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China's new leaders will have to set a new course for economy, experts say

China's new rulers, set to be named next week, face challenge of steering the world's No. 2 economy toward a more sustainable path after three decades of rapid growth.

November 08, 2012|By David Pierson, Los Angeles Times
  • Chinese flags line a pedestrian street in Beijing to mark the Communist Party's 18th National Congress, during which new leaders will be named. They will take the reins of the world's second-largest economy.
Chinese flags line a pedestrian street in Beijing to mark the Communist… (Eugene Hoshiko, Associated…)

BEIJING — China's new leaders, set to be unveiled next week at a once-a-decade transition, will soon be handed the keys to the world's second-largest economy.

But unlike their predecessors, who embraced growth at all costs to spur the country forward, China's incoming rulers will be tasked with steering the economy toward a more sustainable path.

China must boost its private sector, reduce its reliance on low-cost exports and big-ticket public projects, and put more money into the hands of ordinary Chinese, experts said. Failure to do so could stall China in the so-called "middle-income trap" — unable to innovate like advanced economies but too prosperous to compete with low-wage manufacturing nations. Adding to the crunch is China's rapidly aging society, which is shrinking the country's workforce.

"After 30 years of fast growth, the economy has reached a point where it is no longer sustainable," said Wang Jun, an economist at the China Center for International Economic Exchanges, a government think tank in Beijing. "Unless we adjust the structure of the economy, it will be hard to find new ways to grow. That's the difficulty we're facing today."

Among the challenges are opening up industries dominated by heavily subsidized state-owned enterprises, which a recent World Bank report said are stifling innovation and creativity. China's massive trade surplus is a source of friction with the U.S. and other trading partners. Meanwhile, growing income inequality between China's rich and poor is straining the nation's social fabric.

China's economy grew 7.4% in the third quarter, the weakest pace of growth since the aftermath of the 2008-09 financial crisis. The slowdown highlights China's vulnerability to economic weakness in Europe and the U.S., its biggest export customers.

The Communist Party's legitimacy depends on its ability to deliver robust growth in gross domestic product. China's next president, Xi Jinping, and next premier, Li Keqiang, will have to lead a government that can manage expectations at a time when most Chinese are clamoring for ever higher standards of living.

"Basically, for the last 30 years it's been boom, boom and boom," said Kerry Brown, executive director of Sydney University's China Studies Center. "You have more than a generation that know nothing but boom. It's an extraordinary mind-set for people to be in. I don't know what the appetite is for being told to tighten your belts and accept more balanced growth."

Although growth has lifted tens of millions of Chinese from poverty, it has created a huge divide between rich and poor. Income inequality is the chief challenge confronting the nation's development, according to participants in a recent online poll by the government-run China Youth Daily.

A spate of protests in recent years has also highlighted growing concerns about China's emphasis on industrial development over quality of life.

"A lot of us don't need high growth rates; we don't need more high-rises," said Timothy Tang, 29, who joined thousands to protest the opening of a chemical plant in the eastern city of Ningbo this month. "We want blue skies and clean air to make our lives better. If high growth rates bring these kinds of negative impacts, we'd rather the economy not grow at all."

david.pierson@latimes.com

Tommy Yang in the Times' Beijing bureau contributed to this report.

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