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EU remains a big external challenge to China's economy

Updated: 2013-01-22 13:25
By Fu Jing in Brussels (China Daily)

Weak demand globally especially in the EU is the biggest external challenge for China's economy in 2013, said European economists.

The experts made the comments after the Chinese government released economic figures on Friday.

"Weakness in developed markets, especially the EU, will remain a major challenge," said Duncan Freeman, researcher of Brussels International Institute of Contemporary Chinese Studies.

Freeman said domestically the biggest challenge will be pushing forward a clear reform agenda while supporting strong in order to create long term sustainability for the economy.

Rainer Gehnen, general manager of the German-Chinese Business Association in Cologne, said that externally China will remain to be strongly depended on the overall economic and financial developments in the EU and US. "China is asked to help where it can. However, the major homework is to be done by the governments in Washington and the European capitals," said Gehnen, adding that they must mainly reset a sustainable global banking and financial system and must end their policies of high deficit spending which puts too much burden on future generations.

Both Freeman and Gehnen said China's performance was strong in 2012, in the context of the economic problems in the developed world.

Freeman said one problem is that China will continue to have a significant level of dependence on external markets, although this has been declining in recent years as a result of the collapse in demand in the developed markets.

"The structural shift to domestic consumption will remain a key long-term policy challenge. Investment remains a problem in the Chinese economy," said Freeman.

While the Chinese economy needs investment and high levels of investment are likely to continue, Freeman said a key problem is directing investment efficiently into those sectors where it is actually needed and avoiding the type of redundant investment that has occurred in the past.

Freeman said the crisis in the EU will continue to be a significant factor in bilateral relations, and will limit prospects for a revival in Chinese exports to Europe.

Freeman said growth in China will provide a welcoming boost to sectors in the EU such as high-end cars, luxury goods and machinery, but this will not be evenly spread across all of Europe, with the most competitive economies such as Germany likely to benefit most.

Gehnen said he expects continuation of previous year's development of bilateral trade and economic relations between China and the EU in 2013. He said Germany will expand its dominant position as China's leading industrial and technological partner in the European context.

"It is not realistic to expect that other European countries can quickly restructure their economies in a competitive position," said Gehnen.

He added that it will take years for them to fix their wrong doings in the last couple of decades in which their neglected too much the importance of a well-established industrial and technology-driven basis as fundament of a powerful economy, as Germany did.

He said the relatively high degree of corruption is China's greatest internal challenge for future economic development.

"I therefore very much welcome the clear words on this subject by the new Chinese leaders, namely Xi Jinping," said Gehnen.

"However, I believe corruption cannot be effectively fought by appeals to morality alone. In China, like in other countries, there is a need for more comprehensive set of controls and double-checks of government officials' decisions."

Gehnen also said the government should ensure that the gap between salaries in the private and public sectors is not getting to big, as such triggers illegal behavior of civil servants.

Gehnen said most crucial for a lasting strengthening of China's domestic demand, as envisaged in the current 5-years-plan, is further development of basic systems of social security. Private households will only spend a great share of their income for consumption if the can rely on collective support in cases of sickness, unemployment and retirement.

Liu Jia contributed to this story in Brussels.

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