The Organisation for Economic Cooperation and Development (OECD) has forecast continued high growth for the Chinese economy in the coming decade in an upbeat assessment that estimates 8.9 per cent growth in 2014 and China surpassing the U.S. economy in three years’ time.
The OECD Survey, released here on Friday, was among the most optimistic assessments released in recent months on the Chinese economy, which has been grappling recently with the dual challenges of a slump in global trade and imbalances at home.
Forecasting 8.5 per cent growth in 2013, higher than the government’s 7.5 per cent target, the survey also expected China to surpass the United States as the world’s biggest economy by 2016.
“We see more stable and balanced growth going forward,” Angel Gurria, Secretary General of the OECD, told reporters here at the survey’s release. “Right now, we are halfway through the Five-Year Plan (2011-15). China has sailed relatively unscathed through the financial crisis, thanks to the government’s stimulus and the economy’s dynamism”.
“China,” he added, “will be the world’s largest economy by 2016, PPP (purchasing power parity)-adjusted”.
Pressing priorities
The survey will make reassuring reading for China’s economic planners, giving them high marks on their efforts to address China’s two pressing priorities: a wide income gap between urban and rural areas, and rebalancing the economy by boosting domestic consumption as a driver of growth. The survey said inequality had “trended down… perhaps reflecting faster growth in wages and larger reimbursements for health care at the lower end of the spectrum,” with an estimated 800 million people now receiving some form of health insurance.
“The gap between rural and urban incomes has also declined as migrants transfer income to the countryside,” it said. The survey was, however, based on official figures, noted Richard Herd, OECD China Desk, and did not make an attempt to try and account for vast amounts of “grey income” floating around the Chinese economy.
China’s rebalancing, the survey said, had “made headway”, reflected in the sharp fall in the current account surplus from over 10 per cent of gross domestic product (GDP) in 2007 to under 3 per cent. The OECD survey, however, also highlighted the need for reforms for China to achieve more inclusive urbanisation and continue growing in a sustainable manner. On the former issue, it called for the government to relax “household registration” or “hukou” restrictions that denied migrant workers access to social welfare when they leave their hometowns for cities.
Acknowledging that removing the decades-old restrictions would be unrealistic — the Chinese government says it would be unable to bear the additional financial burden from the increase in migration that would be unleashed — the survey instead proposed easing limits on the use of agricultural land to allow farmers to sell land more easily and disconnecting the provision of local public services to local registration. Doing so, it argued, would further help boost consumption. It noted that China’s social welfare spending had already risen considerably, up to 8 per cent of GDP — on a par with Mexico but still below the around 20 per cent OECD average.
On “greening growth”, the OECD suggested raising excise duties on gasoline, and fully deregulating prices would encourage energy conservation, a move towards national carbon pricing through a carbon tax.
