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China at crossroad as world economy wobbles
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CONSUMPTION CONUNDRUM

Unwanted as it is, the world financial crisis provides an opportunity to accelerate China's transition to a new growth pattern driven by domestic consumption, says Tang.

More service-oriented, domestic demand-led and labor-intensive urban growth could help make the economy less reliant on energy, challenging to the environment and unequal to urban and rural areas, Kuijs says.

Their views are shared by China's leaders, who made domestic consumption and economic transformation priorities in their 2006-2010 plan.

The state rolled out rural and urban health protection plans and offered rural children free education to junior high school.

It also set up goals of cutting energy use per unit of output by 20 percent and major pollutant emissions by 10 percent by 2010.

Kuijs has seen "impressive policy actions", but "not yet a decisive move toward rebalancing the economy" halfway into the five-year plan.

Meeting the five-year energy efficiency target is deemed crucial to rebalance the economy, but only a quarter of the planned reduction has been completed in the past two years.

More is needed and the government could take important steps in the area of pricing energy, land and environmental impact as well as fiscal policies to move more boldly in that direction, says Kuijs.

Economist Wang Xiaoguang wants to see greater efforts to move labor-intensive, export-oriented industries from the eastern and southern coastal areas to the hinterland.

He advises restraining development of the property sector, saying this could encourage investment in technological innovation and energy conservation and generate higher profits.

"Only by cooling the housing market can China unleash consumption demand as most household spending goes to home-buying," says Wang.

Meanwhile, the government turned to the vast rural market, which has 55 percent of the nation's consumers. A key meeting held by the Communist Party of China (CPC) Central Committee from Thursday to Sunday discussed rural land reforms in a bid to spur the rural economy and consumption to offset the world economic slowdown.

MARATHON GAME

"It's an uneasy process," said Kuijs, referring to China's bid to rebalance the economy. "A key challenge for the policy-makers at the moment is to decide if and when China should pursue mildly stimulating, or more than mildly stimulating macro-economic polices, based on considering how the growth momentum is proceeding."

Another dilemma involved balancing the interests of overall economic development as opposed to those of particular groups, a worldwide issue.

"China is lucky that its government tends to have this forward-looking vision usually and is able to decide what's good and what are the policies needed to make sure that it continues to move in the right direction," he says.

China's gradual approach to reforms and effective incentive systems for local governments had contributed to the country's profound economic achievements and will continue to play a role in future reforms.

Kuijs says World Bank research suggests that by improving technology and productivity, China can still have decent growth without unilaterally relying on capital and human-intensive growth.

Meanwhile, industry and investment will continue to be important in coming decades, he adds.

Economists seem to have confidence in China's performance amid the global uncertainty.

Tang predicts that with proper, timely reactions, China will experience one or two years, at most three to five years, of economic correction, with a slowdown in annual output, but still be above 8 percent.

Nobel economics laureate Robert A. Mundell has forecast China's economy will sustain growth above 8 percent for the next 15 to 20 years, predicting it will surpass Japan and the United States to become the world's largest in 2050.

The growth rate means less to Wang, who stresses China must first have a more balanced economic structure and better market mechanism in the next 30 years.

"China's bid to achieve modernization is a marathon game and now we are entering the last few kilometers," he says. "Now it's not about speed but sustaining the advantage we have accumulated."

(Xinhua News Agency October 12, 2008)

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