Perhaps Chinese President Xi Jinping should ponder on the advice of former Federal Reserve chairman Ben Bernanke as the world’s second-largest economy pursues its ambitious reforms.
What would be the most likely scenario as China undergoes its transformation from a manufacturing and export-oriented economy to one led by consumption and services? According to Bernanke, it’s ghost towns, or cities with old factories and high unemployment rates.
Speaking for about an hour at the recent World Business Forum in Hong Kong, Bernanke delved into several key aspects of the Chinese economy. He gave two pieces of advice to Chinese leaders: Learn from Pittsburgh, count on Hong Kong.
“The Chinese economy can’t grow 10 percent per year forever. For a long time, China was growing because of heavy industrialization, construction, infrastructure, imports and exports, but they are kind of ‘top down’ things,” the former central banker said.
“The government can order to build a dam and steel factory but it can’t order to set up a high-tech firm. It should come up from the bottom.”
He said the Chinese government should create a market framework with regulators as it can never order the private sector to do anything.
Chinese cities should learn from the experience of Pittsburgh, Pennsylvania, in the 1980s, he said.
“In the US, Pittsburgh used to be the country’s steel center. When steel factories were moving out [in the '80s], it turned into a ghost town for a while,” he said.
“But then they restructured themselves and brought in financial services, universities and many other things to make the economy recover. Now Pittsburgh has become a wonderful place.”
Bernanke is probably using the right example to describe the situation in many Chinese cities, but whether Chinese leaders want to admit that China is lagging behind the United States by several decades in terms of the quality of its economy is another thing.
Since the ’80s, Pittsburgh has been diversifying its economy from the steel industry to financial services, higher education, medicine and technology.
In 2009, the city was chosen to hold the G-20 Summit due to its successful economic transition. In the same year, Forbes named it as one of the best cities for job growth.
During the forum, Bernanke also said China should count on Hong Kong when opening up its economy and reforming its financial system.
“Over the next five to 10 years, Hong Kong will play a very important role in bringing China into the global markets. Hong Kong is like an airlock between its market economy and the Chinese economy,” he said.
With the help of Hong Kong, China can improve its financial system to push forward its economic diversification at a suitable pace.
“China is now doing the right thing to liberalize its financial system step by step … We don’t want to have a financial crisis in China for sure,” he said.
Thanks, Mr. Bernanke, for the compliment.
But will China’s economic planners heed his advice? Given the rising political tensions between Beijing and Hong Kong, we are not so sure.
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