Financial guru looks to nation's future
Updated: 2013-07-28 23:34
By Andrew Moody (China Daily)
Journey: Reforms key for transformation
By this definition Russia has already achieved this at $14,037, according to the World Bank in 2012, but this is a low figure compared with what is generally accepted as being in the high-income league.
To some extent, South Korea shows the way for China on $22,590 as well as the mainland's neighboring economies: Taiwan on $20,200 and the Hong Kong Special Administrative Region on $36,796.
The real aspiration, however, has to be to achieve the income levels of the firmly wealthy countries such as the United States ($49,965), Germany ($41,514), Japan ($46,720) and Singapore, with one of the world's highest per capita incomes at $51,709.
Tim Condon, managing director and head of research for Asia with ING Financial Markets in Singapore, says it is still not clear whether such a vast country as China can ever make it to these heights.
"If you are talking about making it the same sort of level as the United States, European countries such as the UK and Germany, that is much more of a difficult leap," he says.
"If it was just a matter of reading (former Singapore prime minister) Lee Kuan Yew's book (From Third World to First: The Singapore Story) and using it as a manual, every country in the world would be as rich as Singapore. It is a very complex process of putting all the institutions together to support the economy and some countries make it and others don't."
Condon says the one thing going for China is that it has been there before, albeit nearly two centuries ago.
"China was historically in this position and had an empire for several millennia and so history would suggest it has the capacity to be a world leader again," he adds.
Joe Studwell, founding editor of the China Economic Quarterly, argued in his recent book How Asia Works: Success and Failure in the World's Most Dynamic Region that China had provided a solid basis for its economy to step up by making the necessary agricultural reforms 30 years ago unlike other BRICS countries.
"If you ignore that part of the economy — as most developing economies do because they are run by people who live in cities — you have already shot yourself in the foot." He says whether China does make it to the next level and becomes a developed nation could depend on many of the current economic reforms being discussed now.
"China is going through an adjustment process right now and we will know over the next 24 months what sort of policy changes have been adopted."
Many see the reforms the Chinese government aims to make as crucial to the future development of the economy.
These include reforms to the banking sector, interest rate liberalization, reform of State-owned enterprises and also reorganization of healthcare and education.
Zhiwei Zhang, chief economist, China, for Nomura, based in Hong Kong, says it is vital these are carried through.
"I think China's manufacturing sector is already very competitive and it is hard to increase productivity there. But many areas of the economy such as railways, telecoms and the provision of services such as healthcare and education are monopolized and inefficient," he says.
"There has been a slowness in the way structural reforms have been implemented. We hear a lot about policy guidelines but, in terms of concrete action, we haven't seen that much."
Zhang says there is a risk of China being stuck in some form of middle-income trap if it doesn't make progress on these issues.
"I wouldn't say yet that it is on a set path to achieve high-income developed status. There is still quite a lot of uncertainty there," he says.
Charles Gore, former head of research on Africa and least-developed countries for the United Nations Conference on Trade and Development and honorary professor of economics at the University of Glasgow, says it is vital time for policymakers in China.
"I would argue there is a certain commonality to this catch-up process. Whether you get through it or not depends on whether policymakers understand the nature of the problem," he says.
Gore says countries tend to come up to the middle-income trap when their gross national income reaches 30 percent of that of high-income countries.
He cites a World Bank report which states that ratio for China is set to rise from 19 percent in 2005 to 42 percent in 2030.
"China is at the critical point where the easier phase of structural transformation comes to an end and they just can't make the jump to the next stage," he adds.
Bala Ramasamy, professor of economics at the China Europe International Business School in Shanghai, believes that Chinese policymakers do have the ability to think on their feet, which in the end is likely to mean they come up with the right innovative policies to escape the middle-income trap.
"China has been able to demonstrate every decade or so that it can. The recent announcement of making Shanghai a free trade zone was pretty typical of that. I think this is actually interesting and important," he says.
Most commentators — as well as Sharma — agree that China's prospects are not aligned to those of the other BRICS countries although theirs might be with China.
Certainly, China's slowing growth has affected commodity exporting countries Brazil, Russia and South Africa.
Goolam Ballim, group chief economist at Standard Bank, based in Johannesburg, says the last decade was very much the era of the BRICS.
"The noughties were the BRICS decade but the subsequent decades are going to be much more difficult for them.
"Their growth came from the fact they were infant, underdeveloped markets that were previously closed. They were primary sector dominated so they had huge capacity to grow by giving life to secondary and tertiary sectors."
Ballim says the biggest impact of BRICS has been in Africa itself. "Twenty years ago, only 1 percent of Africa's global trade was with BRICS countries. This has risen to 20 percent with China about two-thirds of that. China's trade with Africa has increased 16 times over the past 15 years which is actually quite breathtaking," he says.
Magnus at UBS also believes the BRICS story is also now probably over.
"If you are basically looking for the next 8 to 10 percent growth story then my advice would be to look elsewhere. These guys have just had 10 years plus of extraordinary high growth rates. I think Sharma is absolutely correct in his judgment," he says.
With the development of the BRICS nations in the last decade, the idea took hold that the world was moving to a position where every country in the world would one day be developed and have high incomes with perhaps Africa being the last frontier.