Nation Must Seize Fresh Opportunities

The inevitable recovery of developed economies creates new opportunities and challenges for China to deepen its domestic reforms, experts said at a forum held on Tuesday in Beijing.

The event was organized by the newly established Research Center of International Affairs and Chinese Diplomacy, which is affiliated with the Chinese Academy of Governance.

The subject of the global economic situation quickly evolved into a heated discussion on the relations between the world economy and China's reforms among economists and researchers from several Beijing-based think tanks.

The reform plan unveiled by the just-concluded Third Plenum of the 18th Central Committee of the Communist Party of China was the starting point for most discussions.

Unemployment, debt and fiscal issues and the political polarization in developed economies are lowering their decision-making efficiency, said Chen Fengying, a professor of economics at the China Institutes of Contemporary International Relations.

"In contrast, it's natural that the ambitious reform plan sketched out by the Party's new leadership, which targets breakthrough reforms of 60 issues in 16 fields, consolidates the world's confidence in the Chinese economy," Chen said.

But potential risks for some emerging economies and developing countries do exist, as they further distort their economic structures while dealing with the global crisis. "So long as China can avoid a crisis through successful restructuring, as Chinese leaders vowed in their new reform plan, the chances of seeing widespread crises in emerging markets are small," Chen said.

Quantitative easing programs in developed economies will gradually end after 2014 and will foster big changes in monetary policies around 2015, a time when emerging economies and developing countries might see new crises.

In the past five years, developed economies released US$5 trillion via quantitative easing programs, among which US$4 trillion went to emerging economies and developing countries. The US$4 trillion will go back to the developed economies gradually over the next five years."In the past several months, after only about US$80 billion was withdrawn from emerging economies and developing countries, crises have started looming in these countries and regions, such as Indonesia and Turkey," said Chen.

Financing costs will also grow in the world, posing another challenge for emerging economies and developing countries.

Eight percent of foreign exchange reserves are in emerging markets, while 80 percent of national debt is in developed countries, leaving the former ample space to manage potential risks and crisis.

Analysts believe the global economy is split between a developed-economy camp led by the US and an emerging-economy camp led by China. The interactions between the two camps happen in the markets during crises and in the rule-making scope after the crises.

Initiatives by the BRICS bloc, which comprises Brazil, Russia, India, China and South Africa, and the Transatlantic Trade and Investment Partnership proposed by the US are among the two camps' efforts to win initiatives in the rule-making realm after the crisis.

"China will directly face the pressure of international trade rule-making decisions next year. The country will face its 'second entry into the WTO' and decide how long it should, or is allowed to, keep its identity as a developing country," said Wu Pin, a researcher in international trade with the Ministry of Commerce

The three main focus areas of bilateral and multilateral talks on trade rules for China will be: market entry, rights and interests protection and fair competition, experts said.

Transnational corporations already play key roles in global supply chains and value chains, which determine industrial allocation and profit distribution across countries.

Wu said that China needs to develop its own transnational corporations to improve its position in both chains."Innovation-oriented technologies, brands and services should be developed as new core strengths of Chinese exports."

Huang Jinlao, a researcher at Huaxia Bank Co Ltd, stressed that the Chinese government needs to take more concrete action to deepen the market reforms of its financial sector, instead of only classifying its monetary policies as "proactive and prudent", which is confusing for industrial companies and banks.

"China's macroeconomic conditions are steadily improving, but the Chinese stock market is not doing well. This paradox cannot be explained by any economic theories, so one of these assessments must be false. The weird phenomenon of the yuan appreciating abroad, but depreciating at home, should remind decision-makers of how urgent the reform of China's financial industry is,"said Wang Dian, an economics researcher at the Chinese Academy of Governance.

New technological revolutions, led by 3D printing and developments in the shale-gas industry, will be seen from 2020 to 2030. And after missing the first two Industrial Revolutions, China must grab opportunities in these new fields, said Chen.