The Transformation of the Chinese Economic Model
The panel session ‘The Transformation of the Chinese Economic Model’ was held on June 17 as part of the 20th St. Petersburg International Economic Forum. The session was attended by the representatives of Russia, Switzerland and China.
The discussion centred on the risks and opportunities for the restructuring of the Chinese economy, options for creating a more sustainable development model using China’s experience, as well as the impact of the current transformations on the global economy.
The session was moderated by Sitao Xu, Chief Economist and Partner at Deloitte, China.
Ivan Glasenberg, Chief Executive Officer at Glencore, opened the debate. “Why am I less optimistic about China’s prospects than other experts? Because I have the figures. Look at the simplest indicators: per capita GDP is USD 8,000. In South Korea, it is USD 30,000. Will China catch up with South Korea? Will it be able to double its per capita GDP by 2020, as it announced? I don’t think so. China is facing a long way ahead to reach these figures,” Mr. Glasenberg stressed.
Independent economist Andy Xie disagrees. He is convinced that China’s rebirth goes on, and is optimistic about the country’s future. Moreover, the expert does not see China as a developing economy of a transition period.
Mr. Xie offered some recommendations: “It is inappropriate to manage the economy through monetary flows, one should start with structural reforms. China has a lot to do in this respect. We also should think what to do with excessive production.”
Andy Xie also noted that the level of living in China could be raised easily without any additional investment. All that needs to be done is to change the terms of financing, engage the private sector and reduce the government’s involvement. “The Chinese government has already spent half of its money inefficiently. It is necessary to distribute this money differently,” the expert underlined.
Dr. Bing Xiang, Founding Dean of the Cheung Kong Graduate School of Business (CKGSB), thinks the power of the Chinese economy is often underestimated. “I remain optimistic for a number of reasons. Firstly, the level or urbanization in China is just 51%. Secondly, it is possible to move from regulation to deregulation,” he said.
For his part, Maksim Oreshkin, Deputy Finance Minister of the Russian Federation, believes that one of China’s biggest problems is its debts. Another problem is the inefficient infrastructure investments.
Andrei Klepach, Deputy Chairman and Member of the Board at Vnesheconombank, pointed to the importance of structural reforms. However, the aggressive shift toward the market economy could be a shock, with the negative consequences. This is what happened in Russia in the years of Perestroika.
Alexander Morozov, Director of Research and Forecasting Department at the Central Bank of Russia, stressed the need to stabilize the situation in China. “If China solves its problems, we will get an opportunity to develop. If not, Russia will be delayed, too,” Mr. Morozov warned.
He sees the internationalization of the Chinese currency as an important factor for Russia. Yet, for the yuan and the ruble to function normally, it is necessary to ensure macroeconomic stability, Mr. Morozov is convinced.
Alexander Mashkevich, Chairman of the Board of Managers at the Eurasian Resources Group (ERG), proposed to distinguish between China’s problems and the problems of excessive production capacities. “If we speak about the future of China, I am overoptimistic about it. The country has huge reserves. We will see how quickly it uses them. Another thing is overproduction. This is a problem. Here I am pessimistic because as soon as China begins to introduce market-based mechanisms to restrict the production of many, many products, a social conflict will ensue, and a shock situation. This will be a huge problem for all manufactures around the world,” Mr. Mashkevich explained.
The results of the meeting were summed up by the moderator Sitao Xu. He spoke in favour of deregulation and stressed the need to foresee and prevent the negative shock events which Russia suffered.
