Chinese Economy Faces Opportunities & Challenges

The Chinese economy boasts a lot of opportunities to move forward despite concerns of a growth slowdown, economists and experts told a forum Friday.

At the 6th Conference on the Chinese Capital Markets held by the New York University’s Center on US-China Relations, they also saw great growth potential in China following the expansion of the country’s middle class.

“We see the tremendous growth in middle class. We have enough sense of optimism that we will continue to invest in this economic engine in the next 10 to 20 years,” said Matthew Nimitz, advisory director with the General Atlantic LLC.

He noted that Chinese companies are becoming more competitive as time goes by, adding: “That phenomenon demonstrates their creativity.”

Paul Sheard, executive vice president and chief economist of S&P Global, noted that the fact that China has 35-year track record of near double-digit growth rate indicated the country’s potential.

However, economists taking part in the forum also pointed out that demographic changes, structural shift and reform of the SOE (state-owned-enterprises) would pose challenges to China’s future economic growth.

Zhang Longmei, an economist in the International Monetary Fund’s Asia and Pacific Department, said China faces a downward pressure on productivity as it relocates laborers from the industrial sector to the service sector.

“In the process of reallocating labor from high productivity to low productivity sector, structurally, your aggregated productivity growth is going to slow down,” she said.

Zhang said the Chinese government has fewer obstacles in opening up the service sector compared with the industrial sector, because the service sector is expanding so fast that the pie is growing.

“If you open the service sector up to private firms, the SOEs can still gain in a growing market. But in the old sector, it might be a zero sum game between SOEs and private companies because the pie is not going to be larger,” she said.

By Xiang Bo

Paul Ebeling, Editor