The biggest threat to China’s economy in 2012 is a lack of timely and thorough reform of the financial market and political system, Chinese government officials and business leaders concluded at the Asia Financial Forum in Hong Kong yesterday.
This year is likely to be challenging for the world’s fastest-growing economy. As uncertainties in global markets and weakening demand from Europe and the US erode exports, so China needs dynamic systems to ensure its resilience during the economic downturn.
However, the government tends to respond to crises with short-term stimulus policies rather than “deep reform”, the panellists agreed, arguing that more fundamental changes are needed.
There is no shortage of theories about what may cause China’s economy to suffer a hard landing. Foreign observers typically identify risks such as rising property prices, stubborn inflation and weakening exports, but China’s elite seemingly have very different concerns.
“China needs deeper reform in its financial sector,” Tu Guangshao, vice-mayor of Shanghai, said at the panel. “It should reduce government interference in the financial market and liberalise the renminbi interest rate and exchange rate market.”
Tu, who is the former vice-chairman of the China Securities Regulatory Commission, said the lack of reform is the biggest obstacle in Shanghai’s development as an international financial centre, however, he is confident that the city will achieve that goal in 2020.
John Zhao, senior vice-president of Lenovo Holdings, also argued that a lack of financial reform has stood in the way of many opportunities, and complained that China had failed to mobilise its capital reserves.
“China is changing its role from the world’s factory to the world’s market,” he said. “We often see cash-loaded Chinese corporate and individual buyers shopping around the globe, but there are not enough investment channels at home.”
Zhao said that China has many very promising private businesses that could provide good investment opportunities, but in times of difficulty, government policies always favour state-owned companies ahead of private businesses that could probably use the financial aid more efficiently.
An underdeveloped financial market at home and restrictions on investing overseas, along with a negative interest rate and volatile stock market, have left Chinese people with few investment options besides the property market — but housing prices have been falling for several months and will fall a further 15% to 20% in big cities this year, according to Deutsche Bank forecasts.
Tomson Li, chairman and CEO of TCL Corporation, who also took part in the panel, agreed that China should encourage investment in the private business sector. He also said that China still enjoys much advantage as the world’s factory because it has the best infrastructure in any emerging market.
The head of China’s giant home-appliance exporter said the country’s export growth will slow down in 2012, but will still stand above 10% as made-in-China goods are still competitive. He estimates last year’s export growth was around 13%.
The panel agreed that rising social tensions are also a threat to the economy, but it doesn’t appear to be an imminent one.