Even though there are strong signs of recovery in the domestic economy, a senior Chinese policymaker says the nation needs to focus more on structural adjustment while drawing lessons from the global financial crisis.
"With the highest export dependence among all big countries, China has yet to find a solid foundation for economic recovery," said Zhang Xiaoqiang, vice-minister of the National Development and Reform Commission (NDRC) - China's top economic planning body - at the Summer Davos forum in Dalian yesterday.
China should significantly boost domestic consumption to pursue more balanced economic growth, Zhang said.
In both 2007 and 2008, exports contributed up to 37 percent of the country's GDP, a figure that far surpasses any other big country. Such extraordinary reliance on exports continues to threaten the recovery of the Chinese economy, which despite the turmoil registered stronger-than-expected growth of 7.1 percent in the first half of this year.
"This is a critical moment in the recovery because the world economy is still in recession," said Zhang. "As a result of weak external demand, China's exports shrank about 20 percent in the first eight months."
The economic policymaker said the need for structural reform of the Chinese economy is itself the first lesson that should be drawn from the crisis.
"In terms of adjusting the industrial structure, China needs to develop the service sector more rapidly, which can play a huge role in increasing employment," said Zhang.
The service sector accounts for only 41 percent of GDP in China, far below the level of not only developed countries but also the world average.
But only one out of the 10 industrial policies that the Chinese government rolled out early this year to stimulate economic growth was related to the service sector, Zhang pointed out.
Causes of the current global crisis were faults in the macroeconomic policies of developed countries, inadequate international financial regulation and supervision as well as excessive consumption in some countries, he said.
Modern economies have the financial sector at their core, so the Chinese government should encourage financial innovation and development while strengthening both internal risk control by financial institutions and external supervision, Zhang said.
Another phenomenon the NDRC official observed is that most Chinese enterprises that collapsed during the crisis were short of core competitiveness except for low labor costs.
"Science and technology must play a greater role in upgrading the industrial structure and better cushioning Chinese enterprises against crises," added Zhang.
He also stressed the need to further deepen reform and opening up, the fundamental reason for China's huge achievements over the past three decades.
The Chinese government started a series of key reforms in income distribution, healthcare, fiscal revenues and pricing this year
"This will not only help deal with the global financial crisis but also lay a solid foundation for sustainable development in the post-crisis era," said Zhang.
Because the global crisis proved that a laissez faire market economy is not flawless, China will allow the market to play a fundamental role in allocating resources, but enhance government macroeconomic controls.
"The invisible hand of the market should join the visible one of the government to facilitate sustainable development," said Zhang.