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The Shape of China’s Future Growth KC Kwok 8 September, 2008 Many of the success factors have/about to run their course • • • • • • • Low cost, export-led growth Investment-led growth Emphasis on manufacturing Catching up with technology Quantitative expansion, crude growth Growth comes first The capacity of the world to accommodate China’s growth Unbalanced economy • Increasing disparity between – urban and rural – the east and the west – haves & have-nots • • • • Investment driven growth Dominance of public sector Environmental degradation Increasing trade surplus and foreign reserves Changing the mode of economic development From • “Fast & good quality” • Low cost as competitive edge • Emphasis on manufacturing • Attracting in • Economic growth comes first To • “Good quality & fast” • Raise innovative capability • Improve economic structure (develop services industries) • Going out • Harmonious society; improve citizens’ livelihood; enhance administrative capabilities Key ongoing reforms • • • • Further administrative reform Fiscal and taxation reform Financial market reform SOE reform & facilitating non-state sector development • Development of factor markets • Build up social security system • Incentive system for environmental improvements Financial market reform & development • Financial market reform & development lagging behind rest of the economy - costs and risks • Benefits of financial market development • Role of Hong Kong • Relationship between HK & Shanghai • Other financial centres Need to grow the private sector • Public sector still getting a disproportionate share of China’s growth – SOE dominance in many sectors – rising share of government revenue in GDP – rises in asset value accrue largely to public sector • The development of private sector helps to – improve efficiency – increase private investment – increase consumption of services Regional development • • • • • • • • Yangtze River Delta Pearl River Delta (Pan PRD) Bohai region Revitalizing the Northeast Developing the West Rise of the middle Taiwan Strait economic region Other sub-regions Medium-term growth drivers • Demand side drivers – Quantitative and qualitative improvements in consumption – Urbanization – Investment in infrastructure and industrial upgrading • Supply side drivers – Further liberalization of economy – Economic re-structuring – Further reform of government Guangdong-HK economic integration • complementary economic relationship under “one country, two systems” • momentum for further cooperation – GD’s economy is at a turning point – GD is HK’s market, hinterland & possibly conduit for the rest of China – HK is Guangdong’s international contact – HK’s services capabilities could help GD to restructure its economy – HK’s public services are something GD could learn from