News Column

Chinese economy moving slow and steadily

May 5, 2014



Six months into China's grand economic makeover, Beijing is playing it safe, choosing gradual progress on many fronts over game-changing, riskier reforms such as removing all controls over bank interest rates.

Yet taken together, the incremental steps promise to reach enough critical mass to sustain reform momentum and help the world's second-largest economy shift down fairly smoothly after decades of red-hot investment-fuelled growth.

It's a 21st-century version of Deng Xiaoping's "crossing the river by touching the stones" strategy of cautious economic experimentation in the 1970s and 1980s.

The caution is still there, the difference is today China is crossing that river in many spots at once and the water is probably deeper.

Economists say there is no substitute for fundamental changes if China is to succeed in its transformation from bureaucratically-run, pollution-spewing industrial powerhouse to a more balanced, market-driven economy.

However, reforms such as freeing up bank interest rates or dismantling state monopolies will cause much short-term pain, and provide gains only in the long-term. With the economy expected to grow by 7.3% this year, the slowest in 24 years and close to the level Beijing believes is needed to preserve financial and social stability, those reforms will have to wait.

Since November, when Communist Party leaders adopted a reform blueprint for the rest of the decade, no week has passed without new initiatives in areas ranging from the environment, resource pricing to capital flows and financial regulation.

Financial market liberalization is a good example.

Freeing up of lending rates last July and the doubling of the yuan trading band in March got most airtime, but they were accompanied by many other steps making it easier to move capital within China and across its borders.

Just over the past two months, regulators eased curbs on foreign investments in Chinese stocks, allowed cross-border share investment between China and Hong Kong, eased approvals for overseas acquisitions and domestic mergers and takeovers.


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Baystreet Global Markets (Canada)


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters