China’s economic reforms, regional initiatives bring global benefits: top EU economists

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Updated Mon, 26 Jan 2015 13:32:04 GMT

China’s ongoing economic reforms and initiatives on regional development will benefit both itself and the rest of the world, top European economists have said.

Speaking at the World Economic Forum annual meeting in Davos, Switzerland, Chinese Premier Li Keqiang said on Wednesday that the Chinese economy, the world’s second largest, is not heading for a hard landing.

During the economic transformation and upgrading, “the only risk for China was stagnation, but this has been overcome,” Daniel Gros, director of the Brussels-based Center for European Policy Studies, told Xinhua in an interview.

China’s economic reforms benefit the world in two ways, according to Gros, a former economic adviser to the European Commission and then the European Parliament.

“First, everybody benefits if China grows more strongly, especially if growth is re-balanced from investment and exports towards consumption,” he told Xinhua.

“Second, making the market the main determinant of economic decisions also facilitates trade,” Gros continued.

Fredrik Erixon, director of the European Centre for International Political Economy (ECIPE), a world-economy think tank based in Brussels, said economic reforms that open up for more competition and innovation are key to China’s development.

“The country could add a new dimension to its global economic leadership by fastening economic reforms that can reverse the country’s growth trend,” the Swedish economist said.

INVESTMENT INITIATIVES

In recent years, China has been eyeing economic upgrading through coordinating its financial and monetary policies and through long-term investment in such areas as infrastructure.

China has also proposed or promoted a host of initiatives, including the Silk Road Economic Zone, the 21st Century Maritime Silk Road, the BRICS Development Bank and the Asian Infrastructure Investment Bank, as part of efforts to fund global public investment and pursue win-win results.

Commenting on these initiatives, Gros said a distinction should be made between internal investment drive and the financing of investment abroad.

“Internal infrastructure investment has been useful to maintain demand and employment in the short run, but it does little to address the domestic demand deficiency which one can see in the continuing very high national (not merely household) savings rates,” he explained.

Chinese efforts to finance global public investment are laudable, but the size of this investment would be much smaller than domestic investment because other countries have an absorption problem for foreign capital, Gros said.

Noting that these initiatives will help push growth, Erixon said that “new investments that are combined with economic reforms have a much better multiplying effect.”

Regarding China’s trade policies, the ECIPE chief said China’s efforts to spur regional trade integration are important.

China’s trade negotiations with the United States or the European Union should not be that far off, provided that domestic economic reforms are sped up, he added.

CHINESE CAPITAL GOING OVERSEAS

Asked to comment on the going-out of Chinese capital, Erixon said the global market has seen an increasing competitve presence of Chinese companies.

Some sectors are sensitive in some countries, especially the infrastructure sector and those previously privatized sectors, but countries with a protectionist sentiment towards Chinese are declining in number, he said.

China can contribute to better conditions for cross-border investment by allowing more competition between outward oriented Chinese investors and by reforming corporate governance that will make it easier for others to understand how companies in China work, according to Erixon.

INNOVATION

Both economists also offered their insights on how China can step up its innovation-led growth, as Chinese governments are pushing for more innovation-supporting measures, including encouraging people to start undertakings and promoting the development of the internet economy.

Erixon said apart from increasing the scope for competition in the economy, China could accelerate its own innovation-led growth by education.

“The experience of many other countries is that it is smarter to invest in readiness to adopt innovations than invest in the capacity to create them,” he added.

Innovation is best left to the private sector, Gros said, noting that in reality, the government is rarely the source of innovation.