OPINION> Commentary
Time to shift focus to multi-sector growth
By Jin Liqun (China Daily)
Updated: 2008-10-21 07:48

Before the flame of the Olympic torch was extinguished, debates on the outlook of China's economy had already taken over the heat. Questions were raised as to the sustainability of China's post-Olympic economy. Is it likely to experience a sort of downturn?

The concern over China's possible slowdown is now even more pronounced as the financial tsunami hits the US and Europe, with its shock waves starting to pound the shores of the developing countries. The big question is whether China can stand rock firm amidst the financial and consequently economic crisis on a global scale. What role is China supposed to play in the international rescue team, or just to stay afloat? As is obvious, no economy is immune to the contagion in the context of globalization.

One observation is that China's crucial role should be to keep its own economy robust. For that to happen, China needs to stimulate its domestic demand, through continued investment in infrastructure for that matter. The financing for Olympic Games-related fixed assets is believed to have fuelled the economy, and it stands to logic that spending on infrastructure should not relax in the post-Games period. In fact, the Olympic Games was not what pivoted the motors of China's economy. While its impact cannot be denied, it has been very much localized in Beijing and, to a much lesser degree, in some other selected places. Beijing accounts for 3.6 percent of the national economy. The total resources for the stadiums and other sports facilities disbursed over the last four years were in the order of about 300 billion yuan, or an average 0.55-1.06 percent of the entire fixed assets investment. China's spending on the Games is not a big-ticket project any more than a mere swipe of credit card for some electronic gadgets is an extravaganza for a middle-income family in Beijing.

Some pundits argue that the end of the Games does not amount to the end of the robust growth because of many infrastructure projects, either ongoing or ready for groundbreaking. This sounds tenable, but it is still hooked to the seat-of-the-pants conviction that China's growth depends on fixed asset investment. The inference is that if China has to sustain growth, it has no option but to constantly scour the vast territory for investment opportunities: It is nothing but a brick-and-mortar business.

Actually, the mushrooming of Olympics-induced infrastructure facilities masks the contribution of high-tech to this sports event, which is much less visible, but no less crucial to China's economy. The hosting of the Olympics has occasioned a range of new high-tech products and services which permeated the supporting system to the Games as well as the city's operation during this big event. It will be a tremendous push to Beijing's structural transformation, paving the way for sustainable development on a higher and more sophisticated level. The uplifting of infrastructure has certainly facilitated the overall development in the nation's capital, nurturing its high-tech and service sectors and promoting IT and environmental protection. This experience is relevant to the national economy as a whole.

This is not to deny that infrastructure will remain the priority for the national economy, particularly for the vast hinterland. However, infrastructure should not be the priority forever. China's growth engine will certainly continue to feed on a host of behemoth projects, such as post-earthquake rehabilitation in Sichuan, Beijing-Shanghai high-speed railway, and Shanghai World Expo. For all its mammoth size, however, an infrastructure project is by its very nature a one-off undertaking, rather than the driving force that can sustain a growth momentum over an extended period of time. Stacks of projects at hand can certainly keep the economy going full steam for decades. In the coastal areas, however, with each tick on a completed mega-project, the laundry list is shrinking. Attention should shift from building infrastructure toward tapping existing infrastructure to promote multi-sector-based growth in a balanced manner. At least, it is relevant to the developed coastal areas. Such an approach may not represent a dramatic shift in development paradigm, but it will be a meaningful part of economic rebalancing.

For three decades on end, infrastructure development has been all the rage. It is the defining trend of China's economy, and the default powerhouse. Infrastructure has reshaped the contours of the country's economic landscape for it to better fit into globalization. But China's economy is now on the cusp of a major reconfiguration. China has now reached a development stage where fixed asset investment should not be taken as an antidote whenever a downturn is in the offing. The weight of infrastructure relative to other sector will inevitably decline, whereas service sector and high-tech industries will take on a more important role. With China moving up the rung of the economic ladder, investment in fixed assets is likely to come up short in addressing more complex macroeconomic and microeconomic issues critical for a sound growth.

Even within the infrastructure sector, attention should be focused on efficiency in the use of raw materials, and on energy efficiency for the long-term operation of such facilities, so that these facilities will not impose high operating costs during their life cycle. In power, more resources should be allocated for renewable energy projects, rather than cloning coal-burning power plants without new technology for better emission control. There is a lot we can do to attain to the goal of renewable energy accounting for 10 to 15 percent of the total energy production by 2010 to 2015.

Furthermore, infrastructure development is not best known for seamless coordination in a number of developing countries. Short of that, waste is inevitable. A power plant or a transmission line will have to stand idle if its completion schedule does not match. For a developing country with a reasonable array of infrastructure facilities, the challenge is to render them more hospitable to productive activities in the national economy.

The recently concluded third Plenary Session of the 17th Communist Party of China Central Committee has provided important guidelines for the macroeconomic management at this crucial moment. The roadmap for rural development is most crucial for improving the living standard of China's 730 million rural people. Fundamentally, stimulating the domestic consumption hinges on increasing the purchasing power of the rural population.

China's growth definitely has to be sustained in a non-inflationary manner. Bulldozers will continue to hum along and cranes will swing their projecting arms as usual in numerous construction sites. But they should mean more than building infrastructure facilities with scant features for energy efficiency, emission reduction, and inadequate interface with other sectors. Increased investment in rural infrastructure development should be an integral component of the macroeconomic stimulation program. Infrastructure is the key, but it should be the right key for the right lock.

The author is chairman of Supervisory Board, China Investment Corporation

(China Daily 10/21/2008 page8)