China model creates economic miracle

www.chinaview.cn 2009-10-18 09:35:26 Print

BEIJING, Oct. 18 -- As celebrations of its achievements over the past 60 years

subside, China can look forward to its next milestone: surpassing Japan as the
world's second largest economy before the year is out. Another target reached
ahead of schedule - and further evidence that China is emerging from the financial
crisis as the big winner.

Based on past records, and taking into account China's expected growth rate
over the next two decades, China will overtake the United States to become the
largest economy in the world within five years measured in purchasing power
parity-terms, and within 20 years measured in nominal terms.

It could be even sooner. These predictions are based on the assumption that
the US economy will grow 3 percent per year and the Chinese economy 9 percent
per year, assuming constant nominal exchange and inflation rates for both
countries.

But if the yuan continues to appreciate against the dollar as it has done in the
past decade, and/or if China's domestic inflation rate is higher than that of the US,
China will gain ground even quicker.

Much will depend on China's ability to adjust its economic growth model in the
face of huge environmental pressures. China had become the largest producer of
many key industrial and agricultural products by 2007, including rolled steel (566
million tons), coal (2.5 billion tons), chemical fertilizers (58 million tons) and
personal computers (121 million, or 30 percent of the world's output).

It produces two-thirds of the world's photocopiers, microwaves and shoes, 60

percent of mobile phones and 75 percent of toys. In 2009, China may well
overtake the US to become the world's largest consumer and producer of motor
vehicles. This huge leap in production and consumption has caused serious
damage to the environment.

But one of the opportunities brought about by the financial crisis - and
subsequently declining exports - is that Chinese companies have been forced to
increase their competitiveness by moving up the technological ladder. Many are
rebalancing their geographical distribution and becoming more efficient in their
use of resources and energy.

Also to China's advantage - in the short term at least - are the depressed oil
and material prices, which has helped China sustain high economic growth as it is
the largest importer of such commodities.

The gradual shift away from an economy reliant on low-cost exports will be
tough but China has a clear national strategy to become a powerful world
business leader. The government has been supporting and fostering a large
number of gigantic State-owned industrial groups. These selected groups have
been allowed to grow rapidly in size and profitability domestically, and then
encouraged by the State to expand globally.

State-owned banks are providing strong financial support for them to make
foreign acquisitions and deepen foreign market penetration. Through capturing
market share and making acquisitions overseas, they are competing directly with,
or working alongside, the world's most powerful transnational corporations.

There have been unforeseen setbacks. China National Offshore Oil Corporation
failed in a bid to acquire Unocal in 2005, and in June 2009 the Chinalco-Rio Tinto
deal came to a sorry end for the Chinese.

China has learnt from these disappointments. Recent overseas successes

include Sinopec's US$7.5 billion acquisition of the Canadian oil company Addax in
August and Minmetals' US$1.38 billion purchase of Australia's Oz Minerals in
June. Chinese firms have embarked on their new Long March in the global
economy - and they will come back stronger after every defeat.

For all the criticisms of its political structure and one-party rule, China has time
and again demonstrated to the rest of the world that its political and economic
model can be an effective tool for economic success.

The key to this model is not down to its capacity to copy from the Western
development model, but to its ability to take the advantages of the Western model
and modify them to suit the reality of Chinese culture and society.

In doing so, China has successfully combined the advantages of the State and
market, public and private ownership, capitalism and socialism. This model boils
down to Deng Xiaoping's pragmatism and experimentalism of economic, social
and political reforms: a Socialist Market Economy with Chinese Characteristics.

The resilience of the Chinese economy during the worst months of the financial
crisis has added significant weight to this development model and provided a
further boost to Chinese confidence.

The author is professor of Economics and head of the School of Contemporary

Chinese Studies at the University of Nottingham in the UK.

(Source: China Daily)