Translated from: Business Weekly, 01.July 2014 written by Daniel Gros
The most economy policy made in 2013 probably was the conclusion of the third conference of eighteenth Central Committee in China. It reclaimed that market should play a decisive role in leading economy in China. China presently is the second-large exporting country behind Europe in the world. Half economic growth worldwide comes from China. The decision by Beijing consequently had deep influence to world economy. Its influence is beyond Berlin, Brussel and Washington DC.
Nevertheless, despite the fact that China now adopts market economy model, opens its arm to the world, and has had surprising achievement on economy in past 30 years, the Beijing government needs to play a more powerful role in many decisive issues that China is facing.
Take air and water pollution for instance, it can be resolved only with more intervention from central and local governments. The authority of China now has taken it as emergency to deal with air and water pollution.
Undoubtedly China has ability to take action just like it created the biggest factory in the world. The smog and water pollution has threatened China’s advantages. And the large amount of domestic savings can provide necessary loans for equipment to solve pollution.
Also , it requires Beijing government to pay more attention on other economic territories. If market is allowed to control network-like business such as communication, gasoline, electricity and water, monopoly easily emerges. Smoothly-operated economy can provide service and products of high quality not because of decreasing surveillance to these departments, but of effective surveillance which protects consumers from monopoly.
The same theory also applies on the revolution of national companies. The crucial point is not the model of ownership, but is to assure the companies run under market rule.
In Europe, it’s important to forbid governments to give aids, which makes national companies being operated in fairly-competitive environment and become as effective as other opponents inside or outside of the country. Local politicians therefore no longer practice their personal affairs by using national companies. Now, most members in EU have embarked on national company privatization. It certainly takes time to minifying the scale of national departments. But this goal is never doubted for the opponents of national companies will strongly support EU Committee’s decision.
China also has similar issue. How to management of national companies has become a crucial problem. However, comparing with massive privatization, the better way might be limiting aids from government, which allows other competing companies to ask for correction through the law when the government intervenes in the market competition.
The business that gets most attention is finance industry. It’s understandable for the investment accounts about 45% of GDP in China while in other countries investment at most takes 15% of their GDP. It’s obvious that the importance of finance market has in China is far beyond in USA and Europe.
Currently China’s revolution plan of finance departments focuses on interest rate liberalization, which is not a solution of this problem. In the theory, the rising of loan rate could be helpful to reduce over-investment. However, due to all the influence of governmental mortgage, which are usually invisible, companies which willingly have more debts might not be the companies with the greatest working efficiency. Rate liberalization could only lead to that companies with governmental mortgage surpass smaller companies without mortgage while having higher working efficiency. It
eventually leads to serious capital dispatch, which means financial liberalization could be dangerous unless national companies are regulated by the budgets.
China, the strongest growing engine in global economy, doesn’t need “more markets”. However, it needs more serious supervision so that growth can be assured to continue.
Experience of Europe certified this point. In 1957, TEEC (Treaty establishing the European Economy Community) didn’t differentiate national and private companies though many departments such as coal mining, metal and banking industry were in governments’ control. TEEC in the contrast stopped intervention from the governments.
Original: https://www.businessweekly.com.tw/article.aspx?id=5848&type=Blog
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