China Economic Outlook: Hard or Soft Landing
by Jeffrey Barg
October 16, 2014
Modern day China bears a resemblance to the United States in the late 1800s, or 1950s Japan, with a massively expanding economy with a large labor force, and constant changes in fiscal and government policy to deal with the rapidly changing interests among the population. The question posed today at the 15th Annual World Knowledge Forum was whether or not China can maintain its unprecedented period of economic growth in the face of policy reform.
Scholars from around the world discussed this issue. Among them were Doctor Chenggang Xu, Quoin professor of economic development at the University of Hong Kong, Doctor Daniel Altman, NYU Stern professor, Doctor Gang Fan, Director of the National Economic Research Institute of China, and Doctor Yoon Je Cho, dean of graduate studies at Sogang University.
“The potential for China’s growth is still high. You have the potential, it’s better to achieve it than to repress it,” said Dr. Fan, expressing optimism for China’s economic future. Among the panelists, however, he appeared to be the only one with such a positive view.
“The slowdown [of China’s economic growth] is actually an institutional problem. This slowing down can be attributed to structural problems which have accumulated during the past decade,” said Dr. Xu. He went on to explain the major necessity of Chinese economic policy reform would be to transfer more control of capital to the private sector.
Dr. Xu expressed pessimism towards the materialization of economic reforms under the current Chinese administrative structure.
“Currently, the Chinese government has a reform plan. Supposedly if everything in the plan is implemented, then there is hope. The problem is that within the current reform plan, there is a big element missing. The element missing is how the plan is going to be implemented,” he said.
Dr. Cho supported this viewpoint.
“Economic liberalization means shifting the power of governance and resource allocation from the government to the market,” he said. Dr. Cho also spoke on the requirement that China reform its economic policies.
Dr. Altman supported the idea that China has the potential to change, but added it may take longer than the majority expects.
“These things can come into phase gradually, whether it’s a centrally planned economy or a market economy,” he said.
Perhaps the most massive reform that China seems willing to undergo is a revision of its landholding policies. Until now, land, while not directly owned by the government, was not legally allowed to be traded. According to the panelists, the monetization of land stock in China would have a profound impact upon the economy and the populace as a whole.
“Think of how much time land reform needed, it’s a historical process,” said Dr. Fan. “If you look at the history of Europe from 1800 to 1900, in France, in England, every one or two years there are new laws regarding [the trading and ownership of] land.”
Dr. Fan expressed his hope that China would gradually change its institutions to allow the development of this sector of the economy.
Dr. Xu did not, however, share in Dr. Fan’s positivity toward the possibility such economic reforms.
“Because China does not have traditional independence, if any entrepreneur has a legal issue, such as a contract dispute, against a state enterprise, the contract is not going to be enforced in a usual way,” said Dr. Xu.
Dr. Cho offered his philosophy on the source of such conduct.
“Corruption comes from land-seeking behavior, and land-seeking behavior comes from land, and land comes from regulation,” he said.
Apparently, in present-day China, it just helps to be on the right side of the regulation.