Thursday, June 20, 2013

Promoting Economic Reform to boost Growth in Asia-Pacific

Wayne Chen

           After 13 years host from the last time APEC, China again demonstrates her leadership by hosting series of APEC meetings in 2014. Distinct from 13 years ago, China has passed the taking off phase of economic growth and is implementing necessary economic reform. One of the strong signals was sent by Chinese Premier Li Keqiang that China has set its GDP growth target for 2014 at 7.5%, the same as for 2013, and will keep consumer inflation at 3.5%. GDP growth is no longer the only indicator in pursuing economic prosperity, but a wide range of consideration including social inclusion, innovative growth, balancing development between urban and rural areas are obtaining their significance in economic planning.

           The evolving foci of economic policies are also reflected by the shift of economic paradigms occurred between 1978 and 2013, from Deng Xiaoping to Xi Jinping. In the Initial Senior Official Meeting held in 2013, China elaborated that by learning from China's experience, APEC needs to assist member economies initiate economic reform measures to better deal with challenges ahead. 6 profound economic and social changes were listed to be taken into account in reforming economic growth, namely, the changing model and pattern for development; new energy landscape; demographic change including population growth and aging; environmental pressure; middle class rapidly expanding; and, middle-income trap and increasing wealth gap.

           In this context, economic reform is crucial to mitigate consequences brought about by robust economic growth and reform new growth momentum for regional economic integration. Promoting Innovative Development, Economic Reform and Growth, as a result was adopted as the second priority area in APEC 2014 agenda.

Economic Reform, Innovation and Sustainable Growth

           According to the first senior official meeting held in Ninbo, APEC 2014 will promote economic reform by advancing current works on 4 domains:

1. APEC New Strategy for Structural Reform (ANSSR)
2. Innovative Growth through cooperation on science and technology, ICT, Internet Economy and Urbanization.
3. Inclusive Development including Human Resources, Food Security, SMEs, Anti-corruption, Women and Health.
4. Green Growth including Sustainable Energy, Environment, Forestry, Mining, Ocean-related issues and Disaster Management.

           ANSSR was adopted by Leaders in the Yokohama meeting in 2010. It was drafted following other related APEC programs, such as the Leaders' Agenda to Implement Structural Reform (LAISR). Structural reform cuts across variety of issues and many APEC member economies have long dealt with structural reform issues both within the APEC context as well as independently. Considering that APEC economies are very distinct in terms of economic development, and some are even considered world leaders, APEC is in a unique position to facilitate member economies to exchange experience on structural reform and narrow developmental gaps within and between economies. As a result, ANSSR calls on individual member economies to identify structural reform priorities subject to their own local context, as well as objectives, policies, and approaches to measure progress over the 2011-2015 time frame. In 2013, a mid-term progress review was conducted to facilitate knowledge exchange and information sharing. In 2014, ANSSR was even more highlighted to assist member economies ease tense occurred in the pursuit of economic growth, particularly the Middle- Income Trap.

           The Middle-Income Trap refers to the slowing economic growth, the experience of stagnation at the middle-income level before graduating to upper-income status. According to the Word Bank statistics 13 out of 101 economies enter the middle-income stage (economies with per-capita income of US $1,036-12,615) in the 1960s has only made to the high-income club 50 years later. To avoid the Middle-Income Trap and regain momentum after reaching a certain level of GDP, reform is an inevitable task for developing economies enjoying accelerating economic growth today. However, given that institutional and political contexts vary greatly from one economy to another, it is not possible to be prescriptive about what policies should be put in place. At least, there are three features of successful reform programs should be implemented as suggested by ANSSR. One is that institutional structures need to be transformed to be relatively transparent. Secondly, economies should carry out economic cost-benefit analysis, often through Regulatory Impact Assessment (RIA) extensively and continuously. Furthermore, successful structural reform institutions also refer to strong commitment to a general equilibrium point of view which means that they consider the interests of the whole economy when making structural reform recommendations, and do not become focused on the interests of producers in just one sector.

           On the other hand, to construct robust economic growth, Innovative Growth, Inclusive Development and Green Growth, the 3 attributes of APEC Growth Strategy endorsed by APEC Leaders in 2010, were highlighted as essential tasks to boost regional economic growth. In 2013, Indonesia identified that social inclusion and equality were essential for the economic integration in the APEC region. Woman economy and SMEs, in particular, were addressed intensively to empower youth, women and people in rural areas as well as foster their potentials entering the business community. In 2014, China continues the work on inclusive growth by focusing on food security and health, e.g. the 3rd APEC Food Security Ministers Meeting will be held in Beijing in September to implement the Food Security Road Map towards 2020.

           Meanwhile, innovation, as stated in the Chinese 12th 5-year plan, was long considered as crucial foundation for economic transformation from labor intensive to knowledge based growth. Such radical and necessary shift of economic pattern should be primarily fuelled by the development of science and technology. By following APEC Leaders' instruction, APEC will continue to implement the APEC Innovation and Trade Implementation Practices to provide APEC economies with a constructive roadmap for how they can advance non-discriminatory and market driven innovation policy and support APEC's agenda on next generation trade and investment. Moreover, APEC officials will also designate PPSTI to implement related projects and initiatives to materialize concrete deliverables by the end of this year.

           Considering environmental sustainability was greatly undermined in the process of industrialization, China also called for cooperation on green growth which is composed of several on-going issues, including EGS, energy security initiative, natural resource management and so on. Ministerial meetings will also be held on Mining, Energy and Ocean respectively this year.

           For the second priority area of APEC, economic reform is newly added moved from the traditional connectivity priority. Comparatively, innovative, inclusive and sustainable growth was "old" tasks involved in the APEC growth strategy. How the economic reform will link and contribute to the growth strategy need to be elaborated further and supported by more focused initiative. Similarly, cooperation between Economic Committee that is responsible for economic reform and SCE sub-fora should be strengthened to advance this priority area in a comprehensive and cohesive manner.

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