A plane crash is a major incident, even when war and the pandemic kill many people every day. Horror on a global scale does not overshadow regional and personal tragedies. And we have learned to rely on airplanes as a safe form of transportation. This makes the shock of seeing smoking debris on a mountainside all the greater. After all, in China, traveling by plane is like taking the bus.
It was such a routine flight between provincial capitals that crashed on Monday. Flight MU5735 was on its way from Kunming to Guangzhou. In eastern Guangxi, the plane crashed unexpectedly and at high speed into a bamboo forest. Our thoughts are with the 132 victims of the disaster.
Meanwhile, Germany is worried about its supply with gas and oil – despite current horrific events, it is both a legitimate and essential concern because it is vital for Germany’s heating and transport sector. To compensate for a supply stop of Russian gas, the most viable option is the import of liquefied gas. It can be transferred without pipelines. But China, with its high demand, is a tough competitor on the global market when it comes to acquiring liquefied gas, analyzes Ning Wang.
Russia’s war on Ukraine is jeopardizing the energy supply of Germany and many other EU countries. Internally, the German government is already discussing contingency plans for which companies and sectors to cut off first in the event of a gas shortage. Germany now wants to end its gas dependence on Russia within a very short time. Just this weekend, Economics and Climate Minister Habeck visited Qatar to secure natural gas imports for Germany. The emirate is one of the world’s largest exporters of liquefied natural gas (LNG). But so far, Qatar has been mainly supplying Asia.
Because while Germany relied on Russia as its main supplier for years, China and other Asian countries already diversified their imports. Even though LNG is more expensive, as it first needs to be processed in an energy-intensive and costly process. This recently led to the bizarre situation where China resold three LNG shipments from the US to Europe – at a hefty price premium (China.Table reported).
Germany is late in diversifying its gas imports. Meanwhile, LNG buyers from China are signing more and more contracts for long-term supplies. It is true that in recent years, China also covered just under half of its demand with short-term orders. But experts are seeing a shift toward supplier contracts that date far into the future. Sindre Knutsson from the consulting agency Rystad Energy has even identified a decline in the share of short-term orders to between 10 and 20 percent for the first two months of this year. The change to long-term contracts has already begun before the Ukraine crisis.
The reason for the desire for long-term security is rising prices. In February, China’s order volume from Russian suppliers even doubled year-on-year. Even without Putin’s war of aggression against Ukraine, it was already clear that more Russian gas would be sent to Beijing instead of Europe. The reason is the strategy to tap into as many sources as possible. At almost the same time, Gazprom CEO Alexei Miller announced plans to build another pipeline to China. Even after doubling the volume, Russia’s share of China’s gas supplies was only eight percent.
Last year, China and South Korea already led global demand for LNG. China increased its LNG imports by 12 million tons to a total of 79 million tons, surpassing Japan as the world’s largest LNG importer, as data from S&P Global Commodity Insights show. Energy experts predict that the People’s Republic will become the largest importer of LNG in 2022. Even though China has only been buying natural gas from abroad since 2006.
In 2019, before the global pandemic hit, China met more than 42 percent of its natural gas demand from foreign sources. The International Energy Agency (IEA) forecasts that by 2030, more than 60 percent of China’s natural gas needs will be covered by imports. Part of this is expected to be covered by LNG.
But despite LNG imports, Russia remains an important supplier to China. In 2014, the year Russia annexed Crimea, China and Russia signed a 30-year, $400 billion contract to supply Russian natural gas to China. Since December 2019, the $55-billion Power of Siberia pipeline has been delivering the first natural gas supplies from Russia to China (China.Table reported). When Putin and Xi met in person on February 4 in the run-up to the opening of the Winter Olympics in Beijing, both agreed on additional gas supplies from Russia.
But Russia has so far been only a small supplier to China. The largest share of LNG supplies was so far supplied mainly by Australia, Qatar, Malaysia and Turkmenistan. According to energy analysis company Wood Mackenzie, China consumed an estimated 370 billion cubic meters of LNG last year. By 2025, this figure is expected to rise to 475 billion cubic meters, with up to half of the demand requiring imports.
However, the fact that Beijing does not want to become overdependent and is diversifying its sources is also evident from recent imports from the United States. Due to delays of LNG export projects in Canada, in which China’s state-owned company Petrochina is involved, and Mozambique, where both Petrochina and energy giant China National Offshore Oil (CNOOC) have invested, gas supplies from the US became more attractive. Before 2019, all gas trade between the two countries came to a halt amid trade disputes between Beijing and Washington under the administration of Donald Trump. After that, however, North American LNG exporters expanded their capacity again due to demand from major Asian economies.
China’s state-owned enterprises also expand their storage infrastructure to store the expected shipments in the first place. China National Offshore Oil Corporation is currently building six of the world’s largest LNG storage tanks. The foundations have already been set, as the leading supplier of LNG in China recently announced.
Shell’s latest LNG report shows just how popular liquefied natural gas could become on the global market. By 2040, demand will exceed 700 million tons per year. This would be a 90 percent increase over 2021. Predictions indicate that Asia – especially China – will consume most of this growth as domestic gas production declines, economies grow and LNG replaces more emissions-heavy energy sources. There will be a run on LNG in the coming months and years.
The big question is: How can Germany and Europe secure shares of the global supply in the short term when much of the LNG is traded under long-term contracts? And how far will the prices for liquefied natural gas continue to rise? Germany’s Robert Habeck has many challenging trips ahead of him. And China will remain a solvent and well-connected competitor for the scarce resource.
A plane crash in southern China has killed 132 people. Flight MU5735 was en route from Baoshan near the border to Vietnam in Yunnan via the provincial capital Kunming to Guangzhou. Details on the cause of the crash have not yet been released at this time.
The Guangxi Autonomous Region mobilized rescue teams, but it is believed that none of the passengers on board the Boeing 737 survived. President Xi Jinping ordered a swift investigation into the cause.
According to aviation experts, only the flight data recorder and the cockpit voice recorder will provide information about the cause of the disaster. So far, it is impossible to even speculate about possible causes. However, it is said that it is unusual for airplanes to crash from their cruising altitude during good weather. Such accidents generally occur during takeoff, landing or exceptional situations.
The plane took off from Kunming on schedule shortly after 1 PM, turned east, and gained altitude as planned. Between 2:19 PM and 2:22 PM, however, the flight altitude then dropped by 6,000 meters to 2,700 meters above sea level, according to Flightradar24. So the plane went into free fall from one moment to the next. A few seconds later, data transmission ends at an altitude of 900 meters above sea level. Depending on the height of the mountains, this must have been almost the moment of the crash. One video shows a plane hurtling vertically toward the ground. The dashcam video of a car driver also shows an uncontrolled crash.
The crash site is located near the city of Wuzhou in the Guangxi Autonomous Region. The area is mountainous and forested. China Eastern has set up a hotline for family members of the passengers. The company is grounding its type 737-800 aircraft for the time being. The crashed plane was not part of the 737 Max model series, which has only recently been allowed back into the air after problems with its on-board computers.
Aircraft maintenance by China’s partly state-owned airlines has basically a very good reputation. In addition to domestic Chinese companies, the providers of maintenance services also include Western companies such as Spirit and Honeywell. Domestic flight business has long since returned to pre-pandemic levels. So China Eastern is not experiencing the widespread problem of pilots being out of practice.
Monday’s crash marks the end of a long period without any major fatal accidents for Chinese aviation. The last time a Henan Airlines plane crashed was in 2010. Of the 96 people on board, 44 died. China Eastern’s only major accident dates back even farther. It happened in 1989, when a Russian-built Antonov was unable to take off. It crashed into a river at Shanghai airport. At the time, 34 people died. Since switching to a fleet of modern aircraft, operations have been without crashes and almost without fatalities.
China Eastern is the world’s eighth-largest airline. Before the pandemic, the company carried 130 million passengers annually, according to Statista, nearly as many as Lufthansa with 145 million. The average age of its fleet is 7.3 years. The company has 583 aircraft in service. It operates 480 Airbus and Boeing aircraft for short- and medium-haul flights and 91 aircraft for long-haul flights. A good three-quarters of its fleet are manufactured by European supplier Airbus.
The brand name China Eastern originated when China’s aviation authority CAAC was split into six privately owned companies in 1988. As the name suggests, its core route operations are located in the eastern part of the country. Its main hub is Shanghai. From here, routes to Kunming provide an important transport link to inland China.
On Chinese social media, flight enthusiasts speculated about budget cuts for control and repairs at China Eastern. But since the cause remains unclear, no connection to the crash can be drawn here either. According to business reports, maintenance costs dropped by twelve percent between 2019 and 2021. But this could be related to the loss of a large part of international business.
In terms of geopolitical impact, nothing could be more important than the United States’ shift from strategic cooperation to strategic competition with China. This change has darkened many observers’ views of China’s economic prospects, as indicated by a Bruegel report released late last year. The assumption, it seems, is that China has no choice but to retreat from its successful development path and embark on a less prosperous path toward self-reliance, with the state exercising complete control over the economy to hedge against geopolitical shocks. But China’s efforts to bolster its self-sufficiency in some areas are a reasonable response to external pressures – and they hardly spell doom for its economic model or prospects.
In recent years, the US has ramped up its effort to “contain” China’s rise. Beyond employing tariffs and non-tariff barriers on imports from China, it has been limiting Chinese investment, such as by blocking Chinese companies from acquiring firms in some high-tech sectors in the US. It has also continued to add Chinese firms to its so-called Entity List, thereby restricting their access to US-controlled critical technologies like semiconductors, barred US capital from entering some of China’s strategic industries, and forced Chinese companies off US stock exchanges.
As my co-author, Shuo Shi, and I show in a 2020 paper, these policies could only carry escalating strategic costs for the US. And, contrary to popular belief, their lasting impact on the Chinese economy could be very limited, let alone enough to stop China’s economic rise in its tracks.
An even more important point is missing from this discussion. China has already crossed a crucial threshold in terms of technological strength as measured by the stock value of physical- and human-capital accumulation. It is now only a matter of when, not if, China catches up with the US technologically.
Chinese leaders have been clear that the country must move faster toward global technological parity to better mitigate the risk from geopolitical impact. In recent years, the government has boosted spending to strengthen China’s capabilities in basic and strategic sectors, including education, science and technology, agriculture, and renewable energy. It has also implemented policies aimed at supporting the rapid development of cutting-edge high-tech industries, such as big data, cloud computing, 5G, and artificial intelligence.
Similarly, in accordance with its Five-Year Plans, China has been expanding its digital infrastructure system. According to China’s Ministry of Industry and Information Technology, China has already established 1.4 million 5G base stations – more than 60% of the world’s total – with over 650,000 built last year alone.
Such efforts are largely a response to the endogenous need to shift to a more advanced stage of economic development, not simply to US containment policies and geopolitical shocks. Given this imperative, perhaps the greatest impact of the US effort to contain China has been to clarify China’s weaknesses and spur more progress in addressing them.
Chinese authorities do not believe that US containment policies will force China out of the existing global economic system, let alone lead it to embrace an inward-looking, state-controlled development model. Predictions that US policies will have such an effect underestimate the competitiveness gains that have driven China’s economic rise over the past few decades and the profound impact it has had on the global economy.
China has built the world’s second-largest economy, and accumulated vast physical and human capital. It is also deeply embedded in – and central to – global production, and has formed complementary relationships with advanced economies. China is thus highly unlikely to be pushed out of global supply chains in any comprehensive way.
In fact, even as China has sought to build resilience at home, it has continued to pursue economic liberalization, such as by improving its business climate, creating a more open financial sector, and establishing many more free-trade zones. And the government remains committed to liberalizing the domestic market in order to maintain its linkage with international markets.
Setting aside geopolitical challenges, China must confront its own domestic issues, beginning with an accelerating fertility crisis. Though the Chinese government has eased its overly restrictive fertility policies, East Asia’s experience suggests that fertility may well continue to decline, albeit at a slower rate.
To stem the decline of the working-age population, China is likely to raise the retirement age soon. At the same time, to hedge against the impact of population aging on future economic growth, the government will continue to increase investment in education, thereby upgrading worker skills and raising labor productivity in the long term.
To increase and realize the economy’s growth potential, China urgently needs to commit to productivity-enhancing structural reforms. Here, China should draw lessons from the East Asian economies, where a slowdown in total factor productivity growth has almost always followed a period of high growth.
One such lesson is to resist political pressure to allocate resources to less productive regions. Another is to avoid capital overinvestment in areas, such as real estate, that do not contribute much to productivity growth and that cause macroeconomic instability.
That is why China’s government must pursue challenging structural reforms that correct resource misallocation and enable productivity growth, the scope for which remains large. For example, China should open up more of its economy to private capital. This would help to channel additional resources toward more productive, entrepreneurial sectors, which will use them more efficiently and creatively than state-owned enterprises.
China’s growth and productivity potential is far from being tapped out, and US containment policies and geopolitical shocks will not stop that. But, in order to meet its potential, China must accelerate its structural-reform efforts, as it did in the late 1990s, and improve the allocation of resources by fostering a more equitable, competitive, and market-oriented system.
Zhang Jun, Dean of the School of Economics at Fudan University, is Director of the China Center for Economic Studies, a Shanghai-based think tank.
Copyright: Project Syndicate, 2022.
www.project-syndicate.org
What looks like a factory site is actually a shot of a newly built quarantine camp in the city of Jilin, in northeastern China. By setting up entire quarantine villages, authorities in the People’s Republic try to quickly bring new Covid outbreaks under control. State broadcaster CCTV reported that the rooms are about 18 square meters in size and entrances are monitored from the outside via cameras. Even close contacts are sent to such quarantine camps. The fact that local media advertises that accommodation is fitted with a private shower room, desk, bed and Wi-Fi does not seem to make much of a difference.
A plane crash is a major incident, even when war and the pandemic kill many people every day. Horror on a global scale does not overshadow regional and personal tragedies. And we have learned to rely on airplanes as a safe form of transportation. This makes the shock of seeing smoking debris on a mountainside all the greater. After all, in China, traveling by plane is like taking the bus.
It was such a routine flight between provincial capitals that crashed on Monday. Flight MU5735 was on its way from Kunming to Guangzhou. In eastern Guangxi, the plane crashed unexpectedly and at high speed into a bamboo forest. Our thoughts are with the 132 victims of the disaster.
Meanwhile, Germany is worried about its supply with gas and oil – despite current horrific events, it is both a legitimate and essential concern because it is vital for Germany’s heating and transport sector. To compensate for a supply stop of Russian gas, the most viable option is the import of liquefied gas. It can be transferred without pipelines. But China, with its high demand, is a tough competitor on the global market when it comes to acquiring liquefied gas, analyzes Ning Wang.
Russia’s war on Ukraine is jeopardizing the energy supply of Germany and many other EU countries. Internally, the German government is already discussing contingency plans for which companies and sectors to cut off first in the event of a gas shortage. Germany now wants to end its gas dependence on Russia within a very short time. Just this weekend, Economics and Climate Minister Habeck visited Qatar to secure natural gas imports for Germany. The emirate is one of the world’s largest exporters of liquefied natural gas (LNG). But so far, Qatar has been mainly supplying Asia.
Because while Germany relied on Russia as its main supplier for years, China and other Asian countries already diversified their imports. Even though LNG is more expensive, as it first needs to be processed in an energy-intensive and costly process. This recently led to the bizarre situation where China resold three LNG shipments from the US to Europe – at a hefty price premium (China.Table reported).
Germany is late in diversifying its gas imports. Meanwhile, LNG buyers from China are signing more and more contracts for long-term supplies. It is true that in recent years, China also covered just under half of its demand with short-term orders. But experts are seeing a shift toward supplier contracts that date far into the future. Sindre Knutsson from the consulting agency Rystad Energy has even identified a decline in the share of short-term orders to between 10 and 20 percent for the first two months of this year. The change to long-term contracts has already begun before the Ukraine crisis.
The reason for the desire for long-term security is rising prices. In February, China’s order volume from Russian suppliers even doubled year-on-year. Even without Putin’s war of aggression against Ukraine, it was already clear that more Russian gas would be sent to Beijing instead of Europe. The reason is the strategy to tap into as many sources as possible. At almost the same time, Gazprom CEO Alexei Miller announced plans to build another pipeline to China. Even after doubling the volume, Russia’s share of China’s gas supplies was only eight percent.
Last year, China and South Korea already led global demand for LNG. China increased its LNG imports by 12 million tons to a total of 79 million tons, surpassing Japan as the world’s largest LNG importer, as data from S&P Global Commodity Insights show. Energy experts predict that the People’s Republic will become the largest importer of LNG in 2022. Even though China has only been buying natural gas from abroad since 2006.
In 2019, before the global pandemic hit, China met more than 42 percent of its natural gas demand from foreign sources. The International Energy Agency (IEA) forecasts that by 2030, more than 60 percent of China’s natural gas needs will be covered by imports. Part of this is expected to be covered by LNG.
But despite LNG imports, Russia remains an important supplier to China. In 2014, the year Russia annexed Crimea, China and Russia signed a 30-year, $400 billion contract to supply Russian natural gas to China. Since December 2019, the $55-billion Power of Siberia pipeline has been delivering the first natural gas supplies from Russia to China (China.Table reported). When Putin and Xi met in person on February 4 in the run-up to the opening of the Winter Olympics in Beijing, both agreed on additional gas supplies from Russia.
But Russia has so far been only a small supplier to China. The largest share of LNG supplies was so far supplied mainly by Australia, Qatar, Malaysia and Turkmenistan. According to energy analysis company Wood Mackenzie, China consumed an estimated 370 billion cubic meters of LNG last year. By 2025, this figure is expected to rise to 475 billion cubic meters, with up to half of the demand requiring imports.
However, the fact that Beijing does not want to become overdependent and is diversifying its sources is also evident from recent imports from the United States. Due to delays of LNG export projects in Canada, in which China’s state-owned company Petrochina is involved, and Mozambique, where both Petrochina and energy giant China National Offshore Oil (CNOOC) have invested, gas supplies from the US became more attractive. Before 2019, all gas trade between the two countries came to a halt amid trade disputes between Beijing and Washington under the administration of Donald Trump. After that, however, North American LNG exporters expanded their capacity again due to demand from major Asian economies.
China’s state-owned enterprises also expand their storage infrastructure to store the expected shipments in the first place. China National Offshore Oil Corporation is currently building six of the world’s largest LNG storage tanks. The foundations have already been set, as the leading supplier of LNG in China recently announced.
Shell’s latest LNG report shows just how popular liquefied natural gas could become on the global market. By 2040, demand will exceed 700 million tons per year. This would be a 90 percent increase over 2021. Predictions indicate that Asia – especially China – will consume most of this growth as domestic gas production declines, economies grow and LNG replaces more emissions-heavy energy sources. There will be a run on LNG in the coming months and years.
The big question is: How can Germany and Europe secure shares of the global supply in the short term when much of the LNG is traded under long-term contracts? And how far will the prices for liquefied natural gas continue to rise? Germany’s Robert Habeck has many challenging trips ahead of him. And China will remain a solvent and well-connected competitor for the scarce resource.
A plane crash in southern China has killed 132 people. Flight MU5735 was en route from Baoshan near the border to Vietnam in Yunnan via the provincial capital Kunming to Guangzhou. Details on the cause of the crash have not yet been released at this time.
The Guangxi Autonomous Region mobilized rescue teams, but it is believed that none of the passengers on board the Boeing 737 survived. President Xi Jinping ordered a swift investigation into the cause.
According to aviation experts, only the flight data recorder and the cockpit voice recorder will provide information about the cause of the disaster. So far, it is impossible to even speculate about possible causes. However, it is said that it is unusual for airplanes to crash from their cruising altitude during good weather. Such accidents generally occur during takeoff, landing or exceptional situations.
The plane took off from Kunming on schedule shortly after 1 PM, turned east, and gained altitude as planned. Between 2:19 PM and 2:22 PM, however, the flight altitude then dropped by 6,000 meters to 2,700 meters above sea level, according to Flightradar24. So the plane went into free fall from one moment to the next. A few seconds later, data transmission ends at an altitude of 900 meters above sea level. Depending on the height of the mountains, this must have been almost the moment of the crash. One video shows a plane hurtling vertically toward the ground. The dashcam video of a car driver also shows an uncontrolled crash.
The crash site is located near the city of Wuzhou in the Guangxi Autonomous Region. The area is mountainous and forested. China Eastern has set up a hotline for family members of the passengers. The company is grounding its type 737-800 aircraft for the time being. The crashed plane was not part of the 737 Max model series, which has only recently been allowed back into the air after problems with its on-board computers.
Aircraft maintenance by China’s partly state-owned airlines has basically a very good reputation. In addition to domestic Chinese companies, the providers of maintenance services also include Western companies such as Spirit and Honeywell. Domestic flight business has long since returned to pre-pandemic levels. So China Eastern is not experiencing the widespread problem of pilots being out of practice.
Monday’s crash marks the end of a long period without any major fatal accidents for Chinese aviation. The last time a Henan Airlines plane crashed was in 2010. Of the 96 people on board, 44 died. China Eastern’s only major accident dates back even farther. It happened in 1989, when a Russian-built Antonov was unable to take off. It crashed into a river at Shanghai airport. At the time, 34 people died. Since switching to a fleet of modern aircraft, operations have been without crashes and almost without fatalities.
China Eastern is the world’s eighth-largest airline. Before the pandemic, the company carried 130 million passengers annually, according to Statista, nearly as many as Lufthansa with 145 million. The average age of its fleet is 7.3 years. The company has 583 aircraft in service. It operates 480 Airbus and Boeing aircraft for short- and medium-haul flights and 91 aircraft for long-haul flights. A good three-quarters of its fleet are manufactured by European supplier Airbus.
The brand name China Eastern originated when China’s aviation authority CAAC was split into six privately owned companies in 1988. As the name suggests, its core route operations are located in the eastern part of the country. Its main hub is Shanghai. From here, routes to Kunming provide an important transport link to inland China.
On Chinese social media, flight enthusiasts speculated about budget cuts for control and repairs at China Eastern. But since the cause remains unclear, no connection to the crash can be drawn here either. According to business reports, maintenance costs dropped by twelve percent between 2019 and 2021. But this could be related to the loss of a large part of international business.
In terms of geopolitical impact, nothing could be more important than the United States’ shift from strategic cooperation to strategic competition with China. This change has darkened many observers’ views of China’s economic prospects, as indicated by a Bruegel report released late last year. The assumption, it seems, is that China has no choice but to retreat from its successful development path and embark on a less prosperous path toward self-reliance, with the state exercising complete control over the economy to hedge against geopolitical shocks. But China’s efforts to bolster its self-sufficiency in some areas are a reasonable response to external pressures – and they hardly spell doom for its economic model or prospects.
In recent years, the US has ramped up its effort to “contain” China’s rise. Beyond employing tariffs and non-tariff barriers on imports from China, it has been limiting Chinese investment, such as by blocking Chinese companies from acquiring firms in some high-tech sectors in the US. It has also continued to add Chinese firms to its so-called Entity List, thereby restricting their access to US-controlled critical technologies like semiconductors, barred US capital from entering some of China’s strategic industries, and forced Chinese companies off US stock exchanges.
As my co-author, Shuo Shi, and I show in a 2020 paper, these policies could only carry escalating strategic costs for the US. And, contrary to popular belief, their lasting impact on the Chinese economy could be very limited, let alone enough to stop China’s economic rise in its tracks.
An even more important point is missing from this discussion. China has already crossed a crucial threshold in terms of technological strength as measured by the stock value of physical- and human-capital accumulation. It is now only a matter of when, not if, China catches up with the US technologically.
Chinese leaders have been clear that the country must move faster toward global technological parity to better mitigate the risk from geopolitical impact. In recent years, the government has boosted spending to strengthen China’s capabilities in basic and strategic sectors, including education, science and technology, agriculture, and renewable energy. It has also implemented policies aimed at supporting the rapid development of cutting-edge high-tech industries, such as big data, cloud computing, 5G, and artificial intelligence.
Similarly, in accordance with its Five-Year Plans, China has been expanding its digital infrastructure system. According to China’s Ministry of Industry and Information Technology, China has already established 1.4 million 5G base stations – more than 60% of the world’s total – with over 650,000 built last year alone.
Such efforts are largely a response to the endogenous need to shift to a more advanced stage of economic development, not simply to US containment policies and geopolitical shocks. Given this imperative, perhaps the greatest impact of the US effort to contain China has been to clarify China’s weaknesses and spur more progress in addressing them.
Chinese authorities do not believe that US containment policies will force China out of the existing global economic system, let alone lead it to embrace an inward-looking, state-controlled development model. Predictions that US policies will have such an effect underestimate the competitiveness gains that have driven China’s economic rise over the past few decades and the profound impact it has had on the global economy.
China has built the world’s second-largest economy, and accumulated vast physical and human capital. It is also deeply embedded in – and central to – global production, and has formed complementary relationships with advanced economies. China is thus highly unlikely to be pushed out of global supply chains in any comprehensive way.
In fact, even as China has sought to build resilience at home, it has continued to pursue economic liberalization, such as by improving its business climate, creating a more open financial sector, and establishing many more free-trade zones. And the government remains committed to liberalizing the domestic market in order to maintain its linkage with international markets.
Setting aside geopolitical challenges, China must confront its own domestic issues, beginning with an accelerating fertility crisis. Though the Chinese government has eased its overly restrictive fertility policies, East Asia’s experience suggests that fertility may well continue to decline, albeit at a slower rate.
To stem the decline of the working-age population, China is likely to raise the retirement age soon. At the same time, to hedge against the impact of population aging on future economic growth, the government will continue to increase investment in education, thereby upgrading worker skills and raising labor productivity in the long term.
To increase and realize the economy’s growth potential, China urgently needs to commit to productivity-enhancing structural reforms. Here, China should draw lessons from the East Asian economies, where a slowdown in total factor productivity growth has almost always followed a period of high growth.
One such lesson is to resist political pressure to allocate resources to less productive regions. Another is to avoid capital overinvestment in areas, such as real estate, that do not contribute much to productivity growth and that cause macroeconomic instability.
That is why China’s government must pursue challenging structural reforms that correct resource misallocation and enable productivity growth, the scope for which remains large. For example, China should open up more of its economy to private capital. This would help to channel additional resources toward more productive, entrepreneurial sectors, which will use them more efficiently and creatively than state-owned enterprises.
China’s growth and productivity potential is far from being tapped out, and US containment policies and geopolitical shocks will not stop that. But, in order to meet its potential, China must accelerate its structural-reform efforts, as it did in the late 1990s, and improve the allocation of resources by fostering a more equitable, competitive, and market-oriented system.
Zhang Jun, Dean of the School of Economics at Fudan University, is Director of the China Center for Economic Studies, a Shanghai-based think tank.
Copyright: Project Syndicate, 2022.
www.project-syndicate.org
What looks like a factory site is actually a shot of a newly built quarantine camp in the city of Jilin, in northeastern China. By setting up entire quarantine villages, authorities in the People’s Republic try to quickly bring new Covid outbreaks under control. State broadcaster CCTV reported that the rooms are about 18 square meters in size and entrances are monitored from the outside via cameras. Even close contacts are sent to such quarantine camps. The fact that local media advertises that accommodation is fitted with a private shower room, desk, bed and Wi-Fi does not seem to make much of a difference.
