The Shape of China’s Future Growth

KC Kwok

8 September, 2008

Many of the success factors have/about to run their course

• Low cost, export-led growth• Investment-led growth• Emphasis on manufacturing• Catching up with technology• Quantitative expansion, crude growth• Growth comes first• The capacity of the world to accommodate

China’s growth

Unbalanced economy• Increasing disparity between

– urban and rural– the east and the west– haves & have-nots

• Investment driven growth• Dominance of public sector• Environmental degradation• Increasing trade surplus and foreign

reserves

Changing the mode of economic development

From

• “Fast & good quality” • Low cost as competitive

edge• Emphasis on

manufacturing

• Attracting in• Economic growth comes

first

To

• “Good quality & fast”• Raise innovative

capability• Improve economic

structure (develop services industries)

• Going out• Harmonious society;

improve citizens’ livelihood; enhance administrative capabilities

Key ongoing reforms• Further administrative reform• Fiscal and taxation reform • Financial market reform• SOE reform & facilitating non-state sector

development• Development of factor markets• Build up social security system• Incentive system for environmental

improvements

Financial market reform & development

• Financial market reform & development lagging behind rest of the economy - costs and risks

• Benefits of financial market development

• Role of Hong Kong

• Relationship between HK & Shanghai

• Other financial centres

Need to grow the private sector

• Public sector still getting a disproportionate share of China’s growth– SOE dominance in many sectors– rising share of government revenue in GDP– rises in asset value accrue largely to public sector

• The development of private sector helps to – improve efficiency – increase private investment – increase consumption of services

Regional development

• Yangtze River Delta• Pearl River Delta (Pan PRD)• Bohai region• Revitalizing the Northeast• Developing the West• Rise of the middle• Taiwan Strait economic region• Other sub-regions

Medium-term growth drivers

• Demand side drivers– Quantitative and qualitative improvements in

consumption– Urbanization – Investment in infrastructure and industrial

upgrading

• Supply side drivers– Further liberalization of economy– Economic re-structuring– Further reform of government

Guangdong-HK economic integration

• complementary economic relationship under “one country, two systems”

• momentum for further cooperation– GD’s economy is at a turning point– GD is HK’s market, hinterland & possibly

conduit for the rest of China– HK is Guangdong’s international contact– HK’s services capabilities could help GD to

restructure its economy– HK’s public services are something GD could

learn from