Japan’s Nikkei newspaper has quoted CKGSB Founding Dean Xiang Bing in a recent editorial on the state of the Chinese economy, and how China’s fate is important for the entire world.
The following is a translation of an op-ed piece in Japan’s Nikkei newspaper.
We have heard a lot of negative voices from economists about the Chinese economy recently, with some arguing that there is almost zero growth in investment. China is now facing serious excess production capacity in the industrial sector. A Japanese investment bank estimates the size of excess capacity as equivalent to 15% of GDP. An economist at Citibank said that the issue will take a long time to resolve as local governments are reluctant to see many companies go bankrupt and so these so-called zombie companies may continue to survive. Some economists are also worried about the excess debt of local government and enterprises. Due to a hike in wages, foreign companies are less interested in production in China and China is no longer regarded as the ‘world’s factory’.
We, however, should not be in a hurry to conclude that China is going to decline in power, looking only at these negative aspects. We should also look at the other part of China.
Mr. Jack Ma, Chairman of e-commerce giant Alibaba group, declared to an enthusiastic audience at the World Economic Forum in Dalian last September, “We are going to support small enterprises from all over the world, including those in developing countries, by using the power of the Internet”. E-commerce sales in China increased significantly by 50% year-on-year and now account for 10% of the total consumption in China. Consumption is quite firm as the middle class has been expanding steadily thanks to ongoing urbanization and a continued increase in wages. Potential demand is huge.
Dr. Xiang Bing, Dean of CKGSB, a renowned business school in China, said that it is necessary to carry out drastic deregulation in the fields of finance, media, culture, health care, and communications in order to promote innovation. In fact, the entrance barrier is high in the sectors related to service and consumption, and SOEs are playing an even more influential role there than in the manufacturing industry. Although President Xi’s administration regards the reform of SOEs as an important policy and has announced some guidelines, some economists are skeptical about whether the government is mainly focusing on the M&A of SOEs, which would not lead to the promotion of fair competition in the market. Others have pointed out that innovation and the service sector would not prosper without the legal framework necessary to protect private property and political reform to accept a diversity of ideas.
President Xi said China will make use of both hands, namely reform the market while still retaining control. But the big question is which hand will China use more? This could be a critical turning point for the prosperity of China, as well as for the rest of the world.