China ups efforts to balance the economy
0 Comment(s)
Print
E-mail Shanghai Daily, January 28, 2013
![Uneven development [By Jiao Haiyang/China.org.cn]](http://images.china.cn/attachement/jpg/site1007/20130128/001ec949c22b1270380213.jpg "Uneven development [By Jiao Haiyang/China.org.cn]") |
|
Uneven development [By Jiao Haiyang/China.org.cn] |
Chinese Premier Wen Jiabao described the country's current investment-led growth model as "unstable, unbalanced, uncoordinated, and unsustainable." It suggests that a rebalanced China where self-regenerating, sustainable growth is derived from a consumer-led model is likely in some form and at some stage.
Already, early signs of changes conducive to rebalancing include diminishing returns for incremental capital, increasing wage levels, interest rate liberalization, and rapidly increasing private-sector job creation. New sectors are likely to emerge from a rebalanced China, if an improved welfare state apparatus is put in place which influences consumers need to save.
Provision of healthcare services will increase, and particularly elderly care given projected demographic imbalances, freeing consumers to spend rather than save income.
In addition, growth in healthcare, travel, leisure, foodstuff industries and service-based companies will occur, as empowered consumers with purchasing power for value-added and innovative products, create a more sustainable model of domestic economic growth.
Together with China's expansion in volume consumption of technology products, we can expect domestic tech companies to capture increased market share from overseas companies. However, the extent of this will depend on China's progress on product innovation, brand loyalty, and price.
Painful process
Overall, China would benefit from adjusting to a consumer-led model, but some sectors will need to radically change, otherwise the process will be painful.
Some domestic and overseas extraction industries have, respectively, been propped up and expanded aggressively by the Chinese investment growth model. Domestic extraction industries, particularly those at the high end of the world market's cost curve, will face fundamental restructuring or potential closure if exposed to a consumer-led economy and the full discipline of a liberalized market.
For some commodities, we believe that absolute volumes are unlikely to decrease as urbanization continues, but as China's overall rate of growth slows, prices may soften.
Other challenged sectors include steel and iron ore due to overcapacity and high-cost respectively; technology under needs to move up the value-added and innovation ladder; and the chemical sector's moving away from commodity chemicals and coal crackers.
The article was based on a Fitch Ratings report issued on January 24.
