Asia's Recovery: Is it Sustainable?
Mr. Yu Xiaosong
Chairman
China Council for the Promotion of International Trade
Mr. Chairman, Ladies and Gentlemen:
I'd like to share with you some of my thoughts on the topic.
No doubt, the Asian financial crisis has tolled heavily on Asians. However, by virtue of the various reform measures implemented by the afflicted economies, the continued growth of the American economy on a fast track, the global pick-up of industrial production centering on electronics, in particular semiconductors and some other factors, the Asia economy has embarked on a steady growth track since 1999. The growth rate had jumped to about 5.7% in 1999 from the 2.3% in the previous year. The Southeast Asian countries and Korea have done particularly well, achieving strong growth out of serious recessions.
It has become a common perception of the Asian economies to further restructure economic systems, develop high tech and improve on social security systems. In Korea, the government is moving away from the traditional philosophy of favoring enterprise giants towards actively supporting SMEs, thanks to the problems in connection with the Chaebos. The Singaporean government has committed colossal resources to develop the industries based on technology, in particular the net economy. Malaysia has revamped its financial system. The Indonesian government has been deregulating the financial and retail sectors and has lifted restrictions on foreign equity. Thailand is stepping up education and human resources development, aiming to sharpen its edge in high added value sectors. It is only fair to say that many Asian countries and regions are exploring new ways to achieve sustainable development in the context of globalization.
It is forecast that the year of 2000 will see greater momentum in the economic recovery of Asia, with higher growth than 1999 in most crisis-stricken Asian countries and regions except for Korea. Thailand and Malaysia are likely to grow about 5%, Indonesia some 4%, the Philippines 4.5%, Korea 6%, Chinese Taipei and Singapore above 6%.
However, the strong rebound of the Asian economy last year was to a great extent the result of increased public spending and greater deficit. The growing deficit adds to the worsening debt burden on many countries. To alleviate the debt situation, the governments are either to cut spending with the consequence of lower growth rate, or to raise taxes which will deter investment. Either way will pull back on the recovery momentum to a certain degree.
Besides, if the crisis-stricken Asian economies aspire for growth rates similar to the prior-crisis levels without taking on the bubble economy model again, some innate structural deficiencies need to be overcome in the first place, and it takes time.
Firstly, a fair and transparent policy-making environment should be fostered, with an aim to greater transparency in the economic regimes and better corporate governance. One repeatedly stressed inner factor which was blamed for having led to the crisis was the non-market-oriented relationship between government and business as well as between the banking and corporate communities. The unsound relationship had given rise to acts in ill conformity with the market rules, fostering a large bunch of non-efficient businesses and business relations. Reforms in this respect have started, and yet without apparent progress. This will seriously hinder the Asian economy's growth in the long run.
Secondly, the capital market should be further developed. Many Asian countries and regions have boasted high savings rates. Unfortunately no effective mechanisms have been set up to channel the savings to long term investment in industry. To Asia, it is all important to restructure and solidify the banking sector, of course. Yet it is no less urgent to establish and develop the capital market.
In short, whether the Asian recovery can sustain will depend above all on how successfully the Asian countries and regions will drive home the much needed reform measures. In this regard, international organizations, developed countries and multinational corporations can also play a role in help Asia recover. A better-off Asia, with its huge population, will be a greater market for developed countries and multinationals. In the meantime, we shall pay more attention to setting rules for international economic relations aimed at narrowing down the gap between the rich and poor, as is beneficial to both sides.
In 1999, the Chinese economy grew by 7.1%. Foreign trade rebounded in the latter half of 1999, leading to a total trade value of USD360.7 bn for the year, an 11.3% increase on the previous year. The volume ranked China No. 9 in the world, 2 steps up from the No. 11 position the year before. By the end of the year, the foreign exchange reserve amounted to USD 154.7 bn. The actual input of foreign direct capital was USD40.4 bn.
Generally speaking, the Chinese economy improved in terms of structure in 1999, churning out better efficiency. The industrial sector reaped profits of RMB220.2 bn, 52% up from the previous year. The state-owned and state-controlled industrial enterprises achieved a profit tally of RMB96.7 bn, 77.7% up from the previous year. The fiscal revenues amount to RMB1137.7 bn, increasing by RMB150.1 bn over the previous year.
China's export growth may be mainly attributed to the following factors. Firstly, the Chinese government twice raised the refunding rates for export commodities, which had sharpened the competitive edge of Chinese export products. Secondly, the overall recovery of the global economy had raised the demand for Chinese products. Thirdly, the prices on the international market had been rising, to the advantage of Chinese export growth.
We notice that China's exports have been growing, to a large extent, not because Chinese companies had improved their productivity, cut costs and therefore elevating their competitiveness. Instead, it was due to favorable outside environment and policy support by the government.
The problems facing China's export are:
1. There is a high degree of uncertainty in the prospect of the world economy for the year. Generally speaking the outlook is better than last year. However, it is not based on very firm grounds. The American economy is simmering with omens. The Euro zone continues to be obsessed with high unemployment rates. The Southeast Asian economies are still riddled with structural problems. Global overcapacity is far from receding. International trade disputes are booming. Trade protectionism still exists.
2. The export growth remains reliant on quantity growth.
3. The gap between east and central-western parts of China is widening. Export in the east grew by 6.9% in 1999 whereas it fell by 2% in the central-western parts. The export of the central-western China only accounted for 8.7% of the country.
1. Analysis of the conditions for China's economy
The year of 2000 will be a key year for the Chinese governmental restructuring and reform of state-owned enterprises. It will also be a year to lay the economic and institutional foundations for the Tenth Five Year Plan.
Looking internationally, the East Asian economy is predicted to continue to recover. The Japanese economy will achieve positive growth. The global economy is forecast to sustain its momentum of growth.
Looking at home, since the Chinese government adopted an aggressive fiscal policy in early 1998, the macro regulation measures have achieved remarkable results in enhancing domestic demand, stemming the economic slide, reducing enterprises' inventory and improving their efficiency. Over the two years, the government has cumulated valuable experiences in combating deflation. The government has decided to continue to implement an aggressive fiscal policy in the year, and rejuvenate the campaign for West China Development.
As you may know, China started to open up and reform in the east and coastal areas, where the economy has since taken off and become full of energy. 80% of foreign investment has been poured in there. Therefore, the government can also play a key role in developing the west with appropriate policy support. The central government has already increased investment in the west in infrastructure and ecological construction as well as improvement. With the vast land mass, rich natural resources and low costs, the central-western parts of China have their own attractive aspects. In a long period, the development of West will be pulling along the growth of domestic demand and bolstering China's overall economic growth. It will also open up vast new fronts for foreign investment.
2. Forecast on growth in 2000
Economists have provided 3 scenarios for China's economic development in 2000 based on the magnitude of the impact of macro regulation measures on domestic demand. They are respectively growth of 8%, 7.5% and 7% in GDP. The 7.5% scenario requires a magnitude of macro regulation stronger than in 1999, with the issue of treasury bonds of RMB80 bn and gross fixed investment growth at 13.5%. Under the scenario it is envisaged that stability can be well balanced with development, stemming the contraction of the economy without imposing too strong pressures on the mid-term balance of revenues and expenditures of the country. Such relatively relaxed environment will be conducive to the handling of structural problems.
At the 3rd Session of the 9th Congress of China just concluded, it was decided to continue to implement an aggressive fiscal policy in 2000, measures including: issuing RMB100 bn long term state bonds to be invested in the construction of infrastructure, science and technology development and education facilities, environment rectification, ecological construction and technological renovation of enterprises. The focus will be on the central-western parts. All measures are aimed at encouraging investment, consumer spending and exporting.
It is my belief that China will be able to achieve a growth of about 7% in the year 2000.
Thank you.