China set to become the world's largest economy

About 100 people turned up for an insightful talk on ‘China’s Return to the World Stage’ by a foremost world authority on economics at the main campus.

Learning more on China's economy.

Learning more on China's economy.

Prof Woo Wing Thye declared that after an annual 10% growth in its gross domestic product (GDP) over the last 30 years, China is now standing at the front gate of the rich and powerful clubhouse. He posed two questions: whether China’s strong economic growth will continue that it succeeds in reaching the rich man’s club; and will China behave responsibly after it enters the clubhouse, a point of discussion for a future talk.

Prof Woo is Professor of Economics at the University of California in Davis, and a Yangtze River Scholar at the Central University of Finance and Economics in Beijing. He was advisor to the International Monetary Fund, World Bank and the US Treasury, and appointed to the International Advisory Panel to the Prime Minister of Malaysia in 2005 and Chairman of the International Economic Advisory Panel of Penang state in 2009.

Prof Woo gestures to make a point.

Prof Woo gestures to make a point.

On whether China will enter the inner sanctum of the rich man’s club, he shared 2007 Wall Street predictions that China will become a larger economy than Japan this year, and by 2030, overtake the US to be the largest economy. He however said that China’s per capita income will still be low compared to the US. He believed China’s current high-speed growth will eventually propel it into the inner sanctum but warned of social risks and also international concern about China’s behaviour.

Woo used the allegory of China as a speeding car facing three types of potential crashes or failures. The first is hardware failure (piston is worn down), which is failure in economic mechanism e.g. banking sector collapse and fiscal management; secondly software failure (a fight inside the car) relating to failure in governance e.g. corruption, incompetence, dangerous products; and thirdly power failure (run of gas or hit a roadblock) concerning failure in environmental management or in managing foreign economic relations, e.g. water shortage, trade sanctions.

“The hardware failures of the banking or financial sector crash is the one that the Chinese government is most confident of fixing,” he said, asserting that it can look to what Japan and South Korea had done, and replicate it with adaptations.

A large turnout.

A large turnout.

He remarked that the governance software is flawed, with people increasingly dissatisfied with administrative performance leading to a jump in social unrest. “The truth is though administrative performance has improved there is greater social expectation about the ability of the government to deliver. The Chinese people travel abroad and see things, and question why their government is not as efficient.”

He said despite China’s economic growth, it is very hard to improve the income of those below the poverty line, causing China to have one of the highest income inequalities in the world. “To increase the Chinese government’s effectiveness in reaching the poorest population is by making the government more accountable,” he stated, adding that the accountability of the government to perform can be increased through open elections, free Press, and independent judiciary.

As for power supply failures, Woo told that “there cannot be a harmonious society within China if there is no harmonious world outside China”. He feared we are in the threshold of a Trade War due to escalating US-China trade tensions, with proposals within US for anti-subsidy tariffs and import surcharge on Chinese goods, and accusations that China’s trade surpluses caused the US financial market meltdown.

Dato' Dr Sharom Ahmat with Prof Woo.

Dato' Dr Sharom Ahmat with Prof Woo.

“The atmosphere is ripe for protectionism because of China’s fast climb and inadequate US social safety net to meet high labour turnover,” he informed. China is now the biggest emitter of carbon dioxide, and its refusal to sign the Kyoto Protocol can be used as an excuse to impose tariffs on China’s goods to get it to reduce its emission.

He said China needs to reduce its trade surplus while the US its trade deficit and labour problems. He wants China to be a responsible stakeholder and employ diplomatic efforts to collaboratively resolve issues relating to the environment and its imports.

During Q&A, Woo said among the causes for international concern over China’s growth is its strong support for North Korea’s and Iran’s nuclear developments, and the huge trade imbalance. “You cannot get rich and not help to have a peaceful world. Its thoughtless actions cause international suspicion of how China will behave.”

Dato' Wong Siew Hai registering to attend the talk.

Dato' Wong Siew Hai registering to attend the talk.

Among those who attended the lecture organised by SERI were Bukit Bendera MP Liew Chin Tong, WEF chairman Dato’ Seri Stephen Yeap, Malaysian-American Electronics Industry chairman Dato’ Wong Siew Hai, SERI chairman Dato’ Dr Sharom Ahmat and WOU Vice Chancellor Prof Dr Wong Tat Meng.