Reflections on the evolution of Chinese economy during economic crisis
Florin Bonciu, Ph.D.
Institute for World Economy, Bucharest
The following reflections are based on the interpretation of various economic data regarding the evolution of Chinese economy during the period of economic crisis. Therefore they represent interpretations of economic data and not an in-depth analysis of a macroeconomic model.
During the period 2008 – 2010 the Chinese economy performed much better than other economies from European Union, North America or Japan. My perception is that this better performance is not due to some very specific action taken during the crisis but rather due to the long term approach of Chinese leadership that combined market economy approach with a planned approach.
For a country as large as China I think it is not possible either to control it completely or to let it completely uncoordinated. It is too big to control everything and it would be a mathematical impossibility to let everything uncontrolled and still has a good economic and social stability and development. Therefore I think that the combination of market and plan it is the only approach possible and it works.
The economic crisis affected everybody but in a way it favors China. For one thing because people all over the world are more price cautious due to the crisis and therefore China has more chance to sell less expensive products. For another thing, having still a strong plan system in place China could react much faster to the effects of the crisis.
Another advantage in my opinion is the fact that China has a strong manufacturing sector in the economy, with a larger proportion of GDP than in European Union, US or Japan. The world economy still needs a lot of manufactured products, not only consumer goods but also equipment and machinery and countries that have most of their economies based on services may be at a disadvantage.
Another factor is that China is investing a lot in infrastructure and with a view to the future (like the option to support high speed railways). This creates jobs and a solid basis for the future development of the economy. Romania did not invest in infrastructure in the past 20 years and it lost a lot of foreign investors because of that (like Daimler Benz that went in 2008 to Hungary because of lack of highways and good infrastructure in Romania) and could not capitalize many of its resources.
In my opinion the fact that China invested a lot in the economy in 2009 to counter-act the crisis had very good results and prevented the economy to enter into recession.
Therefore I think that the Chinese approach to the economy is functional, is adequate for the size of the country and allows long term development.
Anyway, as it is known, the only constant thing in the world is change. The challenge for China is not the present but the future. China is becoming more and more an important participant in decisions for the world economy. That means responsibility and vision. In my opinion the best approach for China as a world decision maker in G20 or in IMF or World Bank would be to think about long term implications of its decisions and to accept as much as possible the diversity that exist in the world economy.
The possibility that the Chinese currency become convertible and one of the new important currencies of the world is a very big responsibility and will represent a challenge to be very seriously considered before implementing.
Also in my opinion, China should concentrate resources on innovation, fundamental research and education. For years China was known as a mass producer of consumer goods and other products. But in the long run it should become an innovator in science and technology in order to maintain its position. Information society is based on individuality and virtuality. These are some new directions to develop or consolidate.
As a summary I can say that the Chinese model has provided for some time very significant economic results, in order to continue to obtain the results it should be flexible and with a clear vision and goal. It is by no means perfect but the perfection consists in being perfectible.