After 6 consecutive quarters of adjustments, Chinese economy which reached the “soft landing” is looking for a new growth engine. Just in one month, Hunan, Guizhou and some other provinces issued different investment plans. Some people joked that after the central government introduced a 4 trillion economic stimulus plan, the provinces will be staged in the form of “4 trillion version 2.0”.
It is in the post-financial crisis era that the world economy is still weak now. China’s economy can’t lay the expectation to foreign market demands. It is impossible to reach the ground-breaking growth for domestic demands. So, investment is still a magic weapon to solve the narrow throat problem of local economy.
Economist- Li Caiyuan stated that China’s economy was experiencing two transfers- the transfer from central market to local market and transfer from government to folk- in this post-financial crisis era. Now it is a critical time for the strategy of domestic demands.
It seems to be a consensus that under this developing stage of China’s economy, the investment ratio should be high.
The well-known economist Lin Yifu said that “Keynesian” was necessary under current downturn international economic situation. He considered that the investment should be increased to recover from global economic difficulties, especially for the investment which can be helpful for eliminating narrow throat problems and increasing productivity. Lin highly affirmed the development consensus reached in the G20 summit, especially for the construction of infrastructure.
After the summit, high-level meeting of the East Asian infrastructure financing was convened by Singapore and the World Bank. At the meeting, Singapore intended to provide $500 billion sovereign funds for the development of the East Asian infrastructure.
Lin mentioned that plan in the same breath of “Marshall Plan” which was implemented by United States after World War II for helping the recovery of European economy. Lin expected to set more similar funds which can lay a more solid foundation for the global economic recovery. Lin was convinced that China would continue keeping the investment-oriented economy in a long time and can maintain a growth of GDP with 8% in the following 20 years.
Mei Xinyu considered that under the pressure of rising cost and the loss of traditional labor-intensive manufacturing export orders, China was stepping in the period of new and wider industry transfer and upgrading. At the micro level, the layout of production in the central and western China has become a common practice for the enterprises; meanwhile, at the macro level, the central and western of China gradually increase their shares on the state economy.
Mei concluded that the new supply and capacity generated by the investment were with strong demand and the digestion ability of domestic market was far underestimated. At the same time, thanks to the promotion of industrial transfer, central, western and north-eastern regions of China are developing rapidly, which further solves the problem of excessive investment in fixed assets.
Economist Li Caiyuan considered that under the premise of sluggish external demand, China’s economy is transferring to be domestic-oriented. In order to fulfill this significant strategic transformation, investment and consumption must be overall coordinated. If the last round of economic growth were mainly led by the central government, the local economy would play a key role of China’s economy in a long time after the successful “soft landing”.
In his view, the change of drive mode precisely means that China’s growth is “deep into the muscles and bones”. Because, compared with the big cities which are well connected with the world, China’s grassroots economic conditions are quite backward. Even the county’s infrastructure construction and urbanization condition are lagging far behind China’s industrialization level, not to mention the villages and towns. If China can mobilize the development strength of local and grassroots governments to reach the “greening uprising of county small and medium-sized cities”, its economy must change from export-oriented economy to extend the domestic demand and achieve a sustainable development.
China must change the distorted loop -“rural serves for urban, urban serves foreign market”. The urban areas resources, capitals and production capacity should be laid on the county, meanwhile the rural areas labor forces and consumption capacity also should be paid on the county. All of those can help the county economy to be improved as the core point of a new round of China’s economy development. Li considered that only in this way can we make China’s economy developed continuously.
How to avoid the potential problem of the expansion of local government debt? Li stated the idle “folk capitals” including state-owned emprises and private enterprises must be mobilized. It is not a continuous way to reach the development by increasing bank loans and local government debts. Local governments can attract state-owned and private enterprises investment by exchanging their properties.
According the statistic released by National Development and Reform Commission, fixed asset investment in local areas was increased greatly, covering 62.1% of the total county fixed asset investment, which was much higher than the 51.2% when the “new 36 policies” were newly discharged in May, 2010. The folk investment has become an important stabilizer on the support of investment growth.
Concerning the investment of infrastructure investment, Zhang Jie stated that it should be highly encouraged in the period when China is with population bonus and abundant surplus labors. All these infrastructure construction will become the foundation of society development when China is stepping into the stage of aging society, with less labor forces.
“County economy and folk capitals” will be the two leading roles in the next round of China’s economy climax. Zhang said it was the right general direction to follow the county economy development, which would help China deal with the problem of overdrafts of big cities. County economy will reach a new stage in the near future.