CHINA - DULL, STAID AND UNEXCITING GROWTH STORY
By Ruma Dubey
China today released its Q4 GDP numbers and they do indicate that as expected, there is indeed a cooling down.
Its Q4 growth rate as reported by the Chinese statistics bureau came in at 7.7%, which was slightly below the 7.8% recorded for the preceding quarter. For 2013, the economy expanded at 7.7%, same as that reported in 2o12 but much below the double-digit growths in previous years. Its industrial output for December rose 9.7% , tad below 10% in November and retail sales growth, an indicator of domestic consumption, was status quo at 13.6%.
It is time then for the world to worry about China slowing down? Well, not really. The country has managed to maintain its status quo despite it undergoing a transition, from an economy depending on exports to a more domestic demand driven economy. In 1980’s China unleashed the biggest economic reform, changing the entire economy of the world and the perception of China in the entire world. It’s party had then chalked out reforms to make China the factory floor of the globe, which is what China is essentially today. And with things slowing down, China is working out a slew of new reforms, just like in 1980, which many say could once again change the entire dynamics of world economics. In 1980, the theme of the reform was investment led and this time around, it is consumption led. First was the one-child policy, which now stands relaxed - couples can have two children if one the parents is an only child. This relaxation is not because China has got a grip on its population but because it now has an aging population and if needs to sustain this growth momentum, it needs to have a much younger or productive population.
It has also relaxed the hukou system or the household registration system which in turn in expected to increase mobility of labor and encourage further urbanization. Under the hokou system, those migrating to cities for work, had to give up their various welfare schemes and that prevented many from migrating. Thus relaxation will mean more movement of labor.
Being a communist country, all land in China is owned by the Govt and the farmer has the right to only work on the soil but there is news that this has been changed wherein farmers will now be allowed to own, use, transfer and also use their contracted land as collateral or guarantee. . This is a landmark reform as it will indeed mean more cash now in the hands of farmers and this will lead to a consumption led growth story. Housing prices are also expected to get affected as demand for homes will now go up as urbanization takes wings. Yes, land reform will be the biggest and most significant reform, which will change the country from being merely a factory to users too.
The Chinese Govt has announced sweeping changes in the financial sector, like a deposit insurance system by early 2014, privatizing the banking sector, reduce controls on pricing of water, electricity and natural resources. Most important and which could change the entire capital markets there - revamping the system for Initial Public Offerings (IPOs), which has drawn a lot of flak from foreign investors and has been dead for over a year now. These reforms will take a while to fructify; it is not going to happen overnight, it will be long drawn plan but at least it is going ahead.
We in India too need a growth stimulus and domestic demand needs to be kick started. But the big difference between India and China is that the latter is ruled by the Govt and it can bulldoze any reform. India is democratic, run by coalition politics and everything is ruled by political parties. And that is where India could lag behind. China is surely cooling down but their Govt seems more than proactive to counteract the slowdown – no policy paralysis and no ‘underachievers’ there.
The Chinese style of autocratic Govt is not the way ahead but our democratic system is not moving ahead. With elections looming large, for now, we have to merely look at surviving and hope that the next Govt will work on reforms and kick start our economy too. Till then, it is naïve to compare our economy with that of China.