But the changes could have enormous human costs in terms of job losses, which in turn could fuel unrest--anathema to the ruling party. And training unqualified workers to compete with Western economies is a gigantic task.
A few Chinese manufacturing sectors have been able to compete directly with Western firms, including those in communications and high-speed trains.
China is also said to be developing a domestic airliner that could challenge Boeing and Airbus for sales.
“But for now, the economic boom remains firmly dependent on a cheap workforce, an undervalued currency and artificially low interest rates,” Michael Pettis, finance professor at Peking University, told AFP.
Industries to Relocate
Labor-intensive industries, such as textiles and shoes, have already begun to leave for less-developed cheaper nations like Indonesia and Vietnam.
“China will remain a manufacturing powerhouse but much of the lower end will be transferred to lower-wage countries in Asia, but also possibly to Latin America and Africa,” said Jean-Pierre Lehmann, director of the Evian Group, a think tank.
China’s new economic goals may mean fewer of the huge investment projects the government prioritized in recent years, such as airports, highways and high-speed trains.
Fixed-asset investment--from infrastructure to housing--accounted for more than half of gross domestic product last year, though it has been growing at a slower pace.
As China places less importance on exports, future growth will also be more dependent on household spending, which made up less than 40 percent of GDP in recent years.
Top economic planning official, Zhang Ping, said recently that domestic consumption contributed more to GDP growth than investment in the first nine months of the year.
But consumption will have to grow faster to make up for any investment slowdown. And limited social safety nets in China mean households save around half their incomes in case of crises or to send their children to university--a major brake on consumption spending.
Peking University’s Pettis said, “I think we should expect a sharp slowdown in GDP growth over the next decade,” as China tries to realign the economy.
With China a key driver of global growth, that could have significant negative effects on the rest of the world.
Beijing was saying, “We no longer want to be the Christmas ornament capital of the world; we’re happy for those low skill, low value-added, low wage jobs to go to other countries,” said Andy Rothman, China economist for CLSA Asia-Pacific Markets in Shanghai.
“The biggest impact is going to be felt by people who have been exporting raw materials to China,” he said, citing Australia, Brazil and Indonesia.
But there will be winners as well as losers, he added.
“This is actually good for more developed economies like Germany or the United States who are shipping more complicated, advanced machineries to Chinese factories.”
Reforms can be “fairly painful” in the early stages and can cause short-term unemployment “even if long-term gains are significant”, said Ben Simpfendorfer, managing director of Hong Kong-based consultancy Silk Road Associates. But he added that imports from the rest of the world should increase.
If China can fulfill Hu’s promises, about half of the population--around 700 million people--will join the middle class by 2020 with annual income between $7,000 and $23,000, the Boston Consulting Group said in a report.
On a purchasing power parity basis, China is expected to overtake the United States as the world’s biggest economy in 2016, the Organization for Economic Cooperation and Development said. But even then per capita gross domestic product will still be only a quarter of the US.
Bangladesh “Next China”
Bangladesh must act soon to take advantage of its low-cost edge to become the “next China” before Dhaka’s competitors take the markets the world’s second largest economy is leaving, according to the World Bank.
In a report, the lender said Bangladesh can become the alternative to China with its labor-intensive exports growing at double digits if it can address infrastructure bottleneck and take advantage of its large pool of underemployed labor force.
“If Bangladesh could improve the business environment halfway to the level of India’s, it could increase its trade by about 38 percent,” said the report titled “Bangladesh: Towards Accelerated, Inclusive and Sustainable Growth--Opportunities and Challenges”.
EU Fiscal Talks Collapse
Talks on next year’s European Union budget have collapsed after the European Parliament refused to sit at the negotiating table with governments unwilling to pay this year’s bills.
At the center of the row was $11.4 billion worth of unpaid 2012 bills covering a range of causes, including Europe’s Erasmus student exchange program, research funds, humanitarian aid and cash for rural development, Aljazeera.net wrote.
The dispute between poorer and richer states bodes badly for the fate of a key summit days away on the bloc’s even more contested longer-term budget for 2014-20.
“If they can’t agree to pay the bills, what can they agree to?” Hannes Swoboda, a politician who heads the parliament’s socialist group, said.
The one exception was an agreement to release $851 million set aside to compensate Italian earthquake victims.
In a statement issued three hours before EU budget ministers were to go into talks on the 2013 budget, the parliament refused to attend on grounds that EU nations were depriving Europe’s needy of key funds and failing to honor commitments.
“These funds are needed for the European Union to respect its legal obligations, that is to pay for bills incurred for goods, works and services delivered,” said the parliament’s president, Martin Schulz.
The European Commission, the EU executive, will now have to draw up a new 2013 budget proposal and seek an agreement on it by the yearend.
Friends of Cohesion
Meanwhile, 15 European heads of state flew to Brussels to set a pre-summit agenda of what is termed the “Friends of Cohesion” group.
The EU’s cohesion funds, the second biggest item on the bloc’s budget after the Common Agricultural Policy, aim to help Europe’s poorer nations catch up with others, economically and socially. Members of the Friends of Cohesion are net recipients of the EU’s almost trillion-euro budget.
Chaired by Poland and Portugal, the group includes Bulgaria, the Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Malta, Romania, Slovakia, Slovenia, and most recently, Spain.
The countries’ opponents within the bloc want a $127 billion cut from the European Commission’s proposed $1.65 trillion budget for 2014-20, which is a 5-percent decrease from the current one.
They argue that when many member nations are being forced to make cutbacks, the EU budget should also be cut back in real terms. The group includes Austria, Britain, Denmark, France, Finland, Germany, the Netherlands and Sweden.
At worst, they appear ready to settle for a real-term freeze in spending.
Net contributors Belgium, Luxembourg and Italy are refusing to take sides, as is Ireland, which is a net recipient but is remaining aloof as it takes over the EU presidency in January.
For 2013, the European Commission and European Parliament were seeking a 6.8-per cent increase--or $11.4 billion--to $175 billion to bolster growth and jobs in the weakening economy.
WEF Underscores Int’l Cooperation
The world’s nations are connected but not cooperating.
That was the warning issued by a group of international political heavyweights in Dubai at the opening of an event bidding to solve the planet’s “most serious and pressing issues”.
The World Economic Forum’s Summit on the Global Agenda, a high-profile three-day meeting that has attracted more than 1,000 experts from academia, business and civil society from around the world, kicked off with a call for greater cooperation between countries to meet critical global goals, Albawaba.com wrote.
In a lively panel discussion on the event’s opening day, former British Prime Minister Gordon Brown stressed that while the trend of globalization may have made the countries in the world more dependent than ever before, without greater cooperation the international community risks missing crucial goals on everything from climate change to poverty.
Brown said international cooperation had actually “waned rather than risen as a result of the financial crisis”.
Fellow panelist Pascal Lamy--director general of the World Trade Organization (WTO)--said that after several years of global financial turbulence, individual governments have been left demoralized and lacking energy to tackle international issues.
“People are angry--there is too much unemployment, there is not enough economic growth,” he said.
“Governments have less political energy--and doing things internationally necessitates a lot of political energy. You have to explain to your people that you have to do things that you might not do if you were standing alone, but you have to do it because you have to interact, compromise and find a tradeoff with others.
UN Deputy Secretary General Jan Eliasson said he had not seen a “more drastic” change in the global order in his lifetime than that of the last five years, with the global economy tipping towards developing nations, especially in Asia.
Eliasson acknowledged the world’s to-do list was daunting--ranging from what he called the “existential threat” of climate change to the need to empower women. He drew applause when he noted the all-male panel was not doing its bit to advance the latter goal.
US Financial Gap Jumps
The US federal government’s deficit rose sharply in October, casting a cloud over the start of the fiscal year as President Barack Obama and Congress tackle the coming fiscal cliff and ballooning debt.
The Treasury Department reported the US budget deficit rose 22 percent in October from a year ago, to $120 billion, as spending far outpaced revenues, AFP reported.
October, the first month of the federal government’s fiscal year, typically runs a deficit. But the budget gap was much wider than the consensus analyst estimate of $113 billion.
Spending jumped 16 percent to $304.3 billion and revenues rose 13 percent to $184.3 billion last month, the Treasury said.
In fiscal 2012 that ended on September 30, the Obama administration trimmed the budget deficit by some $200 billion to $1.1 trillion, or 7 percent of gross domestic product.
African Countries Eye Bonds To Raise Money
With developing countries increasingly tightening the grip on foreign aid amid uncertainties in the global economy, a host of African countries seek to issue bonds to raise money to finance their development.
Experts project a sharp fall in foreign aid to Africa in the next couple of years.
Rwanda, Kenya, Angola, Tanzania and Nigeria are some of the countries that plan to borrow money in domestic and international markets by issuing bonds, AllAfrica reported.
William Kalema, country managing director BDO East Africa, said during the recent Africa Economic Conference that took place in Kigali that with uncertainties in the global financial and the current economic situation, African countries should exhaust resources like increasing remittances and issuing domestic and international bonds.
Aussie Business Conditions Weaken
Australian business conditions stumbled to their lowest level in more than three years in October, a business survey released by National Australia Bank showed.
The NAB monthly survey found that business conditions in Australia deteriorated further in October, down two points to minus five index points, with the pace of economic activity remaining consistent with below trend growth, Xinhua reported.
NAB said it was the weakest outcome recorded since May 2009.
“The subdued outcome largely reflected a significant weakening of conditions in wholesale, manufacturing and construction, which all reported worryingly weak activity levels in the month,” NAB said in a statement.
The survey found that the business confidence also fell in October, down one point to minus one point, partly unwinding a modest improvement in September.
Qatar Facing $5b Budget Deficit
Qatar’s government budget slipped into a deficit of QAR18.5 billion ($5.1 billion) in the first quarter of its 2012/13 fiscal year, preliminary data from the central bank showed.
The fiscal shortfall of the world’s number one exporter of liquefied natural gas was equivalent to 10.7 percent of gross domestic product in the period, according to the central bank, Arabian Business wrote.
It was wider than the QAR2.2 billion gap, or 1.4 percent of GDP, seen in the same quarter of last year.
Because of the timing of revenue flows, Qatar’s budget usually records deficits in the first quarter of its fiscal year, which begins in April, and then bounces back into surplus for the rest of the year.
The OPEC member booked a robust QAR54.3 billion surplus in last fiscal year, the biggest since at least 2005/06, despite a surge in spending on public sector wages.
S. Korean Firms
The number of insolvent smaller businesses in South Korea jumped in the third quarter from last year mainly due to the prolonged global slowdown and domestic jitters.