+ [( M) B; a0 l0 i6 E6 BRunning with the bulls: A rosy view of China in 2020 Source : Reuters& u2 I m2 ?/ S* O5 _
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BEIJING: By 2020, China is entering its fifth decade of sustained growth. The trade surpluses that used to strain the global economy have shrunk into insignificance as the Middle Kingdom's consumption steadily grows. 2 w D$ w: v# Z+ v1 V2 |% V2 } 6 F( s! w1 K: {$ c) N2 ~0 [A productive workforce is much better paid, lancing the boil of a widening income gap. Purchasing power has surged thanks to a stronger yuan. Beijing is a leader in improving energy efficiency. % D( c' r" s8 D& G; y+ @& J
8 j% M: k# r4 n- P* e$ pLet's leave aside worries of a property bubble and a new crop of bad loans. Forget the spectre of protectionism. 2 X/ P* j4 T' p1 T/ v v' `# R- o0 @: {2 L! X9 F- [) D
After investors' bearish reaction last week to a moderate slowdown in economic growth in July, it's time to make again the unabashed long-term bullish case for China. * f, i5 c# l5 J$ @2 S; ~6 T% {
. e3 \4 [/ G" l" p. e8 CRoss Garnaut, an economics professor at the Australian National University in Canberra, is among those confident that China is about to enter an era of higher-quality growth, not least because demographics dictate that unlimited supplies of cheap labour will soon be a thing of the past. + _1 [# K( g: \( W6 l* Q- I% c5 n* o( P I* F) I/ Z7 `8 D; _4 P
First and foremost, there will be large and continuing increases in real wages and in the wage share of income, Garnaut wrote in the East Asia Forum, an online newsletter. 2 F3 m, t4 a3 h) O4 X& o1 t % D8 r6 r6 }- b9 OThis is critical. Pay has risen briskly in China, but profits and the government's share of national income have risen even faster, squeezing workers. ( d! q' v7 v- W0 w, J1 N% q
4 q! m# ?# C6 }! W& g e"The powerful tendency since the 1980s towards increased inequality in income distribution is likely to be reversed," Garnaut wrote. : q4 n$ L1 r6 K3 G6 w# X 1 |' b- ?( N" u( wIn this virtuous circle, spending will rise and the national savings rate will fall, thus reducing China's external surpluses and easing tensions with Beijing's trading partners. " o* z8 V% s+ f& J' L
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Garnaut said there was no basis for assuming that a shrinking workforce, which is set to contract from around 2015, would dent the productivity gains; the economy could keep expanding at close to the near double-digit average of the past 30 years of market reform. " k2 ?$ P% e3 F9 k( P , L+ ?3 `$ W# U6 lThat headlong growth catapulted China past Japan last quarter to become the world's second-largest economy, according to an estimate on Monday by Japan's Cabinet Office. ; I ^! g% S" y5 P, P5 i& I q H( R0 X ]# @& g, d& \Urbanisation, development of the interior and investment in a low-carbon economy will sustain growth at more than 9 per cent in the coming decade, according to Li Daokui, an economics professor at Tsinghua University in Beijing. ! P$ x( j2 @6 M . I1 Y a# \" [4 P1 BChina, Lie said, is set to enjoy a "golden period". * n& ~+ j+ y2 y$ R% t0 U" p7 y2 U$ [' H7 ^$ |
If he's right, the consequences for the rest of the world will be far-reaching. y2 {1 T! w0 \5 @4 _: j ) a( [0 E+ k4 J" K1 l' b- Y# }International Monetary Fund economists Vivek Arora and Athanasios Vamvakidis calculate that, over the last two decades, a per centage point extra Chinese growth is correlated with an average rise of 0.5 percentage point in other countries' growth. # k+ p, r9 u. v( L$ e* c' d: m4 n( V/ Q
"Moreover, while China's spillovers initially only mattered for neighbouring countries, the importance of distance has diminished over time," they wrote in a working paper. 6 F: M9 G; g6 g c
2 i9 I# I6 G- qGarnaut reckons even richer vistas could open up for the likes of India as China's comparative advantage shifts to technologically complex goods from simple manufactures. - a/ g- _# B% D7 F* [
