By staff reporter Li Xin

From the Caijing Annual Conference

Leading Chinese economic scholars and government leaders reached a consensus on China’s future at Caijing’s annual conference December 12: Shoring up domestic consumption, they agreed, is a key to boosting the nation’s slowing economy and promoting sustainable growth.

A variety of suggestions were offered for reaching the goal. Some called for increasing personal incomes, while others recommended cutting taxes, subsidies for consumers, discouraging investments in high-polluting, energy-inefficient sectors, and preventing irresponsible investing.

At the same time, conference speakers said government involvement – including Beijing’s recently announced plan to spend 4 trillion yuan for domestic projects over the next few years – should come with strings attached, particularly in the areas of project targets and accountability.

Employment: Help the Invisible

Improving China’s labor picture – especially the nation’s “invisible” workforce -- was cited as a way to boost consumption by Cai Fang, director of the Institute of Population and Labor Economics at the Chinese Academy of Social Sciences. He said increasing temporary employment could help spur the economy through consumer spending.

The latest national unemployment rate was 4 percent – unchanged from the 2007 level, the government said. But Cai said that statistic is misleading because it counts only registered employment, while excluding the massive number of people with temporary jobs, as well as migrant workers.

Unregistered employment is more elastic and reacts more rapidly to economic cycles, Cai said, which means temps and migrants – despite their ability to quickly adjust -- will suffer a heavier blow during an economic slowdown.

Cai said supporting the unregistered employment sector can beef up the nation’s GDP. He called for local governments to shift more resources to support this group of workers, which was largely excluded from the government’s economic stimulus plan, especially at local levels. Large, state-owned companies are expected to get most of the help.

Heavy vs. Light Industries

Shen Minggao, Caijing’s chief economist, said central and local governments should not use the economic stimulus package to overemphasize heavy industry.

“Looking at the indicator of industrial production value-added, heavy industry falls faster than light industry,” Shen said. “However, for exports the slowdown in light industry exceeds that of heavy industry.

“If we invest only on upstream, heavy industries, we can boost industrial production value-added and GDP, but light industry will get little benefit” and the export sector cannot be expected to recover, he said.

Meanwhile, Shen said, prospects for deflation in China have dimmed. The central government’s tight monetary policy in late 2007 and early ’08 reined in overcapacity and drove down the possibility for deflation in the near future.

On the subject of China’s largest trading partner, Shen said the end of China’s slowdown will be determined by the recovery of U.S. economy. He predicted it will take three years.

To ensure China’s continued growth, Shen said, the government needs to help light industry, provide affordable housing and encourage consumption among average Chinese.

Support Measures

For local governments, companies are a first priority. So Huang Qifan, vice mayor of the municipality of Chongqing, said banks should continue lending and let debtors delay payments while the government provides guarantees for companies strained by the slowdown.

At the same time, Huang said, the government should not increase company burdens by raising minimum wages or restricting layoffs. He suggested the government set up centers for laid-off workers where they can be trained for new jobs.

At the central government level, the economic stimulus must be combined with accountability measures, said Zhou Qiren, dean of the National School of Development at Peking University. Following the money’s distribution channels, supervising recipients and monitoring the effectiveness of stimulus projects should be subject to scrutiny by the government, media and public, he said.

Zhou also recommended government tax cuts be accompanied by reduced administrative expenses to prevent government deficits. He suggested a 5 percent reduction in administrative spending.

Although China’s economic stimulus package after the Asia financial crisis in 1997 successfully triggered a speedy recovery, some scholars see downsides to that kind of investment-centered remedy.

“The negative impacts of the last stimuli were heavy reliance on resources, overcapacity and a low consumption rate,” said Shao Bingren, deputy director of the Subcommittee of Population, Resources and Environment at the National People’s Political Consultancy Committee.

Shao said problems emerged from an unbalanced growth model which, he said, was bound to cause trouble sooner or later. He added that the U.S. financial crisis should not be blamed for China’s current slowdown.

When the Crisis Ends

Although it’s hard to predict when the global economy will hit bottom, the experts agreed the next wave of economic growth in China needs new stimuli to replace the last decade’s economic engine – investments and exports.

Jean-Pierre Lehmann, a professor of international political economics at the Swiss business school IMD, said entrepreneurship and technology should be at the core of China’s new, healthier growth model. But he warned that trade protectionism would be harmful.

Shen suggested reforming the nation’s pricing mechanism and focusing on the services industry. He said as China’s per capita GDP rises from US$ 2,000 to US$ 3,000, the services industry should significantly increase its share of GDP from the current 40 percent.

Shao recommended several measures to ensure sustainable growth in China, including upgrading the financial sector, reforming price controls and breaking up monopolies – particularly in the rail, power and civil aviation sectors. He said China should invite private participation in these industries while boosting incomes among average urban workers and farmers.

Shao said he is optimistic about a swift recovery in China, saying the Beijing government is experienced in using fiscal and monetary policies to cool down or warm up the economy. Local governments have resisted central government attempts to prevent overheating in the past, the scholars said, but this time everyone is in the same boat.

1 yuan = 14 U.S. cents