News & Reports News Year 2012 December 2012 Growth requires more emphasis on higher productivity

Growth requires more emphasis on higher productivity

Improving productivity is the way to achieve sustainable growth in China as the world's second-largest economy struggles to transform its investment-driven growth pattern, economists have said.
As an emerging economy, the way toward sustainable growth and the mission to catch up with developed countries not only means the expansion of economic scale, but also the improvement of productivity, said Zhu Min, deputy managing director of the International Monetary Fund, at an economic forum over the weekend.
Zhu said the ultimate goal of China's development is to increase the well-being of the people. The essential element to reach that goal is to ensure the steady increase of productivity, instead of the total increase in gross domestic product.
More than 80 percent of emerging economies, including China, have suffered a periodical slowdown since 2008, a phenomenon attracting global attention.
But as to whether the slowdown will lead to another crisis and how it might affect the leading role of these economies in global economic growth is still anyone's guess, he said.
Zhu said an analysis into the economic development of these countries shows their growth path has never been smooth. Fluctuations were caused because of both periodical and structural problems.
Inside these countries and areas are often stagnant economic imbalances because of long-term high-speed development. Outside, the deflation of commodities, the European recovery and the upcoming exit of the US quantitative easing policy have threatened international capital flows, which all means the financing costs in emerging countries are expected to go up.
Zhu said he predicted an inflow of at least $470 billion into emerging markets during the economic downturn from Western countries. Because the US government is about to stop the quantitative easing policy, an immediate fall in capital flow can be expected.
Despite the total expansion of economic scale, the gap of per capita GDP in some emerging economies and the US has somehow widened.
In Latin America, local GDP per capita used to be equal to 27 percent of US GDP per capita, but the number went down after the region fell into what is known as the middle-income trap.
Even after three decades of development, China's GDP per capita is only a quarter of that of the US.
South Korea seems to be one of the few success stories on this front. The per capita GDP in South Korea is now two-thirds of the US', although its economic growth continued to slow down after a dynamic increase in the 1960s.
The reason for its sustainable growth over these years is because the growth is not based on the use of resources but on the improvement of productivity, Zhu said.
Zhu said the recently concluded Third Plenum of the 18th Central Committee of the Communist Party of China has pointed out the right direction for economic growth by recognizing the decisive role of the market, but the government has to realize growth should be based on the improvement of productivity, instead of consumption of resources.
A report released by the World Bank in 2012 said China's productivity has doubled since 1990, but it still lags behind Latin American countries and is only half that of the Organization for Economic Cooperation and Development countries.
Global consulting firm Accenture Plc also pointed out in a report that the contribution of productivity in China's economic growth has barely increased since 1979.
Li Yang, vice-president of the Chinese Academy of Social Sciences, said productivity in China will further decrease as more labor resources transfer from the manufacturing industries to service industries.
"If the country cannot figure out a way to effectively push up productivity, the decline of economic growth will accelerate," Li said