Monday, September 10, 2012

China Economic Prespectives 2012 and Beyond

•In 2012, as the Chinese government moves from aggressive cyclical tightening to a more normalized overall economic policy, some of the cyclical stresses will be alleviated—helping to reduce the risk of the economy spiraling into a hard landing.

•China faces a number of challenges with its economy, including rebalancing the economy's growth away from investment and exports and more towards domestic consumption. China also needs to focus on improving support for private enterprises and on phasing out the dominance of state-owned enterprises (SOEs).

•A common misconception is that investment and consumption are competing agendas. In fact, a certain level of investment helps to stimulate and support consumption in the longer run. An example of this is social housing construction, which is a form of investment and an essential social safety net for many Chinese consumers.

•China's mass market consumers, approximately 400-500 million people in number, are crucial to the government's goal of increasing domestic consumption. This group has vast untapped spending potential. Social safety nets such as social housing, health care, unemployment benefits, and education that are provided to these consumers are intended to help them feel comfortable spending more and saving less.

•For China's economy to maintain a relatively high pace of growth over the next decade, it is important that gains in productivity are achieved. Studies indicate that a significant gain in economic productivity becomes possible when workers relocate from rural to urban areas. China's objective, therefore, is to move approximately 200 million rural residents to urban centers over the next 10-20 years, a feat that requires significant planning and investment