China’ s economic restructuring and rebalancing has implications not only for Chinese economy but also for the world, said BCG Chairman Hans-Paul Burkner.
“In the long run, we believe reforms will improve the health of the Chinese economy,” Burkner told Xinhua recently.
He said that China has made progress in its early stage of reforms, with consumption contributing to 73.4 percent of GDP growth in the first half of this year.
China’s supply-side reforms, such as overcapacity reduction, deleveraging, and goals for innovation and “Made in China 2025”, will also help China upgrade its industry mix and foster healthier development, according to Burkner.
“Ultimately, this (economic restructuring and rebalancing) will put China on a more sustainable growth path, and will help solidify its role as a main economic driver in the global economy,” said Burkner.
However, he emphasized that the transition will be painful. The growth rate is slowing and will continue to slow; employees in overcapacity industries will need redeployment and re-employment; and local governments will see their fiscal revenues cut in the process of overcapacity reduction.
Burkner also suggested that China need to manage downside risks of declining investment capital efficiency and excessive bad debt “which can significantly rock investor confidence and global markets”.
In a global economy with uncertainties, there are rising concerns about the world economy stuck in low-growth trap and the popularity of skepticism about globalization.
The G20 and B20 summits which will be held in September in Hangzhou, China, will give government and business leaders an opportunity to discuss challenges the world economy is facing, said Burkner. But he added that major breakthrough will be challenging to achieve in near term, because it will take time to implement actions agreed to during the summits.
Since the global financial crisis in 2008, there has been broad use of monetary stimulus which seems to hit the limit now. Fiscal policy played a role to shore up the growth after the crisis, and many economists and government officials agreed that fiscal policy will play a bigger role against the background of current slow and uneven global growth.
“There is widespread recognition that structural reforms are required,” said Burkner. The B20 task-forces this year, such as infrastructure, trade and investment, and employment, have worked to discuss structural reforms to improve labor and capital deployment, as well as to create conducive environment to spur efficiency and innovation.
“As China plays an increasingly important role on the global stage, we expect to see increasing Chinese leadership in the G20 to define a joint vision and to initiate actions for the global economic agenda,” said Burkner.
In regard to the mounting anti-globalization rhetoric, Burkner said that the nationalistic rhetoric and the distrust of globalization and technology reflect widespread and growing dissatisfaction with entrenched economic and social inequality and greater personal uncertainty in a fast-changing global economy.
He stressed that protectionism and economic isolationism are not a solution to this challenge, since globalization has been a core driver of global economic prosperity. “The path forward should not be to hamper efforts to ‘grow the pie’, but rather to address how businesses and governments ‘distribute the pie’”, said Burkner.
As a co-chair of the infrastructure task-force under the B20, Burkner also called on G20 members to accelerate the pipeline of high-quality bankable infrastructure projects, develop conducive regulations, deploy asset-monetization strategies and promote new financial instruments to unlock long-term investment in infrastructure.