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2010-02-23

Also on the scale of China's economic impact

Comments on Ligang Song “The scale of China’s economic impact”, 23/02/2010, http://www.eastasiaforum.org/2010/02/23/the-scale-of-chinas-economic-impact/

Song's article is an interesting one.

I'd like to comment on some points in the article.

First, some challenges are also opportunities, as touched in some parts of the article. For example, the so called low carbon economy can be both extremely challenging for the world as a whole because it will represent as an additional constraint and possibly very rewarding for some economies. Assuming the presumed low carbon economy or changing towards it will be true in the next couple of decades, one has to consider not only from an absolute advantage, but also a comparative advantage point of view.

From that point, there will be very different implications for different economies. For some, it may be double whamming, while for some it may be a new, rare and extremely valuable development opportunity.

Secondly, while it may be perceived desirable to have a systematic institutional reform, history does not necessarily prove that is always feasible and realisable. China’s economic reforms in the past 30 years or so was on the premise of “cross the river by touching stones” as opposed to a well designed, systematic, big bang approach to reform.

Thirdly, it may be more pertinent to talk about systematically economic reforms in China 30 or even 20 years ago, the reform tasks in that front, while still incomplete, are largely accomplished.

Fourthly, political reforms, while undoubtedly extremely important in the long run, can be equally extremely tricky and difficult. What is the target “model” for political reforms for China? While many people either explicitly or implicitly assume the western style political system as THE model for China to follow, is it an inevitable end and/or path of the political reform?

Fifthly, in terms of the process or stage of economic development, while China’s growth might not be expected to slow, it does not necessarily mean that its energy, resource and carbon intensity of growth will not recede, as the Song states. Definitely the intensity of energy, some resources and carbon of the Chinese economy as a whole is likely to decline. I guess this is the reason and underlying logic why the Chinese government has proposed for its carbon intensity to decrease by 40-45% by 2020 over that of 2005. 40-45% reduction is by no means a small recession in the intensity.

So my view on China’s impact on many things is that it is now at a very interesting stage where there will be a sharp difference in terms of the absolute and relative magnitude. The next phase of the Chinese economy is likely to increase the share of quality growth in its total growth as opposed to a sheer focus on quantity growth. The implications of that transformation on many things, especially on resources, will be very interesting to see.

We perhaps need to borrow an analogue to the adaptive and rational expectations theories in analysing the Chinese economic growth for the next decade or two.

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