More Economic Transition And Opening Up Urged By Experts

US officials and pundits spoke positively of China’s economic transition and reforms while calling for faster and bolder steps.

The Importance of China’s Transition to Smarter Growth, a Sunday op-ed by Nathan Sheets, Treasury undersecretary for international affairs, came as his department announced that Jack Lew, the Treasury secretary, will travel to China this week.

Lew will be in Shanghai from Feb 26-27 for the G-20 Finance Ministers and Central Bank Governors Meeting, followed by trips to Beijing and Hong Kong.

Noting that the Chinese economy has climbed well above $10 trillion, or five times that number when China hosted the last G20 finance ministers meeting in 2005, Sheets described China as a key driver in commodities markets, a critical link in global supply chains, and increasingly a source of end demand for the exports of other countries’ goods and services.

“We have long known that China’s move from an economy dependent on manufacturing and investment toward one more reliant on services and household consumption would not be easy. But the transition is necessary for the economy to rebalance toward more sustainable engines of demand,” he wrote on medium.com.

Chinese leaders have repeatedly voiced their determination to make such a transition to achieve a more sustainable development model.

“Important progress has been made,” Sheets said, citing faster growth in China’s services sector than in the industrial sector in the past three years.

Investment in services and more consumption-led sectors has remained strong, even as overall investment has slowed. And the number of new businesses registered in 2015 — many in the services sector — totaled 4.4 million, a 22 percent annual increase, Sheets wrote.

Household and government consumption accounted for two-thirds of last year’s GDP growth. In 2015, 13 million jobs were created in urban areas, far exceeding the government target, while retail sales grew more than 10 percent. And auto sales have been robust, with China recently becoming the world’s largest auto market, according to Sheets.

He said that the US continues to believe that if China implements the market-based economic reforms it has committed to, it has the necessary tools to support domestic demand and succeed in its economic transition.

Sheets believe the challenges to reform and sustaining domestic demand are real. China’s service sector remains underdeveloped relative to other economies, and China’s households have low consumption rates.

Sheets welcomed the messages sent by Chinese leadership that it has committed to not using the exchange rate to boost exports; it is transitioning to a market-determined exchange rate; and that Chinese economic fundamentals support a basically stable yuan.

He talked about the need of reallocating productive resources in the Chinese economy away from heavy industry, the reforms of inefficient state-owned enterprises and industrial overcapacity, further opening up the economy, including the service sector, and strengthening the social safety net.

He believes such a transformation would allow China to solidify its status as a driver of global demand and offers the best formula for it to achieve an orderly transition and put its economy on a more sustainable footing for healthy growth.

“We want to see China make this transition, because we recognize that China’s success ultimately benefits our own,” he wrote.

David Dollar, a senior fellow at the John L Thornton China Center of the Brookings Institution, said that the Chinese economic transition to a new normal is moving in the right direction.

He does not believe there will be a hard landing for the Chinese economy. But he stressed the importance of addressing issues such as corporate debt and industrial efficiency and the need to further open up the economy.

“There are still a lot of sectors of the Chinese economy closed and uncompetitive, and opening up those will create a new area of dynamism,” Dollar said.

By CHEN WEIHUA Feb. 24, 2016 on China Daily

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