China’s slowdown to bring implications for global economy, says Tharman
- POSTED: 25 Sep 2013 19:27
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There will be major implications for Asia and the rest of the world if China's economic growth slows to below 6.5 per cent. This is the view of Singapore’s Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam.
SINGAPORE: There will be major implications for Asia and the rest of the world if China's economic growth slows to below 6.5 per cent.
This is the view of Singapore’s Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam.
Mr Tharman added that even though the global economy is a few years into recovery, a "very high degree" of uncertainty exists.
China's economy grew 7.8 per cent last year and now faces the risk of a sharp slowdown.
After three decades of growth at around 10 per cent per year, the official growth forecast for 2013 is just 7.5 per cent.
Speaking at an investment conference in Singapore on Wednesday, Mr Tharman said this is partly due to China's efforts to steer its economy to a more sustainable, consumption-driven one.
He explained: "It'll be naive to think that this major act of structural reform in the Chinese economy is going to be a smooth path, and that you can't get disturbances. The positive is that if they do drop significantly below, let's say, 6.5 per cent growth, they have a way of responding quickly.
“Their (China’s) political system and their decision making system is one that allows for quick response, so I don't see a hard landing, in the sense that we think of for other economies."
And while China wants to reduce reliance on investments, Mr Tharman said the rest of the emerging world has the challenge of raising private investment so as to achieve their potential growth levels.
He said: "This is an opportunity for the emerging world...These are still economies that are catching up from a very low level of per capita incomes and productivity, have tremendous opportunity to borrow technology, ideas and best practices from the rest of the world, and have the advantage of a rapidly growing middle class.
“The fundamentals are intact...But it will not happen automatically, and nothing is assured. It will happen if policymakers respond with serious reforms, and reforms that are more serious than we've seen in the last decade."
Meanwhile, the developed world faces a different set of challenges.
The US may be showing signs of a recovery, but Mr Tharman said there is a risk that the economy may not achieve self-sustaining growth.
According to him, the risk is that the US will not "get back on a track of potential output growth, which is certainly well above 2 per cent per year". The US economy is currently running at no better than 2 per cent.
Another key concern is the lack of a new social compact between policymakers and citizens in mature nations, which face a stagnating middle class and growing intergenerational tension.
And if that is not addressed, it will ultimately affect the world economy.
My Tharman elaborated: "In Europe, it is a much more complex matter because a social compact that has lasted more than 50 years has reached its limits, and it requires now major change -- not just tinkering with economic policies, not just talking about how much austerity now versus austerity a few years from now. It's a major act of political reform that's required and we do not yet have solutions on the table."