By Huang Qing (People's Daily Online)

For much of the past decade, there has been "a notion that China's economy is increasingly unmatched, not only overseas but also within China. This notion first surged during the Asia financial crisis in the late 20th century, when China met stark challenges calmly and helped to tide over them with a very responsive and prudent attitude.

Since the start of the 21st century, China has scored a high-growth economy, as developed nations recorded fairly-low economic growth rates. When the global financial crisis plunged developed nations into a negative growth, Chinese economy experienced a GDP growth of around 8 percent in 2009 and, in the first quarter in 2010, it recorded a double-digit growth and so more people say that China's economy is getting increasingly unmatched on track.

The notion of referring to China's economy as unmatched or unparalleled is inaccurate however, and the four main reasons are as follows: First, China is not the sole nation to sustain a fast economic growth; India and other developing economies are also growing rapidly, too. New features or hallmarks in the newly-emerging nations pose new images and domains of global economy. So, China does not intend to complete its mastery to attain an unusual, overall excellence, since this does not conform to reality.

Second, the economic "super-performance" should be viewed by a growth in GDP alone but be cited as an economic activity value ratio as a whole. So, the statistical inference has rather great limitations if the value of economic activity is definitely confined.

Other factors also indicate immensely a nation's economic performances. For instance, people should see if the economic structure of a given nation is rational, if a hidden intrinsic impetus is adequate, if its economy and social development are developed in balance and if the mode of growth is sustainable. China's contemporary economy right now is quite tenuous with so many problems in these spheres, and is currently facing an arduous task in the reform and development.

Third, there has also been a psychological factor for people to invoke such a notion for the people may be imbued with self-content and be led astray. In reality, China still retains its status of a developing country with uneven economical development. It is now time for the people of China to get down to business rather than bragging or making up truth themselves.

Finally, China's economic growth should be seen from a perspective of world economy and economic globalization. At present, China has a sizeable proportion of foreign invested enterprises, which produce about half of the country's exports. Can these multinational firms be regarded for China's own development or be viewed for the development of the source of foreign direct investment (FDI). Perhaps it should be taken as the development of both. The boom of China's economy is the economic outcome to be shared with the rest of world instead of the outcome being taken solely by China itself.

China has made great strides in its economic growth, which has evolved more comments worldwide and particularly in those Western developed nations. At one extreme, some media comments are rumbling that Chinese economy is heading for a "collapse" and, at other extreme, some other comments say "China is surging at an unmatched pace with more than 10 percent growth forecast for 2010."

At present, the contemporary world economy is experiencing an in-depth structural change, and China's rapid economic growth is definitely part of this global change. In the face of global financial crisis, people in varied countries think differently, act differently and can also have different mindset conditions, and some media even distort issues to exacerbate viewpoints in term of economic development in China.

As far as people in China are concerned, they should be prudent with a usual mindset, see the way ahead for their country and get things done in a down-to-earth manner. Hence, they should have "the wisdom of knowing their own limitations" and "strive unceasingly to be stronger," and this is how things on earth have always been.

Source - China Daily (http://www.chinadaily.com.cn/opinion/2010-06/18/content_9987845.htm) 

By Francis Hutchinson , FOR THE STRAITS TIMES

 The electronics sector is one of the most dynamic and globalised, with manufacturing operations in locations spread across the globe. But despite the industry's internationalisation, many of its start-ups still originate in Silicon Valley, a 'node' of excellence. -- PHOTO: ASSOCIATED PRESS

IT APPEARS that our world is changing shape. According to commentators like The New York Times' Thomas Friedman, it is 'flattening' for a number of reasons - including technological advances such as the Internet and workflow software, as well as new forms of organising production such as offshoring, outsourcing and supply- chaining.

As a result of these changes, sectors in industrialised nations that had previously been sheltered from international competition are now being threatened by far-off and cheaper locations. In turn, countries that were once on the margin of the global economy are enjoying rapid growth. This increased competition is what has been described as the ''flattening' of the world or a 'levelling of the playing field'.

In a recent NYT column, Mr Friedman cited as emblematic of a 'flat' world a start-up established by Indians and Cubans living in the United States. It had venture capital from St Louis, Missouri, a manufacturing operation in Uruguay, technical support from professionals in Israel, India and Chile, and a South African as chief executive. Entrepreneurs and technically 'savvy' people from around the globe, he argued, are able to meet and collaborate due to advances in technology and organisational processes.

This vision of a 'flat' world has considerable merit. Yet it is possible that while the world is changing shape, it is not 'flattening'. While distance has become less of a barrier, the location of economic activity is still very relevant. If anything, the changes in economic activity arising from globalisation mean that location is more important than ever before. This is particularly the case with regard to the development of new products and processes - otherwise known as innovation.

While business transactions can be impersonal, they are still social activities carried out among people. Trade is not just about exchanging an item for an agreed- upon price. It is also about communication within the framework of an agreed- upon set of rules such as transparency, efficiency and confidentiality - rules that do not always lend themselves to communication from afar. In addition, certain types of activity respond better to being cut up and parcelled out across a range of locations than others.

Industries such as medical transcription, call centres, payroll administration and draughtsmanship are being carried out in locations as diverse as Tunisia, the Philippines and India. These are often taken as examples of the globalisation of services. However, many of these industries consist of tasks that are repetitive, easily measured, and not business-critical for clients. Furthermore, they do not rely on constant technological innovation.

Many other economic activities rely on close, detailed communication and the establishment of dense social links for their success and continual creativity. This is particularly the case for highly sophisticated activities or those that rely on skills that are hard to acquire or transmit. Industries such as finance, film and fashion as well as craft-based activities such as watch-making and jewellery fabrication are quite resistant to being sliced up and moved to far-off locations. Industries such as public relations and management consulting depend on healthy doses of 'face time' to plan, strategise and collaborate. Even sectors that are well-known for being mobile are not immune to the importance of location - for example, critical tasks such as design and research and development.

The electronics industry is probably one of the most dynamic and globalised, with manufacturing operations in locations ranging from China to Costa Rica. Despite the industry's internationalisation, many of its start-ups continue to originate in Silicon Valley. In addition to facilities such as technology parks and institutes of higher learning such as Stanford University and the various campuses of the University of California system, that part of California also has social 'infrastructure'. This includes formal and informal venues for entrepreneurs to meet and exchange ideas, shared perceptions of innovation, and industry veterans willing to nurture the development of new firms. In fact, some argue that all of Silicon Valley functions as a giant laboratory. Despite attempts across the globe to recreate a similar setting for other industries, few, if any, have succeeded.

Therefore, it is unlikely that Silicon Valley will be 'flattened' out of existence. Rather, it will probably remain an 'island' of excellence that entrepreneurs in the electronics and IT industries will have to incorporate into their business strategies. Such islands are emerging in other sectors and other countries. For example, India's Bangalore has cemented its reputation as such a business-critical location for the software industry.

While the start-up Mr Friedman mentions is sure to do well, a counterexample of a Singapore firm offers another vision of how the world is being re-shaped. Quantum Precision Instruments was set up by a Polish-Australian physicist in Melbourne. He subsequently moved it to Singapore to access this country's business- friendly environment, research facilities, and a wide range of grants. The award- winning firm has venture capital from London, accesses testing equipment from the University of California at Los Angeles, Cambridge University and A*Star, and has a marketing arm in Silicon Valley.

From a business point of view, Quantum Precision Instruments is structured to carry out everyday operations in one of the most business-friendly nations in the world, tap capital from the foremost financial centres, utilise leading-edge equipment from the globe's best research institutes, and sell its technology directly to the industry's most discerning clients.

This business strategy shows that while technology and associated production processes have reduced the importance of distance, the location from which a firm's activities are carried out is now more important than ever. Centres or islands of excellence that are far from one another can be tapped simultaneously and made an essential part of everyday operations.

Thus, rather than living in a 'flat' world, it may be more accurate to see our reshaped world as one comprising inter- connected nodes or 'lumps'. The challenge for policymakers is how to become - or remain - a node. The challenge for entrepreneurs is how best to connect these different nodes into a winning business model.

The writer is a visiting research fellow at the Institute of Southeast Asian Studies.

Source - The Straits Times (http://www.straitstimes.com/Review/Others/STIStory_540873.html?sunwMethod=GET)

By Dani Rodrik

FINANCIAL meltdown has been averted in Europe - for now. But the future of the European Union and the fate of the euro zone still hang in the balance. If Europe does not find a way to reactivate the continent's economy soon, it will be doomed to years of gloom and endless mutual recrimination about 'who sabotaged the European project'.

Having suffered a deeper economic collapse last year than the United States did, Europe's economy is poised for a much more sluggish recovery - if one can call it that. The International Monetary Fund expects the euro zone to expand by only 1 per cent this year and 1.5 per cent next year, compared to 3.1 per cent and 2.6 per cent by the US. Even Japan, in a deep slump since the 1990s, is expected to grow faster than Europe.

European growth is constrained by debt problems and continued concerns about the solvency of Greece and other highly indebted EU members. As the private sector de-leverages and attempts to rebuild its balance sheets, consumption and investment demand have collapsed, bringing output down with them. European leaders have so far offered no solution to the growth conundrum other than belt tightening.

The reasoning seems to be that growth requires market confidence, which in turn requires fiscal retrenchment. As German Chancellor Angela Merkel puts it, 'growth can't come at the price of high state budget deficits'.

But trying to redress budget deficits in the midst of a collapse in domestic demand makes problems worse, not better. A shrinking economy makes private and public debt look less sustainable, which does nothing for market confidence.

In fact, it sets in motion a vicious circle. The poorer an economy's growth prospects, the larger the fiscal correction and de-leveraging needed to convince markets of underlying solvency. But the greater the fiscal correction and private-sector de-leveraging, the worse growth prospects become. The best way to get rid of debt (short of default) is to grow out of it.

So Europe needs a short-term growth strategy to supplement its financial-support package and its plans for fiscal consolidation. The greatest obstacle to implementing such a strategy is the EU's largest economy and its putative leader: Germany.

Even though its fiscal and external accounts are strong, Germany has resisted calls to boost its domestic demand further. Its fiscal policy has been expansionary, but nowhere near the level of the US. Germany's structural fiscal deficit has increased by 3.8 percentage points of gross domestic product (GDP) since 2007, compared to 6.1 percentage points in the US.

What makes this perverse is that Germany runs a huge current-account surplus. Projected to amount to 5.5 per cent of GDP this year, this surplus is not far behind China's 6.2 per cent. So Germany has to thank deficit countries like the US, or Spain and Greece in Europe, for propping up its industries and preventing its unemployment rate from rising further. For a wealthy economy that is supposed to contribute to global economic stability, Germany is not only failing to do its fair share, but is free-riding on other countries' economies.

It is Germany's partners in the euro zone, especially badly hit countries like Greece and Spain, that bear the brunt of the costs. These countries' combined current-account deficit matches Germany's surplus almost exactly. (The euro zone's aggregate current account with the rest of the world is balanced.)

The traditional remedy for countries caught in the kind of crisis that Spain, Greece, Portugal and Ireland find themselves in is to combine fiscal retrenchment with currency depreciation. The latter gives the economy a quick shot of competitiveness, improves the external balance and reduces the output loss and unemployment that accompany fiscal cutbacks. But euro zone membership deprives these countries of this powerful tool, and depreciation of the euro itself is of limited benefit since so much of their trade (around 50 per cent) is with Germany and other euro zone members.

There are few other tools at hand. There is the usual call from international organisations and some economists for 'structural reforms', which in this context largely means increasing firms' ability to fire workers. Whatever long-term benefits such reforms might bring, it is difficult to see how they would provide immediate benefits. Reducing the cost of firing workers will not increase demand for labour much when no one wants to hire new workers.

Short of dropping out of the euro zone, the only real option available to Greece, Spain and the others to boost competitiveness is to engineer a one-time across-the-board reduction in nominal wages and prices of utilities and services. This is a difficult task under the most favourable circumstances. The European Central Bank's (ECB) low inflation target (2 per cent) renders it virtually impossible, as it implies a requisite downward adjustment in wages and prices of 10 per cent or more.

So Germany's refusal to boost domestic demand and reduce its external surplus, along with its insistence on conservative inflation targets for the ECB, severely undercuts prospects for European prosperity and unity. It virtually guarantees that Greece, Spain and others with large private and public debts will be condemned to years of economic decline and high unemployment. At some point, these countries may well choose to default on their external obligations rather than endure the pain.

Germany's leaders may take comfort in lecturing other governments about their profligacy. And it is true that some, like the Greek government, ran too-high deficits during the good times and endangered their future. But what about Spain or Ireland, where the borrowers were not the government but the private sector? If others borrowed too much, doesn't it follow that Germans lent excessively?

If Germany wants the rest of Europe to swallow the bitter pill of fiscal retrenchment, it will eventually have to recognise the implicit quid pro quo. It must pledge to boost domestic expenditures, reduce its external surplus, and accept an increase in the ECB's inflation target. The sooner Germany fulfils its side of the bargain, the better it will be for everyone.

The writer is Professor of Political Economy at Harvard University's John F. Kennedy School of Government.

PROJECT SYNDICATE

Source - The Straits Times (http://www.straitstimes.com/Review/Others/STIStory_540333.html)