& h( S/ @" L1 SRunning with the bulls: A rosy view of China in 2020 Source : Reuters ; L' _4 }4 z3 o7 M8 V8 d- G/ D; V* Z' R9 X0 M
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. " F9 L4 W0 m9 \% M. T/ U f' T" K. C0 G& v; x8 N1 r* Y7 `8 X+ }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. + ]5 s4 _* P8 L9 d7 B" R0 z* N0 L8 ~ w+ }! k" j+ U
Let's leave aside worries of a property bubble and a new crop of bad loans. Forget the spectre of protectionism. . T7 \. f' q+ A2 d$ q7 E " r6 c; z& B5 S5 UAfter 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. 6 s5 W$ I% d: H3 p
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Ross 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. * ]0 H" j+ V% U& | L! k, \% P& O. G
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. - f4 n# @! V5 M# T' \ - U2 p( p& c7 MThis is critical. Pay has risen briskly in China, but profits and the government's share of national income have risen even faster, squeezing workers. , b2 t2 w! p/ H: }& ?0 m 4 Q4 V- Q' _/ b+ b"The powerful tendency since the 1980s towards increased inequality in income distribution is likely to be reversed," Garnaut wrote. 2 B9 i( v+ j: N& _; j/ q
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In 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. : w- K4 ~9 @: }
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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. 6 a& h* |7 g, w$ Z5 m! N- y* M 5 \2 z6 g' R1 E9 I3 B- \1 HThat 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. 8 `( ^0 t5 G8 @) K5 |
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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. ) F( K$ O/ i/ A+ ?* ]( V1 W K9 b9 x. L. H5 R1 cChina, Lie said, is set to enjoy a "golden period". / T: E H' C) l
: v, }- k) K9 D6 g5 ZIf he's right, the consequences for the rest of the world will be far-reaching. 8 m6 H4 N" z0 i- N- p
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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. 8 X8 ]3 c8 n$ U) E
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"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 H& X- S' z) Q8 ^( x
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Garnaut 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. $ |! y3 y8 I6 f! A1 Q3 p
