Admittedly, I have seen but a small part of the energetic and emerging dragon during my regular visits, but our first Economic Survey of China, released in Beijing on 16 September, provides an upbeat yet realistic appraisal of the country’s progress towards a fully fledged market economy. Indeed, with the contribution of the private sector to GDP edging towards 60%, China’s market economy now resembles some of the mature OECD economies as they were just two decades ago.
Of course, walking or driving the streets of Beijing or Shanghai, one gets the impression of a hustling, bustling economy in full flight, as evidenced by construction and crowded streets and stores, combined with western-style traffic jams. Nevertheless, China is not without serious problems, which it must address if it is to sustain growth rates of 9% per year. The reality is that the country is advancing at different paces in different regions, and the wealth gaps are widening. Moreover, despite its 1.3 billion people, China (like so many OECD countries) faces future problems posed by an ageing population.
One senses that the Chinese are fully aware of the challenges they face, many of which are underlined in another recent OECD study, Governance in China. They are aware that redefining the role of the state, modernising public management, adjusting relations between levels of government and consolidating the institutional framework for markets are key if China is to continue forging ahead.
We are also about to embark on an environmental review of China. The Chinese recognise the challenges of making rapid economic expansion compatible with environmental protection. Our work over several years on decoupling should prove useful.
I believe China will meet all the challenges we have identified together with determination and imagination. The OECD stands ready to help in this regard, and this seems to be appreciated by the Chinese authorities who have co-operated and collaborated closely with our staff.
The OECD can play a vital role in helping correct any misunderstandings of the effects of that policy on OECD economies, including the US. In this connection, one should reflect on how much ink, rhetoric and conferences are devoted to the analysis of China’s exchange rate policy, for example. While the perception of many politicians and their electors is that cheap Chinese imports are displacing US jobs, the real picture is more complex. Many experts, for example, point out that cheap imports from China not only help keep inflation in check, but also reduce the import of similar products from other countries.
Similarly, others have noted that many sophisticated electronic products which come from China actually consist of component parts imported from Japan and Chinese Taipei; the final product is simply assembled in China and then exported to foreign markets, including the US. Where this is the case, these experts conclude that a further revaluation of the yuan would have only a small effect on the product’s ultimate price, as this would be driven primarily by the cost of the imported components. The impact on the US or in other countries with which China enjoys a trade surplus would be marginal. Moreover, one should recall that China does not enjoy such surpluses with all its trading partners, including Japan.
Explaining these facts might help us consider what has become quite a heated debate more dispassionately. The OECD has the expertise and the credibility to do just that.
The OECD’s close working relationship with China at this time should be welcomed by all. Quite simply, our mission to help shape the global economy would be impossible if we were to exclude one of the largest economie on the planet from considerations of the multiple areas of common interest, including international trade and investment.
Let me cite the steel sector as an example to show why China’s international impact demands the OECD’s full attention. A few years ago we were invited to address the challenge of rationalising international steel production at a time when surpluses from obsolete facilities in many countries were distorting international markets. Initially China was not at the table, though fortunately, this soon changed. It should have been inconceivable to begin such negotiations without the world’s largest steel producer participating; after all, China produces more than twice as much steel as its nearest production rival, Japan. But unlike many other producing countries it exports little. This tells us a lot about the domestic consumption of steel driven by the extraordinary growth of the Chinese economy. And so it will be in other areas as well, with concomitant pressures on world commodity prices.
China’s participation in a broad range of OECD work over the last decade has been effective. But the time has now come when we must establish a more institutional framework to build our relationship–and the sooner the better.
©OECD Observer No 251, September 2005