China faces challenges as it becomes largest economy

rogersexton1China now reigns supreme as the biggest and fastest growing nation on Earth but faces significant challenges as it moves forward to become the world’s largest economy by 2035 or earlier, according to Dr Roger Sexton (pictured), a leading Australian company director and investment banker.

Dr Sexton today told a conference, co-hosted by Flinders University and Nankai University in Tianjin, China, that China’s average growth of 8.2% per annum over the past 60 years (more than double the world’s growth over the same period) had masked some fundamental structural weaknesses which will need to be addressed by policy makers in order to achieve substantial prosperity by the time it becomes the No 1 economy in the world.

“As Australia’s leading trading partner, the future fortunes of Australia are now inextricably linked to the economic and social dynamics of China,” Dr Sexton said.

“Failure to address its challenges could see China succumb to the ‘Japanese disease’ of a prolonged period of prosperous stagnation at some point, all of which would have implications in turn for Australia,” he said.

Dr Sexton, a member of Flinders University’s Investment Committee and a member of the University’s Karmel Endowment Fund, told the conference that the structural weakness facing China arose from an over investment in property at the expense of capital equipment, deficiencies in the banking system, distortions in the urban/rural mix, excess capacity in ‘old’ industries, inflation, loss of cost advantages, environmental pollution and imbalances in education. He said the ageing of the population as a consequence of the “one child” policy would exacerbate the deleterious impacts of these issues on the economy.

“The implications are that China will need to ‘re-invent’ its economy as it goes forward over the next 20 to 25 years to address these issues,” Dr Sexton said.

Dr Sexton said that the changes needed included the boosting of investment in services, the breaking up of oligopolies in insurance and telecoms, removing distortions that depress the workers share of income, encouraging households to save less, introducing health care and retirement initiatives and shifting national income away from state enterprises to households.

Dr Sexton said that China’s centralised economic planning system with its Five Year Economic Plans provided a mechanism for addressing its challenges. Policy makers may nevertheless find it difficult to wean China off the “growth biscuit” it has enjoyed from a rising trade surplus on the back of economic growth in other countries and replace it with a “diet” which is more focused on domestic consumption in its own country, he said.

Addressing more than 100 graduates in a ceremony at Nankai University on Saturday (6 November), Flinders Chancellor, Mr Stephen Gerlach, said that while trade in resources will continue to underpin Australia-China relations, “the possibilities for expanding the range of our interactions is vast and educational services is one sector that has begun to reveal its potential”.

“Education is the great enabler, not only for individual intellects but for entire societies and economies. China’s resources in terms of its human capital are enormous, and the education of its population is perhaps the greatest investment that China can make in its people and in its future,” Mr Gerlach said.

“By building human capacity and taking up the benefits of research in terms of models of best practice in trade and commerce, China, and its trading partners, stands to gain immeasurably,” he said.

Flinders Vice-Chancellor, Professor Michael Barber, said the University’s close association with Nankai University extends back for 10 years, making it “one of the most fruitful and durable relationships between tertiary institutions in China and Australia”.

“Since Flinders began its teaching program with Nankai, more than 1500 students have graduated from the postgraduate courses in international relations and hospital administration. One of the reasons for this continuing success is the quality of the programs we offer. The high standards of the course content and of our collaborative teaching have not come about by chance, but through the dedication and close co-operation of visiting staff from Flinders and resident staff at Nankai,” he said.

“While the Masters of Arts in International Relations at Nankai is fully equivalent to the version taught back at Flinders, the course has been adapted to accommodate the background and educational needs of our Chinese students.

“Recently, the quality of our two postgraduate courses has been endorsed by China’s Ministry of Education. The Flinders’ courses offered at Nankai were chosen by the Ministry as quality benchmarks in reviewing the hundreds of overseas-based courses offered in China. In effect, this places both of our Masters courses taught with Nankai University in the top ten of some 600 programs offered in China by overseas institutions.”

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