China correctly maps out future development model: US expert

WASHINGTON -- While changes are in the works, herculean efforts will be needed to advance China's economic reform, and Beijing correctly mapped out the country's future development model, said a leading US expert on China.

"I think China has correctly mapped out a future that anticipates a very different development model," said Kenneth Lieberthal, a senior fellow at the Brookings Institution, a Washington-based think tank.

In a recent interview with Xinhua, Lieberthal lauded the model envisioned by China's top leaders, saying it would attach more importance to domestic consumption and innovation and allow the service sector to play a bigger role.

"I think those are exactly the right directions. The difficulty is how to get from here to there, given China's current model is very different on every one of those issues," he cautioned, adding that China's capacity to remake its economy matters both to itself and the world.

While holding that any significant change would be inherently complicated and difficult, Lieberthal said the new government would begin with some areas which are easier to start with, like taking further steps to liberalize interest rates and changing allocation of resources that are raised from the value added taxes.

Those are all items where a decision can have significant impact and they "tend to be easier politically and administratively to do early on," he said.

It is beyond doubt that Chinese leaders are well aware of the structural maladies in the economy. Still, it is essential to motivate local authorities to align their goals with Beijing, said Lieberthal, who has been invited to attend the 2013 Fortune Global Forum which will take place in Chengdu, the capital city of Sichuan province in Southwest China, in early June.

In recent years, China has confronted new challenges, including rising labor costs and aging population. Growth in China has been cooling. Its economy grew 7.7 percent in the first three months, slowing from 7.9 percent in the final quarter of 2012 and missing consensus estimate of about 8 percent.

Liberthal said the real issues for the Chinese economy are not headline numbers, but the quality of growth.

"I think there are some encouraging signs from recent growth, especially the increase in the role of domestic consumption," he added.

His words resonated with Chinese Premier Li Keqiang's emphasis on the importance of improving the quality and benefits of development, with focus put on promoting economic restructuring and upgrading.

Since major structural problems still exist, Lieberthal said, the focus would be whether the changes envisioned by the Chinese government will put China on a more sustainable growth trajectory.

"The government has stressed very strongly it is committed to economic openness and economic reform," Lieberthal said. Because the political system in China is so engaged in the way the economy functions, adjustments in the operation of political system are also needed to enable the economic reforms to have their appropriate impact, he added.

The urban household registration system, which in his view limits opportunities available to rural migrants, is a built-in constraint on China's domestic consumption as a driver of the economy. Revamping it would help unleash the potential of growth and promote social mobility, he noted.

It is very important to have good framework for competition and to allow the private sector to compete effectively is key to build economic competitiveness, said Liberthal.

"Government direction and investment are needed for some fundamental things... but greater liberalization would probably serve China's interests very well," as "market is a very efficient allocator of capital and can provide strong incentives."