China’s bid to ‘rebalance’ economy favorable to PHL, says Neda

Monday, 26 December 2011 21:20 Cai U. Ordinario / Reporter

AS the extent of the financial crisis in Europe unfolds, the National Economic and Development Authority (Neda) looks to other sources of economic growth and sees China’s efforts to rebalance its economy to become more consumption-based favorable to the Philippines’s bid to boost its medium term exports.

Neda Assistant Director General for Planning Ruperto P. Majuca told reporters that the Philippine economy will be able to gain an additional 0.5 percentage points annually in gross domestic product (GDP) between 2012 to 2016 if China is successful in rebalancing its economy.

This means that if the economy grows at its historical average of 5 percent, a successful implementation of China’s rebalancing act may increase this growth to 5.5 percent every year until 2016. For next year, if the economy is able to hit the government’s target of 4.5 percent to 5.5 percent, the China factor could increase local growth to 5 percent to 6 percent.

“In the medium term, it could be 0.5 percent of GDP average per year. Depending on the scenario, the highest impact would be 2014, depending on when they would successfully rebalance their economy, so we’re watching it very closely whether they successfully rebalance toward more consumption based and more imports based in which case it means more exports for us. We could penetrate their market [and] the Department of Trade and Industry [DTI] can work with all these promotions with them,” Majuca explained.

The Neda Official said that currently, China’s sources of economic growth include exports and investments which could not be sustained for a long period of time, considering there are a lot of imbalances. Majuca said around 50 percent of its GDP is composed of investments.

Majuca added that it is already part of China’s five-year plan to move to a more consumption-based economy. A consumption-based economy means that China takes advantage of the spending power of its more than a billion citizens. China is the world’s most populous country with 1.35 billion people.

“It presents a lot of opportunity because they are trying to rebalance their economy. The past economic paradigm of China is investment-led, exports-led, which cannot be sustained in the long run because there are a lot of imbalances,” Majuca said.

It can be noted that data from the National Statistics Office showed that exports to China accounted for 14 percent of total exports and was the country’s third-largest export market. Shipments amounted to $568.02 million as of October 2011.

In May 2007 the Center for Strategic and International Studies and the Peterson Institute for International Economics published the study titled The China Balance Sheet in 2007 and Beyond. The study supported the efforts of China to rebalance its economy since it will not only benefit China’s economy but the entire world.

The study stated that China provides a major boost to global economic growth. With the new growth strategy, domestic consumption demand in China will reduce its national savings rate relative to its investment rate and reduce its current account surplus.

“This adjustment should be facilitated by an appreciation of the Chinese currency, which would mitigate inflationary pressures that would otherwise emerge from the increase in consumption demand,” the report stated.

In 2005 personal consumption in China was 30 percent less in real terms than the level that would have been achieved if the household consumption share of GDP had remained at the 1990 level rather than falling by more than 10 percentage points.