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A gradual and dual-track approach was central to China's successful reform and opening-up in the past quarter of a century.
The country has maintained an average annual economic growth of 9.3 per cent over the past 25 years, with trade volume multiplied 41 times.
China can surely boast the fastest growth among all countries during that period. But will it continue to ride on its growth momentum?
A group of domestic economists shared their insight on what will be China's biggest challenge in the coming two decades at a recent seminar held in celebration of the 10th anniversary of the China Centre for Economic Research at Peking University.
While all expressed some optimism about the Chinese economy's growth trend, the economists divided on the priorities of the country's reforms in the coming years.
Zhou Qiren, a renowned economist with the China Centre for Economic Research at Peking University, stressed the significance to lower institutional costs, or transaction costs, to maintain China's competitive edge in the international arena.
When China began to open up 25 years ago, its labour costs were equal to only about 1 per cent of that in developed Western countries. But the country's productivity was so low that it could hardly provide any quality products for the international market. So the world had not taken China's advantage in labour costs seriously.
"Twenty years from now, China will show its muscle to the world economy in mainly two aspects," asserted Zhou.
One is China's advantage in labour costs. The labour force is inexpensive, but institutions to organize labourers for production are quite expensive in this country. Reform and opening-up will drastically cut down the institutional costs to boost the country's productivity.
The other is the country's learning ability. Besides township and village enterprises and private firms, reformed State-owned enterprises and foreign-funded enterprises have all enhanced their competitiveness during the country's opening up. As the country's institutional costs are lowered, the country's comparative advantage over developed countries will be brought into full play.
"In the past two decades, the world has provided China with more opportunities than challenges," said Zhang Weiying, vice-dean of the Guanghua Management School at Peking University.
By opening-up and deregulation, the country has substantially improved its efficiency in allocating resources.
But challenges are likely to outdo opportunities as such a source of economic growth drains in coming years.
The Chinese economy needs to build its growth momentum on higher productivity, and technological progress will thus be the key, according to Zhang.
Instead of focusing on the efficiency of the Chinese economy, Yi Gang, assistant governor of the People's Bank of China, is more concerned with the restraints on China's economic growth.
Yi singled out resource shortages as the most pressing challenge the country needs to prepare for.
Water, mineral resources and energy are all in short supply in this country. China has no choice but to develop a resource-saving economy.
As to the huge income disparity between China's rural and urban residents, Yi admitted it was a big cause for concern. But he pointed out the income gap was not as wide as some people claimed because some living costs such as houses in rural areas have not been monetized. In other words, in terms of purchase power parity and real living standards, China's income gap between rural and urban areas is not as bad as some had thought.
Yi also emphasized the role of a better education for all people in China's future development. "Modernization can not be realized in a country without civilization," added the bank official.
Seemingly more optimistic than other economists was Lin Yifu, director of the China Centre for Economic Research. He predicted the size of the Chinese economy would likely surpass that of the US economy by 2030.
Lin attributed China's long-term growth miracle over the past 25 years to the country's shift from a catch-up model to a more pragmatic approach that has made good use of the country's comparative advantages.
Lin worried about various emerging trends that may derail the country's progress along the latter comparative advantages.
Though the country has amassed considerable economic clout over the past years, it, as one of the world's manufacturing bases, can take only a little slice of added values from the global production chain. Some people have thus urged policy-makers to spend more on supporting domestic companies to seize technological commanding heights.
But to catch up with developed countries in those high-tech industries in which China has no comparative advantages, the result can only be "more haste, less speed," noted Lin.
Lin also cautioned against applying foreign economic theories in directing China's reforms regardless of the fact that China is a developing country under transition.
For instance, according to economic theories established on developed countries' experience, deflation usually should be accompanied by slow economic growth. But when China experienced deflation in recent years, its economic growth was still robust.
"We must seek solutions to Chinese problems in line with the country's reality," said Lin.
Sustainable development of the Chinese economy in the coming decades, to a large extent, depends on if the course will not be interrupted by economic fluctuation or crises, said Fan Gang, director of the National Economic Research Institute.
The country is undergoing another round of excessive investment.
Fan believed that the underlying reason behind the investment fervour was the lack of effective restraints on local governments' attempts to tap all available resources, regardless of the interests of other stakeholders such as their successors or the next generation.
Some local governments have even tried to develop all land resources which may be used for the following 20 years within their term of office.
Establishment of a market system and a public system that can balance the interests of various sides is crucial to the country's sustainable development, added Fan.
(China Daily October 8, 2004)
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