HARI SREENIVASAN: China is now the world’s second largest economy. What happens there naturally has great ill reply indications for the rest of the world. We want to spend some time talking about a very important meeting in Beijing. It involves the top leaders of the ruling party and is expected to produce major economic reforms. Elizabeth Economy is the director of Asia Studies at the Council on Foreign Relations.
So how in this day and age they are having a closed door meeting about their economic policy reforms, why is it so consequential?
ELIZABETH ECONOMY: This is a gathering of the top leadership of the Communist Party about the top not quite 400 members of the Central Committee and the alternate members. And they’re gathering to lay out the trajectory of economic reform for the next five to ten years. So it is highly consequential. And they’re really talking about nothing less than reforming the fundamental underpinnings of the Chinese economy. So whether they’re able to accomplish that, at this meeting over the next few years is really going to be incredibly important for China for five to ten years out.
HARI SREENIVASAN: So has the Chinese model slowed? On the one hand, they’ve lifted 600 million people out of poverty by manufacturing everything the rest of the world uses. But their economic growth seems to have slowed. Are they running out of steam?
ELIZABETH ECONOMY: Not only is the economic growth slowing — dropping from 10 to 9 to 8 and now closer to 7%.GDP gross — but there is a sense they have to undertake some fundamental transformations within the economy if they’re going on sustain their growth moving forward. How will you transform China from being a manufacturing nation to an innovation nation? How to go about rebalancing the economy, moving away from investment-led, export-led growth to consumption-based economy. And how are you going to reduce the role of vested interests within the Chinese economy. The state-owned enterprises that suck up so much of the bank lending and rely such great subsidies that they’re crushing private enterprise.
HARI SREENIVASAN: What about the social unrest? The consequences of real estate development for example — so many people displaced, we hear of people committing suicide in certain parts of the country. We’re hearing there are certain cities are almost ghost cities that have been built and nobody is living in them. And we see a real estate bubble emerging too.
ELIZABETH ECONOMY: So a big part of the economic challenge at this point is the misallocation of capital. The way the center and local governments interact. The reliance of local governments on real estate on land sales for 70 to 90% of the revenues. That’s why you have them taking the land from the farmers illegally and you have that social unrest. So all of these small areas of reform have huge social consequences. And these are precisely the kinds of issues that they need to deal with.
HARI SREENIVASAN: So something we’ll watch for on Tuesday. That’s when they release the policy.
ELIZABETH ECONOMY: They’ll release on it Tuesday but I think it is important to bear in mind, that’s stage one. Stage one is releasing the policy. Stage two and three are putting the policies in place and implementing them.
HARI SREENIVASAN: Thanks so much.