Editorial: China's 8 Percent Window of Opportunity

飞雪寒冰

Unlike the nippy autumn weather, China's economy is warming up. The National Statistics Bureau recently said the nation's gross domestic product grew 8.9 percent in the third quarter compared with the same period last year. The bureau's spokesman, Li Xiaochao, gave confident assurance that growth for the whole year would comfortably reach 8 percent or higher. This positive forecast conformed to a Caijing poll of some 20 economists, who largely agreed that China's economy will recover with strength.

At the same time, it's become clear that the global economy is rebounding. Among major economic powers, corporate inventory levels and sales are returning to more reasonable ratios, profitability is improving, business confidence and consumer confidence are recovering, and commodity trading is active. A global recovery is taking off with gusto. As major holidays approach in western countries, consumer spending will power international trade growth in the fourth quarter. We should not be overly optimistic. But it's not farfetched to say that the most difficult period for the world economy is behind us.

When analyzing economic situations and China's strategies, discussions tend to revolve around pressing issues such as sustainability of the recovery, bank lending for next year, and timing a stimulus policy exit. These are all very important. The right answers to these questions can be found only by adopting a broad vision, availing ourselves of adjustment and reform while choosing development goals and a path for the future.

飞雪寒冰

China has an unusual window of opportunity to raise the quality of economic growth, especially while short-term growth is assured and inflation expectation is mild. This was underscored recently by the State Council which, while citing a need to "adjust economic structure" as well as "maintain steady, brisk growth" and "manage inflation expectation," sent a notable signal of policy fine-tuning.

During the global financial crisis and recession, China took the lead in the turnaround. Now, it can be expected to take the lead in the next cycle of economic growth. However, the external foundation underpinning China's fast growth is in serious disarray. And while considering the outlook for economic recovery, we must admit that it's impossible to return to the previous structure in the foreseeable future. Thus, the need to implement a strategy of structural adjustment -- an issue which until now has been limited to discussions, speeches and reports -- is coming to a head.

It's time for action. The domestic and international economic environment in the post-crisis era can spur China's institutional reform and structural economic adjustment for the benefit of long-term economic development. At this opportune time, it is highly feasible.

飞雪寒冰

Global economic growth needs a new engine, and much hope has been put on China. Indeed, if the world wants to sustain a stable level of growth, emerging market economies must step up to the plate to serve as an engine for international trade. The United States and other developed countries will continue the de-leveraging process, during which the savings rate will slowly climb and the consumption ratio will gradually fall. Moreover, global supply and demand led by developed economies will trend lower.

Meanwhile, China's status has risen to an unprecedented level. Urbanization and industrialization are accelerating, savings rates have been rising, and the domestic market's potential is huge. But while enjoying the dividends of globalization, China also should make contributions to deepen the globalization process. This calls for a pro-active role in future rebalancing of the global economy and adjusting its internal economic structure to adapt to the new global division of labor.

An unfair international monetary system is a major reason for global imbalance. Reforming the international financial system requires China's participation in planning and implementation. Nations dealing with the financial crisis have reached a consensus for reforming the system that gives China a larger role. Raising China's quota and voting rights at the International Monetary Fund are a matter of course, as reforming the international monetary system needs China's participation. And it is reasonable for China to put priority on reforming its domestic macroeconomic and financial systems while accepting greater global responsibility

飞雪寒冰

To be sure, a structural transformation for sustainable development is in China's own best interests. The internal and external environments are favorable for accelerating the transformation. The traditional growth model based on investment and resources cannot continue. Expecting domestic and international demand after the crisis to absorb the outdated system's excess capacity is totally unrealistic. Only through reforming the system and adopting policies to raise technological content can China embark on a new type of industrialization. Here, policies and institutional arrangements are needed to break up monopolies, make way for private investment, encourage consumption and stimulate internal demand.

While accelerating structural adjustment, China must speed up reforming the yuan exchange rate mechanism. Because China will assume greater responsibility in the international monetary system, the issue of the Chinese currency exchange rate will take international factors into account. With the weakness of the U.S. dollar, pressure for the yuan's revaluation is rising. The issue is bound to be a focal point after economic recovery is complete.

飞雪寒冰

Therefore, speeding up reform of the exchange rate mechanism in a timely manner would show courage toward accepting responsibility, which in turn would force internal structural change. In the long run, reforming the exchange rate mechanism would be a basis for enhancing the effectiveness of monetary policy.

Economic stability is the basis for market confidence, and right now, concerns have shifted from short-term economic recovery to medium- and long-term financial system stability, as well as structural soundness. It is satisfying to hear that 8 percent GDP growth is assured. But only through steadily rising economic growth, along with structural adjustments in line with global reform trends, can this kind of growth meet the long-term goal of sustainable development.