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Expert: China's economic transformation won't come very soon
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17:10, July 01, 2009

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Since the beginning of this year, the booming new bank loans and bubbles in stock and property markets have once again marked the significance and urgency of China's economic transformation.

Although it is always emphasized that China should expand its domestic consumption and establish a domestic-oriented economy, Chinese enterprises are hesitating.

As one of the key bodies of the economy, enterprises have not felt enough driving force for transformation. Since the end of 2008, a large portion of foreign trade enterprises have been facing severe challenges, but a majority of them are not willing to turn to the domestic market. This is mainly a result of the following:

With the advanced export credit and financial system, export-oriented enterprises are able to keep a stable profit, though it may not be very high, giving them enough room to arrange their cash flow. China's domestic market is growing fast, but there are too much irregular operations, which could increase enterprises intangible costs.

As for the processing trade enterprises, they would have to establish new brands, new market channels as well as new product structures if they were to turn to the domestic market. Meanwhile, Chinese government's brand protection and support policies are far from sufficient. On the contrary, such non-manufacturing problems won't occur if they concentrate to expand their overseas market.

For local governments, transformation means adjustment of the export-oriented over-capacity established previously. The central government has urged local governments to treat different industries differently, to cut capacity in some sectors and support it in others. Nevertheless, under the pressure of GDP assessment, local governments seldom require enterprises to cut their capacity, as the cut may have a negative impact on GDP in the short-term.

China is still far from completing the industrialization and urbanization processes. Regional imbalances remain a problem. These provide huge room for pushing urbanization and infrastructure construction.

What's more, the huge market in China and its relevantly low labor cost will further accelerate the global industry transfer towards China. This transfer is taking place not only in the textiles industry, but also the auto industry.

For China, as long as international capital continues to flow in and the labor cost remains low, there is room for the growth of China's processing trade. As long as there is room for processing trade, there is trade surplus.

China's unbalanced growth pattern which relies on investment and trade surplus rather than domestic consumption still has a place after the global financial crisis.

However, with the growing labor costs and the end of industry transfer looming, there will be greater pressure forcing them to be active in transformation.

By People's Daily Online

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