Tag Archives: competitiveness

ADB Sees Higher Growth For China in 2013, Competitiveness Challenges

China’s GDP growth will increase this year to 8.2% from 2012’s 7.8%, the Asian Development Bank says in its latest annual Development Outlook (full text of China chapter). But growth will moderate to 8% next year as the government has to deal with pressures on the environment and to narrow income gaps.

“They will face a difficult task in managing risks and keeping the economy on an even keel,” the Bank says, “while shepherding through the complex reforms needed to deliver more inclusive growth.”

The new leadership will have to walk a fine line between keeping the nascent recovery going with old-school fixed asset investment supported by large-scale public projects and private consumption enabled by rising wages and pensions. The challenge will be to get right the timing of tempering that with planned fiscal and financial reforms needed for rebalancing, and more stringent environmental targets for business needed for social stability. The cost of both will cause growth to level off next year.

Policymakers also need to ensure minimum wages do not outpace productivity growth. The country’s declining labor competitiveness, exacerbated by a strong exchange rate, is already seeing low-cost and labor-intensive manufacturing jobs move off shore. The World Economic Forum’s most recent ranking of global competitiveness saw China’s ranking slip for the first time in 7 years (down three places to 29th). One implication of this is that narrowing the income gap would best be tackled by social transfers to poorer households rather than through higher wages.

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China’s Economic Competitiveness Still Lags Its Growth In Muscle

China has moved up two places to 27th in the latest annual rankings of national competitiveness published by the World Economic Forum. Hong Kong and Taiwan, which are ranked separately, are at 11th and 13th, unchanged and down one, respectively. Hong Kong remains the most competitive economy in the Asia-Pacific region thanks to its financial markets and improved infrastructure.

The report says that “China shares with mid-range European countries the relative handicap of rigid institutions and very low innovation. But the country is quickly catching up on infrastructure and market efficiency and will increasingly benefit from its expanding market size.” It also notes that  “market size, flexible labor markets, and strong innovation are at the core of the U.S. competitive advantage.” The U.S. ranks fourth overall, down two places from last year’s survey. Switzerland remains no 1 overall.

China is the only one of the four Brics to have improved its ranking this year, and so extends its lead over them. The lift of two places comes almost entirely from improvements to China’s financial markets. The report also says that “China has made small strides in the quality of higher education and training, but there remains considerable room for improvement in what constitutes an important area going forward. In addition, although the labor market is indeed quite efficient, a lack of flexibility constitutes a major challenge.”

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