Touting a remarkable economic performance over the last three decades, with unprecedented poverty alleviation and unmatched growth, China is all geared up to join the list of the worlds high income countries in the next two decades, says a World Bank study on China.
With GDP averaging 10 percent per annum, China is now the worlds largest exporter and manufacturer besides bagging the title of the worlds second biggest economy, after US. Undeniably, if Chinas 31 provinces were considered as independent economies, they would be hailed as the 32 fastest growing economies of the world.
Going forward, If China reaches its goal of becoming a high-income society by 2030; it will be the worlds largest economy, outperforming the United States later this decade. Moreover, Chinas incremental size in the next two decades is envisaged to equal 15 times of todays Koreas.
However, keeping in view the above stated objective, question mark still hangs on whether China will be able to do so even if its growth rate recently plunged from its current mark. Moreover, there is a bewilderment over Chinas ability to attain sustainable growth without agitating its own economic framework, its relationship with other countries and with little ecological hubbub.
The answer to both the questions could be affirmative, provided China sways from its primordial policies to the policies that could address its present and future challenges. Albeit, it was Chinas successful development policies that made the country a middle income economy today, however, China has reached a turning point in its development, one that calls for a definite strategic shift.
First and the foremost thing that the country has to realise, is the fact that direct government intervention doesn support rather retards the countrys growth. Private sector participation is critical to countrys growth. Thus, it is imperative for the government to play an indirect role by creating an environment conducive to private sector development, enhancing the quality of human capital, encouraging public participation in the development process, financing public services (pensions, medical care, education, housing etc.) and increasing the equality of opportunities.
The second important factor is to monitor the quality of growth i.e. to see the growth prospective through the lens of welfare and sustainability. It should be ensured that growth comes with a greater sense of economic and social protection.
Attaining balanced growth is another crucial area where China needs a strategic swing. China is home to over a million millionaires, while above 170 million live on less than two dollars a day. This problem stems from lack of factor price equalization in China. The system implicitly taxes the labour and subsidizes the capital. Correcting such distortions will help achieve greater equilibrium between manufacturing and services and distribution of income between capital and labour and between rural and urban households.
Other key factors include reinforcing innovation, easing the entry and exit of firms in the domestic market, giving SMEs greater access to finance and market opportunities, ensuring high moral laws, fostering public discussion of policies, seizing green development etc.
However, amid so many opportunities to grab, Chinas new government faces some grim challenges that cry out for reforms. Firstly, the challenge is how to rebalance the economy and improve consumer spending, thus making the economy independent of government spending and exports.
Moreover, the major downbeat factor stemming from Chinas economic success is its environment. It is abode to 16 of the worlds 20 most polluted cities, while farmers water is contaminated with chemicals and fertilizer.
Another challenge is the lowest fertility rate on account of one-child rule. In 1980s, the median age in China was 22. At present it is 35 and by 2050, it will go up to 50. Thus, it is widely feared that China will grow old before it grows rich. China has too few young people to pay for the pensions of the elderly.
In such an uncertain backdrop overflowing with opportunities and threats, how the country fights against the depressing factors and achieve its objective of becoming the high-income country, outstripping US, is the real big challenge.