Experts say still room for improvement in China's competitiveness
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There was still room for China to improve its competitiveness, even after a report issued by the World Economic Forum (WEF) listed it the 27th most competitive economy among 139 countries that were rated, experts said Friday.
China's competitiveness ranking improved from 29th to 27th according to the WEF's Global Competitiveness Report 2010-2011 released Thursday, ahead of the WEF's Annual Meeting of the New Champions 2010 that begins Monday in China's Tianjin Municipality.
The report said China continued to lead the way among large developing economies, consolidating its place among the top 30. The three other BRIC economies remained unchanged in their rankings -- Brazil at 58th, India at 51st and Russia at 63rd.
Switzerland topped the rankings in the report, while the United States fell two places to 4th, overtaken by Sweden and Singapore.
Most Competitive Emerging Economy
The WEF said most of the developing economies had fared comparatively well during the financial crisis. Countries such as Brazil, China, and India were expected to grow at rates of between 5.5 and 10 percent in 2010, with growth expected to hold up well over the next few years.
Among the major emerging economies, China was the most competitive, as it has become one of the major engines of the global economy, experts said.
"China was the only BRIC country to improve in the rankings this year, thus increasing the gap with the other three," said Jennifer Blanke, the lead economist of the WEF's Center for Global Competitiveness and Performance.
The WEF's report showed China ranked 50th in the pillar of infrastructure, compared with 86th for India, 47th for Russia and 62nd for Brazil. Infrastructure is one of the 12 pillars that the Global Competitiveness Index is based upon.
"China ran ahead of India and Brazil in infrastructure, but it still needs improvements, especially in the country's underdeveloped rural areas," said Zhu Andong, associate professor of political economics at Beijing-based Tsinghua University.
Large Market Size, Macroeconomic Stability
With a population of more than 1.3 billion, China is undoubtedly one of the world's largest markets. The WEF's report showed China ranked second in the pillar of market size, slightly following the United States (U.S.).
China has pledged to wean its economy off exports and investment and shift the growth model to be more domestically driven.
In the past few years, China has taken various measures to boost domestic demand, including incentives for purchases of fuel-efficient and electric-battery cars and home appliances.
The government introduced a trade-in subsidy and halved a purchase tax on small vehicles to 5 percent in January 2009 to bolster the country's auto sector. China overtook the U.S. as the world's largest auto market last year, largely thanks to these incentives.
"The financial crisis made Chinese policymakers realize that China must re-balance its economy to rely more on its own domestic demand. I believe the government would unveil more measures to boost consumption in the years to come," Zhu said.
"Chinese people would be more willing to spend with the rise in family income and the improvement of the social security net. Thus, the Chinese market would continue to grow," said Sheng Bin, vice dean of the school of economics of Tianjin-based Nankai University.
Apart from its large and growing market size, China's other strengths include macroeconomic stability and relatively sophisticated and innovative businesses.
The government has repeated its stance on economic policy on numerous occasions. The Chinese central bank said in late August that the nation would maintain a moderately loose monetary policy and proactive fiscal policy while making them more flexible and better targeted over the rest of the year.
"Maintaining proactive economic policies would help consolidate the country's recovery momentum and stabilize market expectations," Sheng said.
Improvement in Financial Market
China's improvement in the overall ranking was mainly attributed to a better assessment of its financial market, which has historically been a notable weak point, Jennifer Blanke said.
China's ranking in this pillar went up 24 places to 57th this year. This is the result of easier access to credit and financing through equity markets, banks, and venture capital, which has been accompanied by a slight improvement in the perceived soundness of the banking sector, the report noted.
Chinese banks extended a record 9.59 trillion yuan (1.4 trillion U.S. dollars) in new loans last year to help finance the nation's 4 trillion yuan stimulus package.
"Despite easier access to credit for businesses, we should realize that a lending binge last year stoked concerns of asset bubbles and worsened credit quality," Zhu Andong of Tsinghua University said.
The average residential housing prices jumped 25.1 percent from one year earlier in 2009, according to data from the Ministry of Land and Resources.
"That's why the central government asked banks to manage the pace of credit growth this year," he added.
"Besides, some privately-owned enterprises still have difficulty in gaining credit. There was room for China to improve in this field," Zhu noted.
The report also said China has made progress with technological readiness, which covers six aspects: availability of latest technologies, firm-level technology absorption, FDI and technology transfers, internet users, broadband internet subscriptions and internet bandwidth.
In 2009 alone, China added over 100 million mobile telephone subscribers and some 86 million new internet users. Mobile penetration has reached more than 50 percent, and about one quarter of the population uses the internet on a regular basis, the report said.
Challenges Remain
Despite some improvements in China's overall competitiveness ranking, the WEF said China has "made small strides in the quality of higher education and training".
In addition, Sheng Bin said China should do more to encourage innovation. "China spends 1.62 percent of gross domestic product in research and development every year, far below the international level of 3 percent."
"The country's small and medium-sized enterprises remain at a disadvantage in raising funds, especially after the government told banks to reduce new lending in a bid to curb asset bubbles and inflation," Zhu Andong said.
"I think the government could do more to help small businesses broaden their financing channels and encourage innovation among them," Zhu said.
The Global Competitiveness Report's competitiveness ranking is based on the Global Competitiveness Index (GCI). The GCI is based upon 12 pillars of competitiveness, providing a comprehensive picture of the competitiveness landscape in countries around the world at all stages of development.
The pillars are: institution, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation.
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