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以下发表在Eureka Report的Alan Kohler毎周点评 不论好坏， 不讲对錯， 应该值得一读。 China’s Challenges Kohler's Week on Eureka Report (29 March 2014) I gave a speech on Thursday to a China Australia Business Forum conference, in which I set out what I saw as the “dual challenges for Australian and China”. Here it is, in case you’re interested (I was pretty pleased with it): According to Canadian analyst Vaclav Smil, China used more concrete in its roads, railroads, dams, bridges, factories and buildings in the three years between 2009 and 2011 than the US did in the infrastructure that it built during the entire 20th century. As a result of China’s incredible fiscal stimulus after the global financial crisis, it more or less escaped the austerity malaise that beset the West in 2010, what Paul Krugman calls the ‘Crime of 2010’, when the focus on reducing government debt created a second slowdown for the economies of America and Europe, from which they are still recovering. In fact, it’s not overstating things to say that China’s spending spree helped rescue the global economy from the sort of secondary collapse that occurred in 1933. Two depression historians, Irving Fisher, and then Ben Bernanke, have argued that a 1930 recession was turned into a 1933 depression by a vicious cycle of debt deflation. In 2010, Ben Bernanke was fighting a repeat of the same thing that happened in 1933, as governments around the world clamped down on spending and threatened the recovery that was underway. It didn’t happen. Was that due to the Federal Reserve’s incredibly adventurous monetary policy, or China’s adventurous fiscal policy and credit expansion? Both I’d say. The world economy has only just scraped through. Without both of these, it wouldn’t have. It was the first time in a hundred years that the global economy had not been rescued by US consumers. They were down for the count this time. This time it was China’s commitment to the future, as well as the money creation of the Bank of Bernanke. Now both the Fed and China have ahead of them a daunting challenge in dealing with the aftermath of what they did. The Fed owns $US4.1 trillion-worth of securities. It took over financing the US government deficit from China and has also been funding the banks’ profits – single-handedly propping up both the banking system and the government. China is now burdened with too much debt and unproductive investment. Having spent 30 years growing its economy at breakneck speed by making its labour more productive – turning farmers into factory workers and teachers and computer programmers – it must now turn to capital productivity. I said today’s talk would be about the dual challenges facing China and Australia because our two countries are locked together, not just as customer and supplier of iron ore, coal and LNG, but also by history. China is on a new journey of reform of the sort that Australia began 30 years ago and new President Xi Jinping is paying a lot of attention to our experiences. In particular he is talking to Paul Keating about what he did and how he did it. As I understand it, Keating’s main advice has been to do as much as possible in your first term, and Xi has been certainly taking that advice. When Hawke and Keating began reforming and modernising the Australian economy in 1983, China was still recovering from the ravages of the Cultural Revolution and the Gang of Four and had embarked on the first part of its long journey of post-Mao reform under Deng Xiaoping. Millions of farmers were transformed into factory workers producing many times more GDP per person than they did before. It was perhaps the greatest labour productivity improvement program in the history of the world – certainly since the industrial revolution – and led directly to a burst of double-digit GDP growth by China that was sustained over decades. At the same time, under Hawke and Keating, Australia was reforming its capital productivity. A lot of the focus on those years of reform in Australia is on the labour market reforms, in particular the introduction of enterprise bargaining via the Accord Mark VII in 1991, and this was definitely important. But the most important reforms involved capital. The floating of the dollar and the opening up of both the current and capital accounts, deregulation of the banking system and the introduction of foreign banks, removal of tariffs, dividend imputation, and the crowning achievement, or possibly the great mistake, mandatory superannuation, creating the world’s largest per capita retirement savings pool. As a result of those reforms, Australia ended years of misallocation of capital and set itself up for 23 years of uninterrupted growth. In order to continue that growth, Australia must now focus on improving labour productivity, which has been neglected, and worse, during six years of Labor government. While Hawke and Keating were reforming Australia’s capital allocation system, China was growing by improving labour productivity and just throwing capital at the cities to provide homes and infrastructure for the millions of farmers who were coming to work in the factories, offices and universities. Not only was zero attention paid to how the capital was allocated, in many ways it was deliberately inefficient. The macroeconomic settings involved artificially low interest rates, by which household depositors were essentially taxed to subsidise infrastructure investment, an artificially low exchange rate to subsidise exporters, and strict capital controls to enforce fixed interest rates and the exchange rate. It was a process of largely inefficient capital accumulation, combined with improving labour productivity, and was basically copied from Japan, Taiwan and South Korea, and it worked beautifully. It will no doubt work again in other parts of Asia and in Africa. Now China must move to phase two, which needs to be based on improved capital efficiency. And in line with Paul Keating’s advice, President Xi is moving quickly. The renminbi has begun to internationalise, and the band within which it’s allowed to move has been progressively widened. Interest rates have begun to be liberalised. Restrictions on cross-border capital flows have been eased, and most important of all, there is the Shanghai Free Trade Zone. The FTZ is as important to China as the Pudong New Area in 1993, when Jiang Zemin decided to set up a special economic zone on the eastern tip of the area bounded by the Huangpu River and the East China Sea. Xi Jinping has freed up the current, but not the capital account, learning from the mistake of Indonesia, which did it the other way around – aggressively liberalising the capital account while keeping the exchange rate fixed. The result was huge capital inflows, which outflowed again in 1997, making Indonesia one of the hardest hit by the Asian Financial Crisis. China plans to test its reforms in the Shanghai Free Trade Zone before rolling them out to the rest of the country. The measures include the deregulation of services sectors, simplifying customs clearance and interest rate liberalisation, cross-border renminbi trade settlement, two-way portfolio investment and allowing foreign companies to issue renminbi bonds and have access to the domestic equity market. Full convertibility of the currency is likely to be achieved within a few years. Some people are even talking about the renminbi becoming the world’s new reserve currency. That would require a lot of politically-difficult reforms – not impossible, but I’m not sure you could still call it the Communist Party afterwards. To go the full distance, the Party would need to go to the next step that Australia undertook, beginning with Paul Keating’s appointment of Fred Hilmer to head an inquiry into national competition policy. In a sense, Australia’s competition policy reforms, laid out in the Hilmer Review and carried forward by the National Competition Council, COAG and the ACCC, took Australia’s reform to its natural next level. Like Australia in the 1990s, China will also need to complement its deregulation, financial and capital flows by opening up the banking system, and, importantly, reducing the power of state-owned monopolies and oligopolies. An old joke goes that while Japan is a basically socialist country on which capitalism was imposed, China is a basically capitalist country on which socialism was imposed. Private firms need to have unfettered access to both capital and domestic markets. The power of local governments to block competition against the enterprises they own must be stopped, and preferably those businesses themselves privatised, as happened under Australia’s National Competition Policy. The tax system must be overhauled to discourage excessive investment in infrastructure and real estate, and the pricing of utilities needs to be reformed to accurately reflect cost structures. This is a daunting program – far bigger than what Hawke and Keating undertook in the 80s and 90s, and with much powerful vested interests opposing it. The powerful cadres that run the state-owned enterprises and legions of corrupt government officials, effectively accountable to no one, will be working hard to derail the process. Australia’s reformers also fought powerful vested interests, but they had two important groups onside – the unions, led by Bill Kelty, through the series of Prices and Incomes Accords, and the investment banks, which were enriched by the privatisations. The importance of this latter group should not be underestimated. In the Australian system, these characters control capital flows and therefore tend to have corporate CEOs by the short and curlies. As a result, fortunes were lost through overpriced sales of government assets, and of course fortunes were made as well. Back to China. To find a new model for economic growth that will replace the one that’s served them since Tiananmen Square, the Communist Party leadership has to embrace “creative destruction”, as first expounded by Karl Marx in the Communist Manifesto and then developed and refined by Joseph Schumpeter in his book, “Capital, Socialism and Democracy”, in 1942. The oppression of the protests in Tiananmen Square in 1989 was the public expression of China’s decision not to follow the Soviet Union down the path of perestroika and glasnost, or political restructuring and openness. China instead opted for gradually opening up the economic system, but not the political one. With the benefit of hindsight, it was a good call. Ever since then China has progressively let go controls over the economy in exchange for faster growth. It’s a trade-off that has allowed the Communist Party to satisfy the demands of the citizens while retaining full control in a way that Vladimir Putin can only dream of. The problem is that the model of cheap labour and massive capital spending is close to exhaustion. They need to move to a more sustainable model of innovation and capital efficiency – in other words creative destruction. I used to wonder whether a country could have an authoritarian political regime coupled to a free-market capitalist economy, what China often calls socialism with Chinese characteristics. The answer so far is -- so far, so good. But now that question has added bite: can a truly free market economy in the mould of Joseph Schumpeter not have elections? Innovation can only flourish where intellectual property is protected and the rule of law prevails through independent courts. There are a couple of reasons to be optimistic about China’s ability to pull this off. First, there’s plenty of time. Growth is slowing but not falling off a cliff, and although there are legitimate concerns about the level of debt, and there is obviously a chance that things will go pear-shaped, I don’t think it’s a high probability. Second, history has shown that whenever China’s leadership has had to choose between retaining control and pushing economic growth they have gone for the latter. It’s true that some leaders have stood out over the past 30 or 40 years, but it’s clear that the Party has consistently embraced the idea that its legitimacy relies on economic growth, and to achieve that growth some control needs to be relinquished. In other words, I’m not suggesting that microeconomic reform is entirely altruistic – it wasn’t in Australia either. It’s all about entrenching Communist Party control. And you know the old saying – always put your money on self-interest. Having said that, Chinese economic growth must slow to some extent. Paul Keating had “the recession we had to have”. Will Xi Jinping also have a recession China has to have? I doubt it, although recession has a different meaning in China. As for Australia, well – as I mentioned, we now had 23 years without a recession, since the one we had to have. Can we get through the transition from mining and energy investment, now that China’s economy is slowing because of its own transition, without a recession? To do it successfully, Australia must truly engage in labour productivity reforms. Enterprise bargaining is now 23 years old – the same as the economic expansion – and has grown some barnacles. Six years of Labor government removed some of the reforms of the previous decades, and the Coalition’s disastrous over-reach with WorkChoices poisoned the labour market reform well for a long time. Sir Anthony Abbott and Dame Eric Abetz appear to be up for a further modernisation of Australia’s workplace system. So there are the dual challenges of China and Australia: China must lift the productivity of capital; Australia must lift the productivity of labour. It’s the reverse of what the two nations embarked upon 30 years ago. |
