Remarks by Angel Gurría, OECD Secretary-General, EUCCC-AmCham lunch event
20 March 2012
Beijing, People’s Republic of China
(As prepared for delivery)
Ladies and gentlemen,
I am very pleased to be with you today and thank the leadership of the European and American Chambers of Commerce – EUCCC and AmCham – for their invitation.
The dialogue with business leaders is of great importance to the OECD. BIAC, the Business and Industry Advisory Committee to the OECD, is a key partner of the OECD, providing valuable inputs to our analysis and policy recommendations. Our meeting today is a great opportunity to continue on this path.
I wish to start our exchange with a few words about the world economy and then turn to the challenges of China’s transition to a more balanced, harmonious and sustainable growth.
The global economic outlook is improving but remains uncertain.
There are some encouraging signs for the global economy. Activity seems to be picking up in earnest in the United States and a recovery appears to be taking hold in Japan. However, Europe remains the key weak spot, in spite of good progress with the second financial support package for Greece and in securing the participation of the private sector creditors in its sovereign debt restructuring programme.
More nevertheless remains to be done to reform the Greek and other euro area economies and to rebuild the trust of markets, businesses and households. The highly uncertain global economic context calls for decisive action and strong commitment to implement politically difficult reforms.
Against this backdrop, China is making an important contribution to the world economy. It has been a source of dynamism in a very weak and hesitant global recovery. If growth has slowed recently, this cooling is welcome, as it has helped bring inflation down to a more comfortable level. The fundamentals of the Chinese economy remain strong and, importantly, there is room to ease monetary policy and implement fiscal measures to support domestic demand, if necessary.
Today I am very pleased to launch our latest publication on China: “China in Focus: Lessons and Challenges”. It shows that the key challenges facing China increasingly mirror those of OECD member countries. Let me now touch upon some of the key messages of this volume.
The first big challenge for China is to continue moving up the value chain.
However you look at it, China has re-emerged as a major global economic power. It is the second largest economy in the world and one of the largest manufacturing and trading nations. China has also become enmeshed in global trade networks and global value chains, developing strong links with its East Asian neighbours, but also with the wider world. Almost half of the final products assembled in China are now exported to Europe and the United States. Multinational companies are key actors in this process.
China’s role in the world economy also continues to evolve. China is now not only a key destination of foreign investment, but Chinese companies have themselves also become major international investors. The numbers speak for themselves: China is now the fourth largest source of international mergers and acquisitions, accounting for around 7% of the world’s total. Key emerging economies, such as in Latin America, are becoming important destinations for Chinese firms investing abroad.
Promoting the development of a dynamic export base has indeed been a hallmark of China’s development strategy. Successive waves of reforms have enhanced the importance of the private sector in the Chinese economy. Access to sectors such as financial services, infrastructure and utilities has been gradually improved and the competition framework has been brought into closer alignment with international best practice. Reform, however, is a never ending process and there is much more to do.
While China’s import tariffs are not in general high on average, significant trade barriers remain in some sectors, including motor vehicles and selected agricultural and energy sectors. Reducing these barriers would benefit Chinese consumers and generate efficiency gains for the economy at large. In addition, the productivity of state-owned enterprises remains low and many continue to make losses. Further regulatory reform and FDI liberalisation can do much to create an even more competitive economy.
But in addition to becoming more efficient and competitive, China needs to increase its strategic efforts to become a truly knowledge-based economy. Progress has been impressive in many areas; for example, spending on research and development (R&D) surged by nearly 22% last year to 1.8% of GDP, making China the second country in the world by total R&D spending. But government policies need to be comprehensive and stretch beyond R&D.
To reap the full potential of innovation for growth and jobs, China’s efforts to promote R&D need to be mirrored by reforms to enhance technology standards and support the enforcement of intellectual property rights protection. The promotion of better corporate governance and more R&D in state-controlled enterprises should also be among the top priorities of Chinese policy makers.
Another key challenge is to tackle inequality and improve health care.
The substantial rise in the standards of living of hundreds of millions of Chinese and the sharp reduction of severe poverty are among the greatest economic success stories in modern times. Let’s be clear: just three decades ago, almost 40% of the Chinese population lived below the international poverty line; by 2010, this figure had fallen to just 6% in rural areas. This is a remarkable transformation – for China and for the world.
However, the benefits of strong growth have not trickled down, despite widespread poverty reduction, and inequality has risen significantly during this same period. Many factors contributed to this trend, including gaps in access to health insurance and education, as well as barriers to employment and career progression for some groups, particularly rural migrants.
To address this problem and make growth more inclusive, the Chinese authorities have invested heavily in expanding access to essential social services, notably health care and education. They have also taken important steps to improve the social safety net: in the last five years, social spending almost tripled in real terms, to nearly 8% of GDP. It now exceeds the levels of many other emerging economies. And these efforts seem to be paying off: inequality has stopped rising, and may have even begun to decline.
Delivering better social services and enhancing opportunities for all will help China fulfil its goal of becoming a harmonious and prosperous society. The clearest example is education policy. Human capital development not only has a significant effect on productivity growth, but it also helps people find better-paid and secure jobs. Another promising avenue is to reduce labour market dualism and to ensure a better protection of vulnerable workers in the informal sector.
Delivering better social services is not necessarily about spending more, it is about achieving better outcomes for the Chinese people. This is especially so in the area of health care. Recent reforms have paved the way for achieving universal access to health insurance in the near future.
This is an important achievement, but China also faces new challenges. Non-communicable diseases now account for well over half of all deaths. To tackle this problem, China needs to invest more in cost-effective prevention policies and implement hospital reforms, including through innovative managerial and payment practices, to develop e-Health approaches and to improve the quality of care. These are all important initiatives that will need to be taken to improve the health status of the Chinese population.
Green growth policies are essential for addressing the environmental challenge.
Let me conclude with a few remarks on another major challenge facing China, and the rest of the world: shifting towards more environmentally sustainable patterns of consumption and production.
China faces a number of environmental challenges, many of which have both a domestic and international dimension. The commitment to reducing pollution in the 12th Five Year Plan is a testimony to the farsighted approach the Chinese government is taking in this area. But to ensure that “green” and “growth” go together, China needs to deploy a wide range of policy tools and approaches.
The OECD Green Growth Strategy has much to offer in this area. It provides evidence-based analysis and guidance on the policy levers, measurement and monitoring approaches that could support such efforts. It focuses on mutually reinforcing aspects of economic and environmental policy, emphasising the importance of investment, innovation and jobs. In a nutshell, it is a comprehensive approach to green our growth policies.
Ladies and gentlemen,
China and the OECD countries face increasingly similar challenges. We need to deepen our policy exchanges to share our expertise and accumulated experiences, to learn from one another, and to build cooperative solutions at the global level. Only together we will be able to build better policies for better lives.
The international business community has an important role to play in supporting China’s transition to a more modern, inclusive and dynamic economy. In the current challenging times, business organisations need to work hand-in-hand with the government and the civil society. This is the case in China, in the OECD countries and at a global level. Your wisdom and resilience, your energy, and your pioneering spirit are one of the engines of the lasting recovery we all need.
Thank you for your attention.