Advertisement
Advertisement
Lawrence J. Lau
Lawrence J. Lau is the Ralph and Claire Landau Professor of Economics at the Chinese University of Hong Kong, and the Kwoh-Ting Li Professor in Economic Development, emeritus, at Stanford University. He served as vice-chancellor and president of the Chinese University from 2004 to 2010, and chairman of CIC International (Hong Kong) from 2010 to 2014.
China’s stimulus plan alone may not be enough, but Beijing has a track record of transforming expectations, which can translate into growth.
Growth no longer depends on net exports or foreign investment but on aggregate demand from within China – and there are two promising sources.
Disruptions from China’s zero-Covid exit, a looming global recession and US tensions pose risks, but domestic demand remains key to China’s recovery.
Beijing has accepted that a slowing economy is the price to pay for quality growth and saving lives. The economy looks set to return to normal for the rest of 2022, and then grow at an average annual rate of 5.5 per cent for at least another decade, even with a number of uncertainties.
Advertisement
Not only has the party helped transform China into a moderately prosperous society, it has delivered public goods – from raising the literacy rate to boosting life expectancy. With the wealth gap growing, the focus should now be on boosting the incomes of those who are not yet rich.
The government must invest in projects employing local labour, to turn around public sentiment. Hong Kong can’t afford to wait for the free market to act, or for tourists to return. Other priorities include housing and the Greater Bay Area.
Economic isolation is not the answer to a public health problem. Better ways must be found to manage supplies of essential goods, a public health response and cross-border travel during a pandemic.
Once the epidemic is successfully controlled in China, the government should impose strict quarantine measures on incoming visitors to prevent a second wave of infection. Globally, health declarations should in future be required of all travellers, while economies must begin to diversify their sources of goods and services.
The key is to stop the transmission by as-yet-unidentified infected people to others. And the best way to do that is if all members of the public take the necessary precautions by avoiding close contact with others and practising good hygiene.
The tech war is prompting Chinese firms to look for or develop alternative sources of hi-tech components themselves. This will make global supply chains more secure. The world might also benefit from two independent but mutually compatible 5G systems.
China has an increasingly balanced current account and a stable currency – none of which points to currency manipulation, whereas the US has arguably used quantitative easing to keep the dollar weak.
Hong Kong must not play into the hands of those who want it to burn, as it could lose its status as a financial centre and slip into a devastating recession, shunned by mainlanders and the international business community.
Many Hongkongers have lost out due to economic changes, and many have deep-seated distrust of mainland China. The Hong Kong government must first address their financial insecurities, before it can work on fostering a sense of Chinese identity.
China can stomach the cost to its GDP of even all its exports to the US being halted if it takes steps to boost domestic demand. Investment in public goods such as environmental protection, education and health care could serve this purpose.
The competition between the world’s two largest economies doesn’t have to be a zero-sum game, while isolationist sentiment, particularly in the US, can be stemmed with a redistributive tax system.
China can weather the effects of a trade war with the US, even if imports of the products the US is targeting with its tariffs halt completely. The result would mean only a marginal drop in annual economic growth, and China is unlikely to take the drastic step of severely devaluing its currency.
Trump’s new tariffs may lead to a reduction in Chinese exports to the US, but the overall US trade deficit is unlikely to fall, and there’ll be no positive impact on its GDP or employment.
The removal of the term limits on the office of China’s president may be intended to signal Xi Jinping’s commitment to his anti-corruption campaign and economic reform agenda.
Although the tampering of economic statistics is a problem in regional government, as evidenced by several recent admissions, central government officials understand the harm it brings. The data they put out is not perfect, but it is the most reliable available.
It is Xi’s emphasis on discipline, virtues and patriotism that will succeed in ridding party and government of the rot of corruption.
