for small business and reducing regulatory barriers to entry. If this eventuates, Australia could benefit significantly from strategic partnerships, considering Australia’s strong services sector and the respect China has demonstrated for Australia’s success post-GFC.
Furthermore, China’s push towards cleaner energy is also a key opportunity for Australia. China has become a world leader in renewable energy, given that it must significantly reduce carbon-intensive energy production to reverse the severe environmental degradation that has damaged quality of life and may constrain future economic growth. China is keen to expand research and development into new energy technologies, and Australia should seize the chance to develop its own alternative energy sector. Australia has had key breakthroughs in areas such as ceramic fuel cell and photovoltaic technology, yet there has been a lack of government support for their implementation. Thus China, with its seemingly endless demand for energy, could help Australia realise the full potential of such an industry. Australian natural gas reserves are also of strong interest to China. Woodside Petroleum is amongst the Australian companies who are already exporting large quantities of liquefied natural gas, whilst expanding exploration projects to keep up with rising Asian demand.
In order for progress, China must commence economic reform and early signs suggest policymakers are ready and willing to do so. Nevertheless the appointment of Mr. Xi as party successor demonstrates that open competition for government and political reform are not on the near horizon. This could have implications for, or potentially stall, economic reform, particularly if social tensions continue to rise. Censorship remains a contentious issue and even Prime Minister Wen Jiabao’s support for political reform is repressed by Chinese media sources. There has also been a significant increase in large-scale protests and outright criticism of the government via the blogosphere. Other social problems are also cause for concern. The one-child policy has created what is known as the ‘4-2-1’ problem. The law-enforced only child must now support his, or her, two parents and four grandparents, increasing reliance on pensions and other state welfare.
Ecinya has long advocated that ‘The Chinese Communist Party’ should change its name to ‘The China Central Peoples’ Party’ to reflect the obvious fact that China is a free-enterprise economy. This change would also assist to mitigate cheap shots from the West. One party rule is not a bother, and human rights reform can wait, or evolve over time. But China needs to integrate further its philosophical and geo-political actions to become a fully paid-up member of the international community. A change of name removes the ‘communist’ bogey-man from current prominence.
Whilst in the past the government has used economic growth to encourage social stability, structural economic reforms may dampen growth in the short-term. Thus in the context of a transitioning government, it is unsure how much short-term pain China will be willing to bear. In conclusion China has the potential to make significant gains despite a sluggish global economy, with a projected growth rate of around 8.7% in 2011. Australia is uniquely positioned to share in these gains and therefore it is up to us to promote a mutually beneficial relationship and ensure we take full advantage of all resulting opportunities.
