Singapore's Deputy Prime Minister Tharman Shanmugaratnam opines that in the coming 10 years, China will emerge in the middle- and high-end manufacturing industries and stop exporting capital to developed economies like it has always done. These two changes are expected to bring both challenges and opportunities to the world. However, if it is handled appropriately, the big changes in China in the next 10 years will be a favorable development.
Major and Important Changes
In his speech during the luncheon in the Future China Global Forum on 11 July, Tharman said that in the next 10 years, China will see two major and important changes: (1) rapid improvement of productivity and emergence of knowledge-based white collar professionals; and (2) the capital surplus of Chinese enterprises will no longer flow out like what happened in the past. The country will find a new balance of savings and investment and this signifies that China will raise its market interest rate significantly.
Tharman said: ‘One big danger at the moment is that people have paid too much attention on the past issues and overlook the real challenges that will come as a result of the upcoming changes in China. This is going to be brand new phase of globalization.’
Also Finance Minister and Minister of Human Resources Tharman said that the wages of the labor force in coastal cities of China like Dalian and Zhuhai in the south are rising continuously. This is actually a phenomenon that reflects the enhancement of productivity and shows that China is moving towards the direction of a higher value supply chain.
Education and Employment Scenario
China's advanced education system has cultivated an enormous high quality labor force. China has also gradually transformed itself to a global innovation center. There is still much room for China to improve its productivity.
He said that should a multinational company employ an accountant from China, the accountant could significantly improve his knowledge and skills to a reasonable level within a year. Apart from that, high income occupations such as software engineer and architect are no longer jobs exclusively found in developed economies. China will earn a share in the middle-and high-end manufacturing industries and service industry soon. Developed economies would have to face the competition from China.
This will make things worse in European countries and the United States, which are still plagued by the ensuing problems of the financial crisis and high unemployment rates. There is no chance for white collar professionals who have lost their jobs to find jobs that offer them the income they used to earn.
In addition, China also has adequate supply of low-skilled workers from the middle part and inland areas of China like the northeastern provinces. In other words, China would continue to compete with the world in low-skilled manufacturing industry while trying to tap into the middle- and high-end manufacturing industries.
Tharman said that China is making efforts to transform many of its cities into knowledge cities. From the phenomenon of the emergence of white collar workers in emerging countries like India and Brazil, people can observe an ongoing fundamental change in the world and all have to adapt themselves to such a change.
He said: ‘This fundamental change will force all countries to formulate their policies from the perspective of supply instead of demand. All countries have to reconsider matters including the training of all workers in the employment market, the public education system, and how to improve the employers' productivity in each of the new economic sectors.’
Talking about the possible drop of surplus in China's domestic economy, Tharman said that as China is gradually transforming to a consumer economy, its saving rate will definitely decline. Now Chinese state-owned enterprises have to distribute its profits while the Chinese working population will shrink after this. All these factors will cause pressure to savings.
Infrastructural Investment
Because of the demand for urbanization of up to 300 million population, infrastructural investment in China will remain strong in mid and long term. This will rectify the current imbalance between savings and investment, but it also entails that the current low interest rate environment will not last long.
‘I am not predicting the interest rates for the coming two years. But if we examine the development in the next 5 years, and for sure in the next 10 years, it is very likely we would conclude that the actual interest rates around the world, including in the United States, will rise significantly.
Tharman said: ‘This is a huge financial challenge to many countries because the financing cost for their public debt will become even higher.’
However, this also means that more capital will flow into developing countries. Tharman opined that Asia will have to further develop its own capital market under this drive. The current development is still very much inadequate.
Role of Singapore
When replying to a question from an audience, Tharman said that in contrast to the importance of China in international trade, the Renminbi is currently ‘disproportionately under utilized.’ Thus, it is inevitable that the currency will become more internationalized in the next 10 years. As a financial center, Singapore could assist China in this regard.In his opinion, as the residents of Chinese coastal cities become rich, the actual exchange rate of the Renminbi will rise to prevent the risk of inflation from increasing. Tharman also believes that sooner or later the post of the chairperson of the International Monetary Fund (IMF) will fall into the hand of a non-European. However, such an appointment has to be premised on the fact that all countries including developed economies are convinced by the person's capability, instead of doing it for the sake of appointing a non-European chairperson.
Major and Important Changes
In his speech during the luncheon in the Future China Global Forum on 11 July, Tharman said that in the next 10 years, China will see two major and important changes: (1) rapid improvement of productivity and emergence of knowledge-based white collar professionals; and (2) the capital surplus of Chinese enterprises will no longer flow out like what happened in the past. The country will find a new balance of savings and investment and this signifies that China will raise its market interest rate significantly.
Tharman said: ‘One big danger at the moment is that people have paid too much attention on the past issues and overlook the real challenges that will come as a result of the upcoming changes in China. This is going to be brand new phase of globalization.’
Also Finance Minister and Minister of Human Resources Tharman said that the wages of the labor force in coastal cities of China like Dalian and Zhuhai in the south are rising continuously. This is actually a phenomenon that reflects the enhancement of productivity and shows that China is moving towards the direction of a higher value supply chain.
Education and Employment Scenario
China's advanced education system has cultivated an enormous high quality labor force. China has also gradually transformed itself to a global innovation center. There is still much room for China to improve its productivity.
He said that should a multinational company employ an accountant from China, the accountant could significantly improve his knowledge and skills to a reasonable level within a year. Apart from that, high income occupations such as software engineer and architect are no longer jobs exclusively found in developed economies. China will earn a share in the middle-and high-end manufacturing industries and service industry soon. Developed economies would have to face the competition from China.
This will make things worse in European countries and the United States, which are still plagued by the ensuing problems of the financial crisis and high unemployment rates. There is no chance for white collar professionals who have lost their jobs to find jobs that offer them the income they used to earn.
In addition, China also has adequate supply of low-skilled workers from the middle part and inland areas of China like the northeastern provinces. In other words, China would continue to compete with the world in low-skilled manufacturing industry while trying to tap into the middle- and high-end manufacturing industries.
Tharman said that China is making efforts to transform many of its cities into knowledge cities. From the phenomenon of the emergence of white collar workers in emerging countries like India and Brazil, people can observe an ongoing fundamental change in the world and all have to adapt themselves to such a change.
He said: ‘This fundamental change will force all countries to formulate their policies from the perspective of supply instead of demand. All countries have to reconsider matters including the training of all workers in the employment market, the public education system, and how to improve the employers' productivity in each of the new economic sectors.’
Talking about the possible drop of surplus in China's domestic economy, Tharman said that as China is gradually transforming to a consumer economy, its saving rate will definitely decline. Now Chinese state-owned enterprises have to distribute its profits while the Chinese working population will shrink after this. All these factors will cause pressure to savings.
Infrastructural Investment
Because of the demand for urbanization of up to 300 million population, infrastructural investment in China will remain strong in mid and long term. This will rectify the current imbalance between savings and investment, but it also entails that the current low interest rate environment will not last long.
‘I am not predicting the interest rates for the coming two years. But if we examine the development in the next 5 years, and for sure in the next 10 years, it is very likely we would conclude that the actual interest rates around the world, including in the United States, will rise significantly.
Tharman said: ‘This is a huge financial challenge to many countries because the financing cost for their public debt will become even higher.’
However, this also means that more capital will flow into developing countries. Tharman opined that Asia will have to further develop its own capital market under this drive. The current development is still very much inadequate.
Role of Singapore
When replying to a question from an audience, Tharman said that in contrast to the importance of China in international trade, the Renminbi is currently ‘disproportionately under utilized.’ Thus, it is inevitable that the currency will become more internationalized in the next 10 years. As a financial center, Singapore could assist China in this regard.In his opinion, as the residents of Chinese coastal cities become rich, the actual exchange rate of the Renminbi will rise to prevent the risk of inflation from increasing. Tharman also believes that sooner or later the post of the chairperson of the International Monetary Fund (IMF) will fall into the hand of a non-European. However, such an appointment has to be premised on the fact that all countries including developed economies are convinced by the person's capability, instead of doing it for the sake of appointing a non-European chairperson.
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