Restructure ‘urgent’ as population benefit ebbs

China is likely to lose its demographic dividend in the next five to six years, but the country can make up for it by restructuring its economy to drive growth, experts said.

“Rising costs have added urgency to the need for China’s economic transition,” said Lu Zhongyuan, vice-minister of the Development Research Center of the State Council, China’s Cabinet.

As labor costs continue to rise, China may lose its demographic dividend gradually over the next “five or six” years, Lu said in a speech at a two-day international forum in Haikou, Hainan province, on Sunday.

“China is not a cheap place any longer,” said Zhang Yansheng, director of the Institute for International Economic Research under the National Development and Reform Commission.

“The country is quickly losing its traditional advantages, while its new advantages have yet to take their place,” Zhang said.

The nation’s export-reliant, investment-driven economic structure is unsustainable and China must upgrade its industrial structure and strengthen its innovation capabilities, he said.

Complex mix

“China’s industry structure will shift to a complex one featuring a mix of labor-, capital- and technology-intensive industries,” he said.

China’s economic growth slowed during the third quarter, raising concerns that the economy, which has been a driver of the world recovery since the financial crisis of 2008, could continue to slow.

Chi Fulin, president of the China Institute for Reform and Development, the forum host, said the economy will maintain its upward momentum in the next 10 years, but this period will also be critical for China’s economic transition.

“Urbanization and the service industry have the potential to grow by more than 10 to 20 percentage points, which will support China in maintaining average annual growth of about 8 percent in the next 20 years,” said Chi.

China could remain an engine for world growth amid possible economic stagnation or global market turmoil, he said. Urbanization provides opportunities for the development of the service industry, and small and medium-sized enterprises (SMEs) are the major players in the service industry, he said. He urged the government to provide more support for SMEs through financing and tax means, such as waiving the business tax on the service sector.

Wu Jinglian, the 81-year-old preeminent Chinese economist, said the government should focus on establishing a good institutional environment for effective market operations and providing public services.

More than 300 scholars took part in the two-day forum to brainstorm solutions to the challenges facing China in the next decade, such as the “middle-income trap”.

China had made itself into a lower middle-income country as of 2010, with per capita GDP of about $4,400. That figure generated debate about whether the country is heading toward a “middle-income trap”.

Renata Lok Dessallien, the United Nations resident coordinator and UN Development Program resident representative in China, said that to achieve balanced development, countries need to focus on economic, social and environmental issues in equal measure.