Expert says China must change its export-dependent strategy

Even as some policy makers are counting down the days to a recovered export sector, one expert on global forecasting warned they would be disappointed.

Robert Ward, director of the global foresting team of the Economic Intelligence Unit, said even when developing countries emerge from the recession, most will have huge debt burdens that will dampen consumer spending.

Ward told China Business Weekly that export-dependent growth strategies can't rely on the high level of foreign demand in earlier years.

"China's exports may be recovering as the United States starts to consume more, but if the Chinese policy makers are thinking it will come back to what it was between 2003 and 2007, it is not going to happen," Ward said.

China's exports declined at the slowest pace in nine months in September. Its shipments to the United States and the European Union in September rose to the highest since China's exports experienced a brutal collapse in late 2008.

However, Ward explained, US consumers are paying back housing loans and will cut back on their spending on made-in-China furniture, carpets and toys.

"The housing market in the United States is important for driving demand for Chinese goods," he said, adding that the story of US debt-laden homeowners is similar to that in Europe and Japan.

Ward said China can import more to Latin American countries, but added that the level of exports to that market "will be nothing like it was before".

Ward suggested that China rebalance its economy by focusing more on greater domestic consumer spending levels.

"I personally subscribe to the view that the US is spending too much, and China, Japan and Germany are spending too little."

"If China could successfully boost its domestic demand, it would be a huge benefit for the world. That's why I'd like to see China using this crisis to rebalance its economy," Ward said. "The old export-led growth model is dead, I think. So you have to think about something else."

In 1952, household consumption accounted for 69 percent of China's gross domestic product. That proportion fell in the 1990s to 46 percent, dropped to 38 percent by 2005 and is about 35 percent today. By comparison, US household consumption in 2007 was 72 percent of GDP.

China's investments account for about 50 percent of GDP, which Ward said also has contributed to an enormous imbalance.

"If you look at Japan, South Korea and some other Asian countries, they all grew partly because investment had been so fast," he said.

"But that investment all comes down when the economy starts to mature, and I think China's unprecedented high investments definitely will come down in the next 15 to 20 years as the economy matures," Ward said.

Although many, like Ward, believe that the export-led development model that served the country for so long has outlived itself, it is easier said than done for the country to quickly switch to the domestic consumption model, he acknowledged.

Change will require the creation of a much larger, better-paid service sector and the establishment of a strong and credible social security net to free people from the saving habit.

Even if China sticks to its export strategy, Ward suggested the country at least move away from low value-added manufacturing.

"In terms of its expertise in technology and innovation, China has far more to offer than being a forever maker of toys," he said.

(China Daily 11/02/2009 page12)