Cao Yuanzheng, Chief Economist, Bank of China, delivered a speech in the Theme Forum of CHINA MINING 2012
Source: www.gtzyb.com Citation: www.gtzyb.com Date: Nov.4, 2012
(Photo from www.mlr.gov.cn. Photo:Ye Xingmao / Editor: Chen Hui)
The Theme Forum of CHINA MINING 2012 “Join hands to meet challenges and promote sustainable development” was held at Tianjin Meijiang Convention and Exhibition Center on the morning of Nov. 4th, 2012. The picture reveals that Mr. Cao Yuanzheng, the Chief Economist of Bank of China, delivered a speech of “Chinese Economy under Global Rebalancing” in CHINA MINING 2012.
I am very glad to attend this meeting. Considering the close relationship between Chinese mineral development and the world economic development, I shall talk about the Chinese Economy Under Global Rebalancing. For the recent 30years, China has become an emerging factor to the world economy, and also has become Chinese factor. Mineral has long investment cycle, with large money scale, so maybe it is helpful to mining economy by considering the trend of the world economy from longer and more comprehensive angle.
As we know that, people are always talking about one question: How the crisis happened? The very important source was the unbalance of the world economy, and this unbalance, simply say, was the difference of BOP between developing countries and developed countries, especially the surplus and deficits in the current accounts.
The concentrated expression of unbalance is that the developing countries have surplus and the developed countries have deficits in the current accounts, but at the back, it is the economic structure. There are two different extremes in the economic structure, China and America.
American economy is consumer promotion style, and the consumption occupies 70.5% in America, but only 33.8% in China in GDP; while Chinese economy is investment driving style, and the investment occupies 48.6% in China, but only 12.6% in America in GDP. So, the rebalance of the world economy is not only the balance of BOP, but the adjustment of economic structure.
We think the rebalance is under developing, during which, the world economy is getting slow-down, which has been mentioned by some speakers.
We have noticed that, the world economy has passed three periods: every country economy has grown rapidly before 2008 in globalization. Then, it has been a double speed for the economy after the financial crisis broke up in 2008, which cause an economy boom in developing countries, but economy decay in developed countries. The economy has been slow down both in developing countries and developed countries since this year.
The global PM index is important as a leading indicator of index, which performed not optimistic in the downturn of global GDP. There are some fears that the world economy would slows further. The world economic pattern is changing by the structure. This is accumulated slowly. If calculated by GDP, it is almost the same in developed and developing countries, but why facing uncertain environment? Actually, the world economic order is the gap between the north and the south, but the gap of GDP has disappeared, so the North-South differences of the world economic order has been challenged naturally. The old order does not work, the new order is not established, and this is the world economic volatile situation.
In the turbulence, we see the problems mentioned by the former speakers. The direction of international capital flow is not clear for the economic situation is not clear, and the order is not stable. This causes the price fluctuations in financial market including the bulk commodities.
The prices of commodities have been in the continuous oscillation since this year, including oil, mineral products, and agricultural products. If the world economy is still in adjustment, this situation will continue.
We say that the world economy is adjusted to global rebalancing. China has played an active role. China factor is in what position that is very important in global rebalancing. We are fully aware of what Chinese economy plays in the world economy, we also put forward to expand domestic demand which is a positive contribution to the rebalancing of the world economy, so in the "12th Five-Year " plan, the Chinese government proposed to continue to expand domestic demand, especially the consumer demand strategy. That means we must fully tap the huge potential of domestic demand, speed up to form consuming investment, export coordination, stimulating economic growth. For all above, we have made major moves.
According to the "12th Five-Year” plan, we see the significant moves, simply called two growth, two synchronous, mainly by improving the incomes of residents to expand domestic demand. The focus of expanding domestic demand is to expand consumption.
First, improve the wage income in the proportion of the primary distribution. Second, increase the income of residents in the proportion of the national proportion. The “12th Five-Year “plan has particularly high requirements to increase the proportion of these two. Wage income growth and labor productivity improve must be synchronized. Residents` income and GDP growth must be synchronized. Let’s do a simple statistic: expecting that the next 10 years, China maintains the growth rate at 8%, and the income of the residents sustain this growth, too. Then the next ten years the residents’ income would be doubled. Considering the social security level, and also the population growth of residents in recent years, we see that the real growth of Chinese residents is at 3%.Then, five years later, the income of Chinese residents would be doubled. Imagine that, this is a country of 1300000000 people, if the income of the residents doubles in ten years, how large the market would be.
We often speak to bankers that, if you choose to grow with China, dare not to say you would become the largest companies in the world, but you can become the global fastest enterprises in growth rate. This growth pattern has a precedent, Japan proposed national income doubling plan in 1960, seven years, Japanese national income doubled. Many once unknown Japanese enterprises had become famous enterprises.
China’s domestic demand expanding plays an important role in the global economy. How to play? We can consider the problem from three aspects: first, residents’ income growth can expand domestic demand. As incomes increase, some industries have become very prominent. For example, transportation and communication industry are closely related to income increase. Education, culture, entertainment, and residential are closely related with income increase. You know, the slow growth of income in China mainly concentrate in rural areas, if peasants income increase, many Chinese products will have better sales situation, many traditional products have a longer life cycle, and supplies will have more sustained demand for mineral.
Facing the financial crisis of China in 2008, the home appliances subsidy measures caused large-scale sale in agricultural provinces. If the peasants` income grows, the market will continue to expand.
These two years, the hot sales of agricultural equipment, home appliances, cars in the countryside were related to the countervailing measures. But other industries, like domestic tourism, during the Spring Festival, proved that tourism market was very large, and the self-driving tour is the most important part, so cars sales have good prospects.
More importantly, China is in the process of urbanization which increases the demand of inhabitation. This is relatively straightforward fact. The process of urbanization is mainly about the migrant workers. We did a special study on migrant workers living demand. As you can see, this is the situation of migrant workers accommodation. At present, the migrant workers are mostly at the site of the shed, or a flat-share, at the best. But we are noticing the tendency of further development. It is from the camp to flat-share and from flat-share to depended houses. It is a huge market in China, which includes building materials, iron and steel supporting the long-term role.
Why is that? In addition to the income increase of the of migrant workers, the most important is that Chinese social security covers all the people eight years ahead of schedule. The improvement of the coverage of social security greatly eases the pressure. There is another increasing factor which is the infrastructure. If we want to get urbanization, the infrastructure must develop, including convenient consumption, total water conservancy investment, the Chinese City Road area. Seen from this, in fact, the urbanization is accelerating.
For the road area, there are not only a lot of gaps and improve space compared with the developed countries, but also a considerable gap between east and west and urban and rural areas. It is necessary to be improved. The development of high-speed railway is still a very important part for the urbanization of China. If the high-speed railway developed, especially of the cities, urbanization of China would not be like this, but form a city group, a large city belt.
China is in development, under expanding. This is giving a positive impact on the world economy. China has become the world`s largest exporter and the second largest importer in 2010. For recent years, the growth of imports still has been increasing. We have reason to believe that, China will become the world`s largest importer in the future. The market demand of China will contribute to the world economy.
From the perspective of total demand in global, 1/4 of total demand is from China. This is why Chinese factor has been discussed increasingly. Although the Chinese economy appears to slow down, we can see that the process of urbanization in China has just started. If we make a comparison with the export-oriented countries in Asia, during this period, Chinese urbanization is far down to the same level of Asian countries. So far, Chinese urbanization rate is only 51%, more strictly, 35% among the 51% are urban residents, and other 15% are mobile.
Generally, a developed country’s urbanization rate should be at least 75%. There is quite a gap for China. That means there is considerable potential in growth. So we can see that, if there is a good system of Chinese economy, if the reform continues to go further, maintaining to grow at 8% around, the development would appear to be sustainable in the long run, at least ten years.
In this way, Chinese economy is continuing to contribute to the world economy, and a long-term mechanism for establishing and expanding the consumer demand in accordance with the "12th Five-Year” plan will be set up. Take consumption as the strategic focus for expanding and to stimulate the consumption ability, and gradually make the domestic demand ranks the forefront of the world.
I want to say that, I used to work in the government for many years, and participated in many programming of plans. But I want to say, the last sentence of this plan is very important. Gradually make the domestic demand ranks the forefront of the world, and China will make important contribution to world demand. Then with the expansion of domestic demand in China, Chinese demand for natural resources will increase steadily. China will become the natural resources demand decisive participants. This is a decisive change. It is an inevitable choice to grow with Chinese economy for the mining companies, and mining economy.
That is all, thank you！
（translated by TLRHVC）
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