By Qin Xiaoying
 
The World Competitiveness Year Book issued by the Lausanne-based International Institute for Management Development raises China's competitiveness ranking among the world's 60 biggest economies from 31st in 2005 to 19th this year.

What has boosted China's competitiveness so much in just a year? I would contend that the upgrading of the Chinese Government's guidelines for economic growth, the improvement of government efficiency and transformation of its functions have injected vitality into the Chinese economy.

The Lausanne report demonstrates that China's "government efficiency" ranks 17th among the world's economies, meaning that it is in the upper-middle stream.

Apart from forceful measures taken over the last couple of years, three major undertakings, in line with the scientific concept of development, have been carried out and contributed to the rise in the nation's competitiveness ranking.

First, macroeconomic regulation has been strengthened. Second, restrictions on the development of the market economy have been further relaxed, as thousands of old rules and regulations formulated under the outdated planned economy have been scrapped. Relationships between the government and the market have been further sorted out, helping to redress a situation in which the government sometimes oversteps its authority by interfering in economic affairs and sometimes does nothing when it comes to providing public services.

Second, the mode for economic growth has been upgraded and the economic structure realigned, notching up initial achievements. In particular, attention has been paid to the structure of agriculture, rural development and increasing farmers' incomes. Agricultural tax has been abolished and subsidies increased on grain purchased from farmers.

At the same time, entrepreneurs' confidence and consumers' expectations have also risen.

All this shows that the Chinese economy is shifting from being investment-driven to demand-driven.

The moderate fiscal policy implemented by the central government over past few years has cleared away the gloomy clouds cast by the Asian financial crisis of the late 1990s, putting an end to the State-investment-driven growth mode implemented since the outbreak of the crisis.

Third, membership of the World Trade Organization (WTO) has had a positive impact on the Chinese economy and boosted the economy's competitiveness.

Since its WTO entry in 2001, China, supported by its massive labor force and low labor costs, has quickly integrated itself into international economic co-operation, becoming a global manufacturing center and an important link in the international production system.

This growth of the Chinese economy accounted for a 25-per-cent share in the total volume of global economic growth, signifying China's importance to the world economy. No wonder the Lausanne report ranks China's "economic performance" in third place among the 60 economies.

However, it must be borne in mind that a nation's economy could fluctuate at any time and its competitiveness ranking could decline as a result of this increased integration.

It is therefore necessary for us to look squarely at various problems and contradictions appearing in economic activities.

The national economy, for instance, is growing a bit too fast, registering 10.2-percent growth in the first quarter of this year. This is directly related to increased fixed-assets investment and the excessively fast growth of loans.

According to the statistics released by the State Information Center, the total volume of bank loans between January and April this year had already reached half of the whole year's loan target 2,500 billion yuan (US$308 billion).

The continuous fall of various price indexes indicates that the momentum for growth is not strong enough. All this points to one thing chronically insufficient demand continues to haunt the economy.

It should be pointed out that the real estate boom and the launching of new capital construction projects are the major reasons loans continue to expand, resulting in a latent peril which could trigger possible financial risks.

And despite the Chinese economy's large share of the global economy, the country remains at the lower end of the international division of labor as a manufacturing center enjoying the advantages of low labor costs. Although this is a shortcut to rapid economic growth and quick capital accumulation, the momentum is hard to maintain in the long run.

This is because the restrictions imposed by resources and the environment will intensify. In addition, other countries enjoying enormous human resources are likely to compete with China in this regard.

All these unfavorable factors indicate that macroeconomic regulation will become increasingly difficult, the scope of opportunities for macroeconomic regulation will get narrower and the macroeconomic regulation options on the table will become fewer. Much higher requirements are therefore placed on top decision-makers.

By the way, the Republic of Korea's competitiveness ranking dropped from last year's 29th to 38th this year. This should sound an alarm for China.

In short, making the economy operate smoothly on the basis of a fairly high growth rate, improving the quality of economic operation and resolving various problems cropping up in the process is what the Chinese public expects and what the countries benefiting from the Chinese economy's fast growth are glad to see.

The author is a researcher from the China Foundation for International & Strategic Studies.

(China Daily May 23, 2006)