China's impressive economic growth over the past three decades has positioned it as a global economic powerhouse. However, the country now faces the challenge of sustaining its rapid growth. To address this challenge, China needs to focus on increasing productivity through structural reforms and boosting domestic demand through higher government expenditure.
Structural Reforms: The Need to Square the Circle
In the post-reform era, China has witnessed significant structural changes in its economy. The country has transitioned from an agrarian-based economy to a manufacturing-based economy, and more recently to a service-based economy.
However, China's economy continues to face structural challenges. According to a report by the Carnegie Endowment for International Peace, "China's economic growth model is heavily reliant on investment, which has led to a disproportionate amount of resources going into sectors such as real estate and infrastructure, rather than more productive sectors."
To achieve sustained growth, China needs to rebalance its economy by introducing structural reforms that boost the productivity of sectors that are currently underdeveloped. These reforms could include measures to improve the efficiency of state-owned enterprises (SOEs), streamlining regulations to reduce startup costs, and increasing investment in research and development.
Boosting Domestic Demand: The Role of Government Expenditure
Another challenge for China's economy is the need to boost domestic demand. China's economy is heavily reliant on exports, which leaves it vulnerable to global economic shocks. To reduce this vulnerability, China needs to increase domestic consumption.
Higher government expenditure can play an important role in stimulating domestic demand. Increased spending on infrastructure projects, education, and health care can create jobs and boost domestic consumption. Additionally, the government can provide incentives to encourage consumer spending, such as tax cuts, subsidies, and voucher schemes.
Squaring the Wheel for BMR
To achieve sustained economic growth, China needs to square the wheel for BMR (boosting productivity and increasing domestic demand). This requires bold structural reforms and higher government expenditure.
One way in which China can achieve these goals is by focusing on innovation. China has already made significant progress in the areas of technology and innovation, but more needs to be done. China needs to invest heavily in research and development to create a more dynamic and innovative economy.
Moreover, China needs to deepen its engagement with the global community. The Belt and Road Initiative (BRI) is a prime example of China's efforts to deepen its economic engagement with other countries. The BRI can help China to expand its markets, increase trade, and create new opportunities for growth.
Conclusion
China has achieved remarkable economic growth over the past three decades, but sustaining that growth requires bold structural reforms and higher government expenditure. To square the wheel for BMR, China needs to increase productivity through structural reforms while boosting domestic demand through higher government expenditure.
As China continues to face the challenge of sustaining rapid growth, it is critical that it adopts a comprehensive and integrated approach to address the challenges. By investing in innovation and deepening its engagement with the global community, China can achieve sustained economic growth and maintain its position as a global economic powerhouse.