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Former NPC Vice Chairman Cheng Siwei:

Focus on Problems rather than Talk Up Results


In an exclusive interview with CommonWealth Magazine, Cheng Siwei, former vice chairman of the PRC National People's Congress Standing Committee, shares his views on the challenges and opportunities of a rising China.



Focus on Problems rather than Talk Up Results

By Diane Ying, Isabella Wu
From CommonWealth Magazine (vol. 422 )

What role will a rising China play on the international stage? And how will it affect the direction of the 21st century?

Questions like these were raised at the World Economic Forum at Davos, Switzerland in 2007. Discussing these issues with the world's political and economic leaders on China's behalf was Cheng Siwei, then vice chairman of the National People's Congress Standing Committee.

In 1981, Cheng Siwei, then age 46, attended the University of California at Los Angeles (UCLA) as a visiting scholar. Opting to study management, he became one of China's first MBAs. After receiving the degree, he became actively involved in the issues of economic and social development in China.

Cheng has served as a member of the Chinese People's Political Consultative Conference and as chairman of the China Democratic National Construction Association, a coalition party consisting largely of members of China's financial community. Apart from conducting research, the party is also a critical minority force outside the monolithic Chinese Communist Party (CCP), one that is permitted to participate in policy consultations and reflect public opinion.

How does China see its own rise and transformation? How will it represent itself to the world after its rise? These are questions CommonWealth Magazine had in mind in the following interview in Beijing with Mr. Cheng Siwei.

Q: China's economic growth really accelerated after 2000, but has seen a sharp drop in exports and slowed growth under the financial tsunami. What new challenges do you see China facing in the aftermath of the financial crisis?

A: No economy can only rise and never fall, and with accelerated growth, additional tensions always arise. Even if there hadn't been a financial crisis, China's economy couldn't possibly maintain perpetual rapid growth.

China's biggest problem is our large population. With at least 12 million additional job seekers each year, if economic growth dips under six percent, it will be offset by population growth and unemployment.

China's economic development depends on three vehicles: investment, consumption, and net exports. Significant decreases in foreign trade have a latent impact on the economy.

Enterprises engaged in foreign trade are labor-intensive. When they close down, how can employment not suffer? Some people say that foreign trade affects only the eastern portion of the country, but that's not the case, as most raw materials come from the central and western regions. Reduction of overseas trade also results in diminished demand for the production capacity of the central and western regions, causing a snowball effect. So the situation remains quite serious.

Q: How can these serious challenges be addressed?

A: Government investment is necessary to push things along in this time of crisis. The objectives of government investment are manifold.

The first objective involves employment. A drop of one percent in GDP could result in the loss of a million jobs.

There are currently 20 million laborers returning to their rural hometowns. What does this signify? Some farmers-turned-laborers do not have any land left to cultivate.Others head to major cities near their village. Their lack of work is not just an economic issue, as it results in social problems as well.

A substantial portion of the 4 trillion renminbi stimulus funds the government has invested is directed toward infrastructure. Even though the effect of infrastructure projects such as building highways is slower, it can provide more jobs.

Second is boosting demand for raw materials, such as steel and cement. Lower demand and prices are bad for businesses.

Third is creating more jobs to indirectly stimulate consumption. We estimate that 20 percent of the 4 trillion renminbi infusion will be converted into consumption power.

Fourth is investment in social welfare, education, and health care to provide a safety net and stimulate consumption. But one vital issue is to guard against deflation. Deflation often accompanies economic downturns.

The 4 trillion renminbi stimulus package is strategic and multi-purpose, intended to get the economy back on its feet and recover. The GDP is only part of the picture.

Q: With exports falling precipitously, hasn't China voiced its intention to move toward a domestically-driven economy? What will it take for such an economic transition?

A: That would be the start of the transition, but it's not that easy. People are still used to looking at GDP. GDP represents growth, performance, and a measurement of how well the government is doing. GDP is an important indicator of economic development, but it can't be treated as the only one. We need to evaluate overall economic development, not just look at the GDP.

Q: It appears that China's economic stimulus policy is essentially based on infrastructure development and manufacturing. But there seems to be a disconnect between a domestic demand orientation and boosting the service industry. Why is that?

A: This isn't something that can be accomplished overnight. In order to make domestic demand a driver, extensive reform is needed to improve social welfare, education, health care and housing, to make them more affordable.

We also need a shift in the way people think. Asians are big believers in saving. Americans borrow tomorrow's money to spend today, but we save money today to spend tomorrow. Chinese people have always seen owing money as shameful. People's thinking doesn't change that easily.

The service industry must be established on the foundation of primary and secondary industries. Right now, secondary industry (manufacturing) accounts for over half of China's GDP.

The service industry consists of the conventional and modern service industries. The conventional service sectors segments such as hotels and food and beverage services, while modern services include finance, information, trade exhibitions, and logistics. Modern service industries develop on a high-tech foundation.

We must put considerable efforts into developing the service industry, especially the modern type. But this will not be achieved in one step. It necessarily follows a process.

As the economic crisis recedes, I'm sure the development of the service industry will take off again. We have proclaimed our intention to make Shanghai an international financial center, meaning development of modern financial and logistics industries. This is a clear signal.

Q: Countries have all been coming up with policies to save their economies. China seems to be especially good at implementation, going into action as soon as policy is decided. Why is that? 

A: That has to do with our system. The West practices a system of three separate powers, which results in numerous meetings to decide on policy. And with party interests involved, policy-making is slow.

Plus, since the beginning of reform and opening we've made economic development a central theme. Not only provincial governors, but secretaries-general all have thorough understandings of the economic situation.

Q: Compared to the impact of the financial collapse on advanced Western countries, which have suffered major economic declines, China has maintained relative economic growth. Many people believe that China will become the leading force in the world in the future. What do you think of that?

A: I've heard a lot of people say that China should "take a leadership role." But China only accounts for 6 percent of the world's GDP right now, and our per capita GDP ranks outside the world's top 100. By World Bank standards, China still has over 100 million people living under the poverty line.

So how can we take the lead? China can only share the responsibility. We cannot assume leadership. My mind is very clear. China doesn't have the power to be a hero and save America or save Europe. No way. Of that I'm quite certain.

Of course, we're not standing idly by. For instance, we can work on better relations with neighboring countries. Next year we are going to have a free trade zone with ASEAN, the first free trade zone in Asia. That is a big step forward.

Q: Will joining the ASEAN free trade zone change China's influence across Asia and her role in the region?

A: Our economic cooperation with regional Asian and neighboring nations will be stronger than before, as equal partners. China's policy toward the countries around us is to seek partnerships and good relations. So we are definitely going to work on developing trade with ASEAN countries. Some countries have proposed making the reniminbi the main settlement currency in the region.

Clearning and settling accounts in renminbi could stabilize trade a bit, and wouldn't be subject to the fluctuation of the US dollar exchange rate, so we would naturally approve of that. However, the renminbi could never become Asia's single currency. I don't foresee that happening over the long term, at any rate.

The vital condition for a regional currency is that the countries around the region must have a similar level of development. Otherwise, the less developed ones gain an advantage and the developed ones lose out. The gaps in development between Asian countries are far greater than those of Europe.

Another reason is that Asia has a lot of powerful countries, including China, Japan, Korea, and India. Would they be willing to accept the renminbi as the Asian currency? Japan wouldn't, for one. This cannot be forced. We need to be more practical.

Q: It appears that relatively speaking China has been less affected by the financial collapse than other countries, causing many people to begin examining whether there is a "China model." In your view, what is the "China model?"

A: We have a bit of experience. But when it comes to models we're still feeling our way around. We would rather talk less about accomplishments and spend more time thinking about issues. That's more productive. We shouldn't become full of ourselves. People in power must have clear minds. Keeping one's wits together is crucial.

Q: What do you worry the most about in terms of China's long-term development?

A: I think that two issues remain for China's future development. First is continuing to raise the people's standard of living so they can enjoy the fruits of development. Second is technology and education.

Economics can help our today, technology can ensure our tomorrow, and education can secure the day after tomorrow. A country without a well developed education system will be unable to elevate the people's intellectual, technological and cultural level, and will never become a superpower.

It's better to take economic development a bit slower and work on promoting technology and education, especially in terms of the caliber of the people. A country's wealth means nothing if people's caliber isn't raised to a high level.

Moving forward, reform must address four relationships: the relationship between the arbitrary rule of people and the rule of law; the relationship between fairness and efficiency; the relationship between the government and the market; and  the relationship between the concentration and separation of power. These four relationships will likely be the most important reform issues China faces in going forward.

The road of reform and opening is fraught with many setbacks and turns. However, as I've said before, "we still have a long way to go, but we are on the right track."

Translated from the Chinese by David Toman