http://www.globalenvision.org/index.php?fuseaction=library.print&printerfriendly=1&category=3&itemid=1591
This item: www.globalenvision.org/library/3/1591
China's New Economic Model
Despite China's resounding economic success, it is moving toward a new economic
model to ensure long-term, sustainable development.
Date Posted on Global Envision: May 02, 2007
Today, China is discussing a "new economic model." Photo Credit: Ellis
Culver, Mercy Corps
China's success since it began its transition to a market economy has been
based on adaptable strategies and policies: as each set of problems are solved,
new problems arise, for which new policies and strategies must be devised. This
process includes social innovation . China recognized that it could not simply
transfer economic institutions that had worked in other countries; at the
least, what succeeded elsewhere had to be adapted to the unique problems
confronting China.
Today, China is discussing a "new economic model." Of course, the old economic
model has been a resounding success, producing almost 10% annual growth for 30
years and lifting hundreds of millions of Chinese out of poverty. The changes
are apparent not only in the statistics, but even more so in the faces of the
people that one sees around the country.
I recently visited a remote Dong village in the mountains of Quizho, one of
China's poorest provinces, miles away from the nearest paved road; yet it had
electricity, and with electricity had come not just television, but the
internet. While some rising incomes came from remittances from family members
who had migrated to coastal cities, the farmers, too, were better off, with new
crops and better seeds: the government was selling, on credit, high-grade seeds
with a guaranteed rate of germination. At every level, there is a consciousness
of environmental limits and the realization that the resource-intensive
consumption patterns now accepted in the United States would be a disaster for
China - and for the world.
China knows that it must change if it is to have sustainable growth. At every
level, there is a consciousness of environmental limits and the realization
that the resource-intensive consumption patterns now accepted in the United
States would be a disaster for China - and for the world. As an increasing
share of China's population moves to cities, those cities will have to be made
livable, which will require careful planning, including public transportation
systems and parks.
Equally interesting, China is attempting to move away from the export-led
growth strategy that it and other East Asian countries have pursued. That
strategy supported technology transfer, helping to close the knowledge gap and
rapidly improving the quality of manufactured goods. Export-led growth meant
that China could produce without worrying about developing the domestic market.
But a global backlash has already developed. Even countries seemingly committed
to competitive markets don't like being beaten at their own game, and often
trump up charges of "unfair competition." More importantly, even if markets are
not fully saturated in many areas, it will be hard to maintain double-digit
growth rates for exports.
So something has to change. China has been engaged in what might be called
"vendor finance," providing the money that helps finance the huge US fiscal and
trade deficits, allowing Americans to buy more goods than they sell. But this
is a peculiar arrangement: a relatively poor country is helping to finance
America's War on Iraq, as well as a massive tax cut for the richest people in
the world's richest country, while huge needs at home imply ample room for
expansion of both consumption and investment. In order to restructure China's
economy away from exports and resource-intensive goods China must stimulate
consumption.
In fact, to meet the challenge of restructuring China's economy away from
exports and resource-intensive goods, China must stimulate consumption. While
the rest of the world struggles to raise savings, China, with a savings rate in
excess of 40%, struggles to get its people to consume more.
Providing better social services (public health care, education, and
nation-wide retirement programs) would reduce the need for "precautionary"
savings. More access to finance for small and medium sized businesses would
help, too. And "green taxes" - such as on carbon emissions - would shift
consumption patterns while discouraging energy-intensive exports.
As China moves away from export-led growth, it will have to look for new
sources of dynamism in its growing entrepreneurial ranks, which requires a
commitment to creating an independent innovation system. China has long
invested heavily in higher education and technology; now it is striving to
create world-class institutions.
But if China wants a dynamic innovation system, it should resist pressure by
Western governments to adopt the kind of unbalanced intellectual property laws
that are being demanded. Instead, it should pursue a "balanced" intellectual
property regime: because knowledge itself is the most important input in the
production of knowledge, a badly designed intellectual property regime can
stifle innovation - as has been the case in America in some areas.
An increasingly prosperous China has not only expanded imports from other
countries, but is also providing goods that have kept prices lower in the West,
despite sharply higher oil prices in recent years.
Western technological innovation has focused too little on reducing the adverse
environmental impact of growth, and too much on saving labor - something that
China has in abundance. So it makes sense for China to focus its scientific
prowess on new technologies that use fewer resources. But it is important to
have an innovation system (including an intellectual property regime) that
ensures that advances in knowledge are widely used. That may require innovative
approaches, quite different from intellectual property regimes based on
privatization and monopolization of knowledge, with the high prices and
restricted benefits that follow.
Too many people think of economics as a zero-sum game, and that China's success
is coming at the expense of the rest of the world. Yes, China's rapid growth
poses challenges to the West. Competition will force some to work harder, to
become more efficient, or to accept lower profits.
But economics is really a positive-sum game. An increasingly prosperous China
has not only expanded imports from other countries, but is also providing goods
that have kept prices lower in the West, despite sharply higher oil prices in
recent years. This downward pressure on prices has allowed Western central
banks to follow expansionary monetary policies, underpinning higher employment
and growth.
We should all hope that China's new economic model succeeds. If it does, all of
us will have much to gain.
Contributed by Joseph E. Stiglitz, a Nobel laureate in economics, Professor of
Economics at Columbia University and previously Chairman of the Council of
Economic Advisers to President Clinton and Chief Economist and Senior Vice
President at the World Bank. His latest book is Making Globalization Work.
Reprinted with permission from Project Syndicate.
To read another Global Envision article about China and sustainable
development, see US and China Face Mirror-Image Problems When it Comes to
Climate Change.
[Non-text portions of this message have been removed]
