Despite the bleak picture of global economic turmoil, China will still be a huge growth driver for Asia, which will continue to outperform the rest of the world, Australian economist James Laurenceson told Xinhua on Monday.
Laurenceson, who is also deputy director of University of Technology, Sydney's Australia-China Relations Institute, noted that China's growth has been driven by domestic demand since 2010.
"In other words, Asia has a huge growth driver that lies within the region. It no longer needs to rely on demand coming from the U.S. and Europe. The most important consideration is that China's path to a predominantly middle class country remains on track," he said.
However, China has been under continuous pressure of economic slowdown. Higher labour costs lead to the transfer of some industries to other low-costing countries, putting China's economic future on doubt.
Laurenceson said rising wages is a challenge, but fundamentally necessary if China is to become a predominantly middle class country.
"I look upon rising wages as a sign of strength and the progress that is being made toward China's growth being driven by consumption and its goal of becoming a moderately prosperous society."
As representatives from Asian governments, business sector and other walks of life are about to meet in Hainan, China for the annual Boao Forum for Asia, Laurenceson emphasized that major Asian economies should strengthen cooperation and coordination by giving priority to the completion of the Regional Comprehensive Economic Partnership (RCEP).
"The Boao Forum provides the logical venue for where the case for this trade agreement can be made," he said.
While the U.S. Federal Reserve aims to have the interest rate hike and Europe and Japan implement new round of quantitative easing, Asian economies need to strengthen policy coordination in order to mitigate the risks.
Laurenceson said the challenge for Asian economies, in particular China, is to collectively resist the idea that growth can come from extremely loose macroeconomic policies rather than structural reforms.
"Recent statements by Premier Li Keqiang and People's Bank of China Governor Zhou Xiaochuan give me confidence that China's leaders understand this."
He said China certainly has enough space to use fiscal policy and monetary policy to cushion a growth slowdown if necessary. The choice to only deploy such measures in a modest and targeted way to date is "appropriate."
"Supply-side reform is the key and, in particular, opening state-owned enterprises in the services sector to more competition from private sector players. I'm confident that China's leaders understand this is essential to achieving their target of at least 6.5 percent growth between now and 2020."
During the Two Sessions which just ended earlier this month, China has passed the 13th Five-Year Plan, drawing a blueprint for the country's economic development in the next five years.
Laurenceson found that there is an increased emphasis on development driven by innovation and entrepreneurship in this year's Two Session documents.
"Now the challenge is to put in place specific policies that will unleash these forces. The most important of these is to put private sector firms on a level playing field with state-owned enterprises. If comprehensive reforms along these lines are implemented then I am extremely confident that China's growth target can be met without resorting to the ultra-loose macroeconomic policies seen in the U.S., the EU and Japan."
As for the Belt and Road Initiative and the Asian Infrastructure Investment Bank, he hold that they pose no threat to the current system at all.
"They do not replace existing institutions. Rather, they are new initiatives that complement and improve upon the current system. Poor quality infrastructure restricts trade and investment opportunities in the Asian region. If the Belt and Road Initiative and the AIIB can help to ease this constraint, then the region as a whole will benefit."
As an economist who has been watching Chinese economy for a long time, Laurenceson noticed that there is always an impatience from some groups within China and abroad for more rapid reform.
"It's true that progress in some areas has been slowed than hoped for, such as exposing state-owned firms to competition from the private sector. But in other areas such as the rise of the internet economy China transformation has been stunning and it now leads the world."
"My overall assessment is that in the last year the pace of reform has picked up and I think this will continue in the next few years."
