Rebalancing China's Economy

RDX : 雖然算不得特別有新意的觀點 但是為啥老外就能說的一針見血 中國的”經濟學家”們繞了半天才挑出一兩句話到位的 仿佛是稀粥里面撈米

順便 預計中國短期的經濟復蘇的刺激計劃也是和這個大方針相反的 中國重視穩定 于是總是提出很多短期措施 比如說再一次放松已經不能再松德信貸 比如說這次的為了避免GDP大幅回落的刺激 雖然從經濟上算不上錯 但是中國政府終究不能永遠停留于短視的頭痛醫頭 腳痛醫腳的方案 終歸是應該在合適的時候做出犧牲 迅速推動 事實上中國的改革已經原地踏步了三四年了（相對于以前的腳步） 雖然總是有“各種各樣”的原因 但是怎么可能會有一個完美的時間讓你等到然后來執行呢？

By RICHARD KATZ
FROM TODAY'S WALL STREET JOURNAL ASIA
September 2, 2008

It is impossible to visit Chongqing, a 10-million-person city in western China, without being overwhelmed by the mile upon mile of new sky-high apartments and office buildings, bridges and roads rising in ever-widening circles. But the sight is less impressive when one learns that it is accompanied by rampant real estate speculation, years of double-digit price hikes in real estate all over China, and a countrywide syndrome of excess investment and a dearth of consumer spending. Instead, parts of the picture look alarmingly like Japan's late-1980s bubble and subsequent "lost decade."

The two countries have experienced similar cycles. A decade ago, a mainland investment boom led to a Chinese nonperforming loan crisis even bigger than Japan's 1990s bust. A massive, painful restructuring of China's debt-laden state-owned enterprises ensued. Now, China risks a repeat of that painful adjustment. The good news is that, in stark contrast to Tokyo's decade of denial, Premier Wen Jiabao and other leaders have publicly recognized that today's imbalances must be addressed.

As in Japan, consumer spending is too low to keep the economy motoring ahead. In China, consumption was only 50% of GDP in the 1980s and today an astonishingly low 37%. Typically, poor countries devote about 60% of GDP to personal consumption. The problem is not lack of desire to spend, but lack of money: Household disposable income has been shrinking as a share of GDP. The annual flow of 10 million workers from countryside to city has suppressed wage growth while regulated rates give consumers negligible returns on their savings deposits.

Up to a point, less consumption meant China could devote more resources to investment, and thereby grow faster. Back in 1980, most Chinese citizens lived on less than $2 a day, according to the World Bank. By 2015, only 13% of the population will do so. The issue is not that consumption is not rising fast enough on an absolute scale. Rather, as in Japan, a development strategy that brought enormous success has been taken to an unhealthy and unsustainable extreme. With consumption not growing as fast as GDP, China had to find other sources of demand.

Total investment -- residential, business and public works -- has been pushed to a sky-high 45% of GDP. Even that is still not enough to absorb all of China's output. To avoid recession, China lends money to foreigners to buy Chinese exports, giving China a trade surplus of 9% of GDP, way up from the 2-3% of GDP that prevailed during most of 1990-2004. As Japan's experience shows, this strategy is unsustainable. Excess investment is likely to be wasteful investment, which eventually ends up undermining growth while building up nonperforming loans. Meanwhile, China can only keep increasing its trade surplus if other countries increase their deficits, but the main deficit country, the U.S., has been sharply decreasing its price-adjusted deficit.

However, if China were to simply reduce wasteful investment and the excessive trade surplus without being able to replace it with consumer spending, growth could plummet. That's Beijing's dilemma.

Behind China's macroeconomic imbalances lies a political calculation. With 10 million job seekers migrating into urban areas every year, China had to provide lots of jobs to avoid mass unemployment and social unrest. Because consumer income and spending were so weak, the government felt it had no choice but to pump up capital investment and exports.

The good news is that Beijing has not taken as long as Tokyo to recognize the need for a course correction. In December 2004, the Communist Party endorsed the notion of transitioning to consumer-led growth. In 2006, Premier Wen declared, "We must strive to reduce our excessively large trade surplus."

The question now is, can Mr. Wen push through reform? Powerful constituents -- from local politicians to property developers -- have now become dependent upon the current, distorted pattern of growth. Many of these actors have friends at the national, provincial and local levels of government to protect them. Government by decree is no longer as easy as it used to be.

But these rigidities should not be overestimated. China does have experience in executing massive social shifts. Over the past decade, China eliminated nearly 20 million factory jobs despite the explosion in industrial output. In the 1990s debt crisis, Beijing engineered a reorganization of state-owned enterprises, which entailed massive layoffs. Moreover, in an economy growing 9-10% a year, it's much easier to absorb people into new jobs at new firms in new sectors. Little wonder big multinationals are already making plans on the presumption that China will gradually shift to consumer-led demand.

Premier Wen has already taken a few initial steps in the right direction. In 2006, he abolished the 2,600-year-old agricultural tax. He also announced exemptions for education tuition for some rural citizens, and subsidies for others. He has expanded health insurance. In 2007, the government reduced the tax on interest income to 5% from 20%.

Now it's time for further actions. The government could let interest rates rise on consumer deposits, though this might be opposed by firms that can now borrow at below-market rates. China could let its currency, the yuan, appreciate further in inflation-adjusted terms, giving more purchasing power to Chinese consumers. Since July 2005, when the government broke the yuan's peg to the U.S. dollar, the currency has appreciated 22% vis-à-vis the greenback, and 10% on a global, trade-weighted, priced-adjusted basis. The government could also reduce personal income taxes while increasing taxes on firms. Since profits have been rising as a share of GDP, it could increase corporate taxes and still have room for rising after-tax profits.

While the central government has increased the minimum wage -- which could, in principle boost wages even at higher levels -- only a narrow slice of workers is covered by this move and the minimum wage is still quite low relative to average wages. A new labor law mandates that employers provide pension and insurance contributions, pay laid-off workers a month's wages for every year worked, and that they provide an overtime premium of 50% on weekdays and 100% on weekends. However, as with many Chinese laws, enforcement remains very much in question.

Lastly, China could substantially increase government expenditures on schools, health care and unemployment compensation so that people would no longer need to save so much cash to pay for school or to prepare for a health emergency or a job loss. These measures are opposed by many local governments that often prefer to spend money on building roads and bridges. That behavior may boost GDP more quickly, but it also provides more opportunity for corruption and payoffs.

China's big advantage is that it has seen in Japan's experience that countries which postpone decisive action end up suffering even more. While Beijing's first moves have been small, there is good reason to hope that, in its own incremental fashion, China will make the necessary adjustments in time.

Mr. Katz is editor of the semiweekly Oriental Economist Alert. This op-ed is adapted from an essay in the September issue of Current History.