Opinion
Lu explodes myths of China's growth
By Yang Ning and Wen Jia (China Daily)
Updated: 2010-01-07 07:52
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Lu Zhongyuan, vice president of the Development Research Center of the State Council. [China Daily] |
Now, suppose the patient is the Chinese economy. How would one from the West diagnose it?
Highly dependent on exports, or downright mercantilism.
Very little domestic consumption. "Asians always save and never spend," as the saying goes.
Government investment plays a very big, if not unnecessary, role in the economy.
All these, however, are "China myths" propagated by some people from abroad, says Lu Zhongyuan, vice-president and a senior researcher with the Development Research Center of the State Council (China's cabinet).
Instead, argues the economist, what has created a huge room for change for China is its urbanization index, which is lower than even many other developing countries. As the urbanization drive expedites, Chinese consumers will spend more and their demand will make economic growth sustainable well into the next decade.
"China's growth has been driven mainly by domestic demand, which combines consumption and investment," says the economist who has studied in both Harvard and Oxford universities. "And despite its impressive volume of foreign trade, the contribution of net exports to China's gross domestic product (GDP) growth has been limited."
From 2001 to 2007, Lu says, net exports contributed 0 to 2.5 percentage points to GDP growth, which incidentally was around 10 percent a year.
In 2007, when GDP growth was 11.9 percent, net exports contributed only 2.3 percentage points to it. In 2009, China's exports contributed none to GDP growth because exports were estimated to have fallen 17 percent, and still the Chinese economy exceeded its target of 8 percent increase.
'Theirs is a wrong conclusion'
That being the case, "it's hard for me to understand why some people see China as following an exports-led growth model", Lu says. "Theirs is a wrong conclusion."
The flood of low-end "made in China" goods in almost every shop around the world has made observers believe that the country's exports accounted for a large percentage of its total GDP. Some even blame China's large-scale exports for the imbalance in the world economy.
Pointing out the fallacies in such arguments, Lu says the problem lies in the pattern of the global supply chain and the international division of labor. It's true that China has a competitive advantage in low-end industries because of cheap labor and land. "We do export a lot, but it is not our fault."
"The international division of labor is led by multinational companies in developed countries. Only if its pattern changes can we solve the problem of China exporting a lot," says Lu.
Now let's see if China's exports are indeed behind the imbalance in the world economy. China's exports accounted for 5.9 percent of the world total in 2003 and 9.1 percent in 2008 according to World Trade Organization data, while those of Germany took up 10.2 percent and 9.3 percent, those of the United States, 9.8 percent and 8.2 percent respectively. And in 2007, China exported 5 percent of the total exports of high-income countries.
"So why not say exports from high-income countries, or Germany, have created the imbalance?" Lu questions.
There is some problem with the statistical methods used in international trade, Lu says, because they exaggerate the role of exports in China's economic growth.
While measuring a country's dependence on foreign trade, a vast majority of economists concentrate on a simple but misleading figure: exports-GDP ratio. Since exports are defined as the total turnover and GDP measured in value-added terms, the exports-GDP ratio actually compares two incompatible things.
Lu cites an example to explain this incompatibility. The cost price of an iPod made in and exported from China is about $150 and its retail price, $300. But China gains only $3 to $5 as processing fees for making and exporting an iPod. That leaves more than $140 of added value to say Japan or any other country selling the product. So how can people blame "made in China" products for the imbalance?
