by Xinhua writers Ming Jinwei, Xu Duo
As China becomes a major global economic powerhouse, the following paradox-like phenomena also seem to become more apparent.
They range from the huge foreign reserves it has versus the huge foreign investment it attracts, the robust exports versus the sluggish domestic demand, to the rapid economic growth versus the growing environmental concerns,-- almost all speaking to the complexity of China's interaction with the world.
Now the question is: Are these really paradoxes and what would be the solutions if they are?
FOREIGN RESERVES VS. FOREIGN INVESTMENT
According to official figures, by September 2010, China held 2.6483 trillion U.S. dollars in foreign reserves, of which about 907 billion dollars were invested in U.S. treasury bonds. Meanwhile, China has cumulatively attracted 1.06 trillion dollars in foreign direct investment (FDI).
Many perhaps will ask: Since China has such huge foreign reserves, why do we have to attract FDI with preferential terms rather than just utilize the reserves in domestic development?
The answer is rather "we couldn't" than "wouldn't."
Foreign reserves, in a broader sense, include foreign exchange, gold, special drawing rights (SDRs) and the International Monetary Fund (IMF) reserve positions.
These are assets of the central bank in different reserve currencies, mostly in U.S. dollar.
They reflect a country's international solvency power and are often used to import, invest, pay foreign debts, stabilize currency and defend against speculative attacks. They are generally not supposed to be circulated in the domestic market though readily available.
Zhang Bin, an economist with the Chinese Academy of Social Sciences, said if foreign reserves, after being exchanged by the central bank through printing domestic currency, were circulated domestically, they would cause an expansion in the amount of domestic currency in circulation, and hence cause inflation and affect monetary policy.
Under the circumstance that the country's national output has not increased proportionally, an overflow of domestic currency in circulation will undoubtedly create upward inflationary pressure.
On the other hand, FDI has played an important role in China's economic development over past decades. In the early stage of China's reform and opening-up, FDI injected badly-needed capital into Chinese companies and helped them embark on a rapid development path.
In addition, FDI has brought advanced technology, management and marketing conceptions, all of which have helped propel China forward.
With economic expansion and the rise of Chinese enterprises in recent years, China has now shifted its focus of FDI utilization from quantity to quality and efficiency, and is dedicated to make FDI better conform with China's strategic transformation of its development pattern and structural reforms.
EXPORTS VS. DOMESTIC DEMAND
In their fight against the global financial crisis and the ensuing economic downturn, many governments of developed and developing countries alike have resorted to exports as a major tool to bail out their economies.
However, a report issued by China Social Sciences Academic Press last month warned of China's "serious reliance on the international market and mammoth foreign reserves," noting that the latter posed an enormous risk to the country's economic development.
Export promotion, after all, is a means rather than an end in economic development.
By exporting, countries can provide products with comparative advantages, while enjoying other countries' products by importing. By this means, every country participating in international trade can fully share the benefits of globalization.
Nevertheless, huge export volume without corresponding imports will build up trade surplus and foreign reserves, which will pose a risk to the country's economic development.
In addition, although China has accumulated huge foreign reserves by years of robust exports, a large proportion of these are made by foreign or multinational ventures based in China. That means, while China posts a huge trade surplus, profits from these exports are garnered by foreign companies.
Moreover, while basking in the "world factory" status, China is bearing the brunt of resource waste, environmental deterioration, energy depletion and mounting foreign pressure on trade balance.
To address these problems, China's top leadership pledged at a recently concluded economic meeting to expand imports and spur domestic demand, in a bid to rebalance the national economy and let the people enjoy more of the benefits of international trade.
GDP GROWTH VS. SOCIAL WELFARE
Gross domestic product (GDP) is the amount of all final goods and services made within a country in one year. It is widely accepted as the broadest measure of a country's economy.
Although widely accepted, attaching too much importance to GDP statistics has its drawbacks.
GDP reflects the final market value of all goods and services made, but neglects the ways and means used in the process. That means, the same amount of GDP can be made either in a labor- and capital-intensive way or in a culture-enriched and technology-laden way, either in an eco-friendly way or in an environmentally devastating way. More simply put, GDP tells one only the quantity, not the quality, of the economy.
It goes without saying that in terms of GDP, China has already grown into a major world economic powerhouse after years of rapid development, and its fast growth has played a leading role in the global recovery.
However, all the achievements would hardly mean much if we failed to address pressing issues such as social welfare, the public's well-being and environmental protection.
Fully aware of the mounting pressure from these challenges, Chinese leaders have, on many occasions, called for strengthening efforts in ecological and environmental protection in a bid to restructure the economy and improve people's livelihoods.
China's policy makers also vowed to make concrete efforts to better juggle the tasks of developing the economy, improving the public's living standards and protecting the environment.
GROWTH AS INDIVIDUAL VS. GROWTH AS A WHOLE
Regarding the relationship between China's growth as an individual country and the world's development as a whole, most people would agree that China will benefit from the world's development, while making its contribution at the same time, given the increasing interaction between China and the world.
Consequently, China has vowed to adhere to the mutually beneficial and win-win strategy of opening-up, and aims to expand international economic cooperation.
China will continue to share its development opportunities with the world. The so-called "Chinese demand" resulting from the country's steady and rapid growth is becoming an important factor in the world's economic recovery.
In its bid for a comprehensive, coordinated and sustainable development, China has pledged to stop being too dependent on exports, spur domestic demand, improve investment efficiency, promote its services sector, cope with climate change, and accelerate the strategic adjustment of its economic structure.
By this means, China aims to reconcile its role as an individual economy with being a member of the international economic community. At the same time, China is actively contributing to global economic recovery and development.
As China becomes a major global economic powerhouse, the following paradox-like phenomena also seem to become more apparent.
They range from the huge foreign reserves it has versus the huge foreign investment it attracts, the robust exports versus the sluggish domestic demand, to the rapid economic growth versus the growing environmental concerns,-- almost all speaking to the complexity of China's interaction with the world.
Now the question is: Are these really paradoxes and what would be the solutions if they are?
FOREIGN RESERVES VS. FOREIGN INVESTMENT
According to official figures, by September 2010, China held 2.6483 trillion U.S. dollars in foreign reserves, of which about 907 billion dollars were invested in U.S. treasury bonds. Meanwhile, China has cumulatively attracted 1.06 trillion dollars in foreign direct investment (FDI).
Many perhaps will ask: Since China has such huge foreign reserves, why do we have to attract FDI with preferential terms rather than just utilize the reserves in domestic development?
The answer is rather "we couldn't" than "wouldn't."
Foreign reserves, in a broader sense, include foreign exchange, gold, special drawing rights (SDRs) and the International Monetary Fund (IMF) reserve positions.
These are assets of the central bank in different reserve currencies, mostly in U.S. dollar.
They reflect a country's international solvency power and are often used to import, invest, pay foreign debts, stabilize currency and defend against speculative attacks. They are generally not supposed to be circulated in the domestic market though readily available.
Zhang Bin, an economist with the Chinese Academy of Social Sciences, said if foreign reserves, after being exchanged by the central bank through printing domestic currency, were circulated domestically, they would cause an expansion in the amount of domestic currency in circulation, and hence cause inflation and affect monetary policy.
Under the circumstance that the country's national output has not increased proportionally, an overflow of domestic currency in circulation will undoubtedly create upward inflationary pressure.
On the other hand, FDI has played an important role in China's economic development over past decades. In the early stage of China's reform and opening-up, FDI injected badly-needed capital into Chinese companies and helped them embark on a rapid development path.
In addition, FDI has brought advanced technology, management and marketing conceptions, all of which have helped propel China forward.
With economic expansion and the rise of Chinese enterprises in recent years, China has now shifted its focus of FDI utilization from quantity to quality and efficiency, and is dedicated to make FDI better conform with China's strategic transformation of its development pattern and structural reforms.
EXPORTS VS. DOMESTIC DEMAND
In their fight against the global financial crisis and the ensuing economic downturn, many governments of developed and developing countries alike have resorted to exports as a major tool to bail out their economies.
However, a report issued by China Social Sciences Academic Press last month warned of China's "serious reliance on the international market and mammoth foreign reserves," noting that the latter posed an enormous risk to the country's economic development.
Export promotion, after all, is a means rather than an end in economic development.
By exporting, countries can provide products with comparative advantages, while enjoying other countries' products by importing. By this means, every country participating in international trade can fully share the benefits of globalization.
Nevertheless, huge export volume without corresponding imports will build up trade surplus and foreign reserves, which will pose a risk to the country's economic development.
In addition, although China has accumulated huge foreign reserves by years of robust exports, a large proportion of these are made by foreign or multinational ventures based in China. That means, while China posts a huge trade surplus, profits from these exports are garnered by foreign companies.
Moreover, while basking in the "world factory" status, China is bearing the brunt of resource waste, environmental deterioration, energy depletion and mounting foreign pressure on trade balance.
To address these problems, China's top leadership pledged at a recently concluded economic meeting to expand imports and spur domestic demand, in a bid to rebalance the national economy and let the people enjoy more of the benefits of international trade.
GDP GROWTH VS. SOCIAL WELFARE
Gross domestic product (GDP) is the amount of all final goods and services made within a country in one year. It is widely accepted as the broadest measure of a country's economy.
Although widely accepted, attaching too much importance to GDP statistics has its drawbacks.
GDP reflects the final market value of all goods and services made, but neglects the ways and means used in the process. That means, the same amount of GDP can be made either in a labor- and capital-intensive way or in a culture-enriched and technology-laden way, either in an eco-friendly way or in an environmentally devastating way. More simply put, GDP tells one only the quantity, not the quality, of the economy.
It goes without saying that in terms of GDP, China has already grown into a major world economic powerhouse after years of rapid development, and its fast growth has played a leading role in the global recovery.
However, all the achievements would hardly mean much if we failed to address pressing issues such as social welfare, the public's well-being and environmental protection.
Fully aware of the mounting pressure from these challenges, Chinese leaders have, on many occasions, called for strengthening efforts in ecological and environmental protection in a bid to restructure the economy and improve people's livelihoods.
China's policy makers also vowed to make concrete efforts to better juggle the tasks of developing the economy, improving the public's living standards and protecting the environment.
GROWTH AS INDIVIDUAL VS. GROWTH AS A WHOLE
Regarding the relationship between China's growth as an individual country and the world's development as a whole, most people would agree that China will benefit from the world's development, while making its contribution at the same time, given the increasing interaction between China and the world.
Consequently, China has vowed to adhere to the mutually beneficial and win-win strategy of opening-up, and aims to expand international economic cooperation.
China will continue to share its development opportunities with the world. The so-called "Chinese demand" resulting from the country's steady and rapid growth is becoming an important factor in the world's economic recovery.
In its bid for a comprehensive, coordinated and sustainable development, China has pledged to stop being too dependent on exports, spur domestic demand, improve investment efficiency, promote its services sector, cope with climate change, and accelerate the strategic adjustment of its economic structure.
By this means, China aims to reconcile its role as an individual economy with being a member of the international economic community. At the same time, China is actively contributing to global economic recovery and development.
