Challenge for China is not stock turmoil but structural reform: PM

The turmoil in the Chinese stock and currency markets that has panicked investors worldwide is not the real economic challenge that the Asian giant faces, Prime Minister Lee Hsien Loong said yesterday.

Suggesting that the shockwaves created by its market tumble and the unexpected devaluation of the yuan last month were a storm in a teacup, PM Lee said the Chinese stock market is not a vital part of its economy and the crash is not likely to lead to a recession or depression in the real economy.

This is because the biggest players in the Chinese economy, such as the state-owned behemoths which control the most valuable sectors, have only parts of their businesses listed on bourses, he noted.

The real challenge the Chinese leadership faces is how to structurally reform its economy to enable continued growth, he said.

"The question for the Chinese is how can they manage the structural reforms which will enable the economy to grow, not at 8, 9, 10 per cent as it used to, but 6, 7 plus per cent for another decade or so," he said.

"What they need is to have the political pre-conditions so that the leadership can push on these very difficult structural issues, whether it's (reforming) state-owned enterprises, taxes, land - particularly agricultural land - (and) urbanisation."

"These are things where they have big decisions to make and I think they will need to make progress, not necessarily in a military style nationwide, but with experiments, trials and successes, and then progressive implementation."

As for the drastic measures that Beijing took over the summer to stem the stock sell-off - moves which led many international observers to question its competence and control - PM Lee said that he believed the "clumsiness and arbitrariness" stemmed from a lack of experience.

The Chinese authorities do not have the same instruments as the US Federal Reserve, so they found some other ways, he noted.

In recent months, the Chinese authorities have injected billions of dollars into the stock market to prop it up and went so far as to threaten sellers with arrest. "It may be clumsier than necessary because you don't have enough experience, it may be a bit arbitrary, it may also have been that on the way up, the government should have counselled more circumspection and taken more measures to discourage a bubble from forming and the euphoria from going overboard," PM Lee said. "I think these are lessons that they will learn in time."

During the hour-long dialogue at the annual Singapore Summit, PM Lee spoke with moderator Piyush Gupta on topics such as ongoing integration in both ASEAN and Europe. PM Lee said he welcomed China's major initiatives in the region, such as its Silk Road plan to revive the land and sea trading route that winds through South-east Asia, and the new China-backed Asian Infrastructure Investment Bank (AIIB), which will fund Asian countries for infrastructure building projects.

"I think there will be opportunities for ASEAN (in these initiatives), because the Chinese are putting substance behind slogans," said PM Lee, pointing to the US$40 billion (S$56 billion) fund to connect up the Silk Road, and the US$100 billion in initial lending that the AIIB has. These are ways in which China wants to exercise influence that is constructive, he said, adding: "It will be welcomed by many countries and will help to contribute to the integration and prosperity of the region."

This article was first published on Sept 20, 2015.
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