Structural reforms and global recovery: after high G20 rhetoric
- By Sumantra Maitra
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E-mail China.org.cn, March 4, 2016
While Chinese economic growth slowed as a part of the New Normal, it is still towering miles higher than any contemporary economic powers except for India. "Structural reforms are necessary in all major economies," Anders Borg, former Swedish finance minister and chair of the World Economic Forum's Global Financial Initiative, was quoted last year, mentioning the "urgent need to increase labor force participation and boost productivity. But I'm struck by how difficult these reforms are."
A few examples were the U.S., which needs to stimulate growth and invest in sectors like education, India, which needs to cut down on red tape, Japan, being more competitive to foreign competition, and Europe, sorting out their labor mobility crisis and taxation policies in member states, not to mention providing stability related to geopolitics. These are not unknown factors, yet there are still little coordinated efforts.
China has recently led the way by focusing on economic consumption and ambitious reforms, rather than the export driven model which generated growth for the last two decades. It is an understandable policy change, simply due to the sky high growth in the last two decades. Chinese society has also changed, which is reflected in the domestic demand cycle.
The Chinese central bank promised to cut the reserve requirement ratio (RRR) by 50 basis points for all banks recently. China is planning to take ambitious steps which will also be discussed in the coming sessions, and which will also highlight the steps to be taken to increase aggregate demand. The National People's Congress meeting will also discuss the country's five year plan, which will give an idea of how Chinese policymakers will work on the speed and rate of structural reforms that were started and promised further in the G20.
While it is understandable that the world economy is far too complex, it was a mistake not to follow the IMF recommendations of a coordinated global stimulus effort, and it was puzzling to see that the opposition would be from Germany and America, two countries themselves struggling immensely to match the growth rate of any first tier economy in the world. It is also understandable that some of the opposition is due to domestic policies and priorities, but there is an urgent need to follow or come up with a plan on the basis of collaborative spirit. As of now, all eyes will be on the "two Sessions," and the discussions regarding supply side reforms that arise as a result.
Sumantra Maitra is a columnist with China.org.cn. For more information please visit:
http://www.china.org.cn/opinion/SumantraMaitra.htm
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