Voices & Votes: China's economic trasformation; Economic macro-control; How far is China from inflation?

Guest speakers:

Dr. Robert Lawrence Kuhn, Chair of The Kuhn Foundation
Professor Huo Deming, Peking University

China's economic model has so far produced amazing results. Now the essential debate is whether the country’s economy is on a sustainable growth path.

Since 2004, China has devoted over 40 percent of its GDP to investment. This is far higher than Japan and South Korea, at the height of their investment-led economic development strategies.

The reliance on investment in industry means that industrial output now accounts for almost half of Chinese GDP, and services for only 40 percent.

Household consumption represented just 36 percent of GDP in 2009, and exceptionally low share by any standard, while the household savings rate is running at over 20 percent of income.

China's leadership is aware that there needs to be a rebalancing of its economy if the country is to maintain its rapid pace of economic expansion.

Premier Wen said, "We should focus on restructuring the economy, and make greater effort to enhance the role of domestic demand, especially consumption, in spurring growth."

Changing the economic growth model in China is not a fresh topic.

In the early 1980s, China raised the issue of transforming its economic development from one that focused on speed, into one focusing on economic benefits.

In the mid-1990s, the central government initiated two fundamental changes. First, a traditional planned economy was converted to a socialist market economy system. Second, the extensive economic growth mode was transformed into an intensive economic growth mode.

Since then, the transformation of the economic growth mode has been quite successful. For instance, from 1980 to 2002, the unit of GDP energy consumption decreased 66.8 percent, but this was still not considered ideal.

For the 11th Five-Year Plan, the government again accelerated the transition from an economy driven mainly by investment and export, to one driven by consumption,investment, and domestic and foreign demand.

However, changing China's underlying growth dynamic is difficult.

There are powerful groups in China that benefit from the current bias towards heavy industry and exports.

Meanwhile, China has to struggle to put its economy on a sustainable environmental course and avoid international political tensions.