viernes, 11 de septiembre de 2015

viernes, septiembre 11, 2015

China will stumble if Xi stalls on reform

If Beijing relies on state enterprises it will be favouring special interests, writes Robert Zoellick
 
China's president, Xi Jinping©Bloomberg
China's president, Xi Jinping: market turbulance has shaken confidence in China’s commitment to economic reforms
 
 
President Xi Jinping’s visit to Washington this month could be as consequential for the world economy as then-vice premier Deng Xiaoping’s American tour of 1979.
 
This summer’s events have shaken global confidence in China’s commitment to structural economic reforms. What was a high growth economy fuelled by exports, investment and saving needs to shift to growth led by domestic demand and consumption. This adjustment was always going to require skilled steering. The Communist party’s Third Plenum of November 2013 charted that journey with a 326-point road map; reformers explained it would take seven to 10 years. When China’s economy slowed earlier this year, the government cheered a surge in stock prices as a signal of confidence.

But when markets tumbled, its haphazard reactions appeared counterproductive. The party seemed determined to rule markets as well as people. Some wondered what these interventions — with their reliance on state-owned enterprises, regulatory diktats, and massive government financing — meant for China’s future reforms. The imposition of controls seemed to conflictwith plans to open financial markets in order to better allocate capital, to rely on market prices to allocate resources, and to expand the private sector, which has been the engine of China’s growth.

In 1979, China’s economic reforms offered the promise of a vastly expanded world economy.

Today, China’s economic performance drives supply and demand around the globe. Indeed, last year China accounted for about 40 per cent of global growth.

Now China is stumbling while the world economy is struggling. For seven years developed economies have been relying on extraordinary monetary policies to boost asset prices, subdue interest rates and douse dangers with liquidity. The Group of Seven leading economies are straining to hand off from government stimulus to sustained, private sector-led growth. Many emerging markets have been pummeled by collapsing commodity prices and falling demand from China. The rising value of the US dollar, and the prospect of an increase in US interest rates is creating a “dollar squeeze” for some developing country debtors.
 
China’s travails do not, however, pose a risk of a global plunge. The government has a number of tools to stimulate the economy — and it is backed by huge reserves. The key question for Mr Xi is: what does the party plan to do to get China’s structural economic reform plan back on track? Particulars matter. The new exchange rate policy could be a step towards opening capital markets to help shift investment to more productive uses, or a competitive devaluation to boost exports.

If its government retreats to reliance on state-owned enterprises for “stability”, China will be favouring special interests that are less efficient, less transparent, and less disciplined by markets.

Deng, and former premier Zhu Rongji, used foreign competition to drive Chinese companies and workers to world class performance. If the party now protects national favourites and shelters indigenous innovators — while blaming problems on foreign interference — China’s market will lag, not lead.
 
The bold reform ideas of the party conclave in 2013 recognised the interconnection of diverse activities (such as tax reform, market pricing, labour market adaptation through changes in the household registration system, environmental charges and clean-ups, and expansion of the service sector) — all of which are connected to China’s urbanisation. But what is next?

Mr Xi has competing priorities. His anti-corruption campaign is supposed to rejuvenate the party — and enhance the president’s power to select the next standing committee in 2017. In foreign ventures Deng’s caution has been abandoned in favour of an assertion of great power prerogatives, which worries states that fall under China’s shadow.

President Barack Obama should explain US plans for structural economic reforms — for taxes, entitlement expenditures, immigration and trade. But Mr Xi is likely to have to wait to
hear about US growth plans from Mr Obama’s successor. In the meantime, the dynamism of the US private sector — in energy, software, use of Big Data, bioengineering and robotics — offers America’s contribution to growth. 


The leaders of the world’s largest economies now need to explain their growth strategies. And they need to be explicit about the risks — economic, security and cyber — that might impede co-operation. Today’s policy drift places the world economy in danger of being swamped by hazardous currents.


The writer is a former president of the World Bank and US trade representative

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