Saturday, July 28, 2012

Abbott to China: Time For Reform !

Australian Opposition Leader, Tony Abbott has broken from bi-partisan tradition on a trip to China to urge the Chinese government's politicians to embark on political reforms to match its "remarkable" economic transformation. Predictably, official news outlets such as Xinhua left out some of the Opposition Leader's more confronting statements such as the one that China would prosper even more if  "its people enjoyed freedom under the law and the right to choose a government."

''As prime minister I would hope for political reform to match China's economic liberalisation, while acknowledging the government's right to maintain order and respect China's growing place in the world,"  Mr Abbott told a business breakfast in Beijing. He added, "We already have a strong relationship with China based on shared interests. Over time, I hope it will be based more on shared values." This bold comment on the values of other governments will leave some former diplomats fretting and tut-tutting about disrespecting our largest trading partner but it was worth mentioning.

Because focusing on values also matters for other reasons. Whether Abbott knows it or not, he is simply reaffirming what many prominent Chinese economists are already saying about what the country needs to do to build a surer foundation for further prosperity.

For example, the country's 150,000 centrally and locally managed state-owned enterprises receive about three-quarters of all formal bank loans in the country. The bias towards these Self-Owned-Enterprises (SOEs) exists despite the fact that private domestic firms are two to three times more efficient. The state-dominated economy of SOEs have been running at an average of 20-30% each tear since 1990s. In contrast, mean household incomes have been rising by 2-3% a year over the same period. Studies are now suggesting that the disposable income of 400 million Chinese has actually stagnated or gone backwards over the past decade. Other indicators reveal that absolute poverty (those living on less than $US1.50 a day) has actually increased over the same period.

Within one generation, China has gone from being the most equal society in all of Asia, in terms of distribution in income, to the least. In China's state-dominated model, opportunity and privilege are tied to SOEs and Chinese Communist Party connections.

The Way I See It....the much hyped transition towards a domestic consumption-led economy driving growth is all-but-impossible under these circumstances. Chinese economists, and even some political officials, are increasingly voicing their concern that such  political-economic model, despite its impressive achievements, is reaching its limits.

Mr Abbott urged closer and more active engagement but also signalled a tougher stance on Chinese investment, saying that an Abbott-led government would "rarely" support a Chinese government company taking over an Australian business. Perhaps Tony Abbott has moved a few steps faster than diplomatic protocol demands, but his comments have nevertheless hit the mark.

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