Something huge is happening in China. It is a shift in policy that should ensure that growth continues in a more balanced way and that the economy will indeed pass that of the US in size some time in the 2020s. The headline news is the shift in the one-child policy, and in both social and economic terms that change will gradually have a profound effect on the country. But the market reforms are just as important, maybe more so.
The one-child policy, introduced more than 30 years ago, was an emergency measure in response to soaring birth numbers. It has been estimated that the population, now 1.4 billion, would have been 400 million higher had it not been for the restriction. Last week it was announced that if one parent were an only child, the family would be allowed to have two children. And yesterday an official acknowledged that eventually the policy would be relaxed altogether.
There are two broad arguments in favour of a freer approach. One is that if the one-child policy were to continue, the country would face a collapse in the size, first of the work force, and eventually the entire population. The second is that as China has become richer, it no longer needs such limits because it is following the pattern of the developed world, which is to have smaller families. Fertility in just about every so-called advanced economy is below the replacement rate of an average of 2.1 babies per mother – although the UK, France and the US are close to that now. But in Shanghai, the largest and richest city in mainland China, the fertility rate is down to 0.6, the lowest in the world. The policy had, so to speak, done its job.
The market reforms tackle other issues the country faces. They fall into four main groups. First, people will have greater freedom to move around; up until now, households have had to be registered under the hukou system, and when people move from the country to the city they give up their rights to public services. There will still be restrictions on movement into the big urban centres, but this should free up the labour market, which has been showing signs of overheating. Labour costs in Shanghai have been rising so fast that they may pass those of some US states in the next three or four years.
Second, farmers will have greater rights to their land, which not only ought to increase food production but, equally important, may also result in better land-use planning – building homes where people want to live rather than in huge schemes dreamed up by local authorities.
Third, the way that state-owned-enterprises raise capital will be reformed, allowing private funds to be brought in. The details are sketchy but it looks as though China may head down a path towards part-privatisation of the 40 per cent of the economy that is still owned by the state.
Finally, there are some sector-specific reforms, for example bringing in deposit insurance for banks, and loosening controls in the prices that utilities can charge for electricity and water services.
Altogether, it is a massive plan – there are 60 different elements – but, if you stand back, what is happening is an effort to get the whole reform process moving again. After the financial crisis the state had to step in to boost demand, organising a wave of investment in infrastructure and housing. As a result, China, unlike the West, avoided recession. But that pushed the country back towards reliance on the state, rather as it did here, too. Now, Chinese reform is back on track. It inevitably faces slower growth in the years ahead but thanks to these reforms it should be better balanced – and more sustainable for that.
None of this should downplay the probability that there will be bumps ahead; it is very hard to engineer a smooth transition from an economy expanding at 8 per cent-plus to one that will grow at a more normal 3-4 per cent in 10 years. Japan failed. It is also difficult to go smoothly from a command economy to a market one. Russia failed. But at least the Chinese leadership can see these failures and is trying to learn from them.
And Liv Garfield’s move to Severn Trent makes three...
First of all, a welcome for Liv Garfield’s move to Severn Trent – and for two reasons. First, as a celebration of youth, because she is 38. That is not quite enough to be the youngest CEO of a FTSE100 company; Vitaly Nesis, the head of Polymetal International, is 37. But it is still jolly young. The average age is 52, and more than 80 per cent are over 50. But also as a celebration of women in top commercial jobs. Currently there are just three, and, since Angela Ahrendts is leaving Burberry next spring, there would have been only two – Carolyn McCall at easyJet (which yesterday produced some excellent results) and Alison Cooper at Imperial Tobacco.
But there is something else. Ms Garfield’s (above) move only further highlights the fact that, for whatever reasons, there are very few women in senior private sector management. Rationally it cannot make sense for any society not to use the full talent available to it, and common sense says that you would expect a somewhat higher proportion of women in these jobs. So what is to be done?
My own particular heroine is Helena Morrissey, the chief executive of Newton Investment Management and founder of The 30% Club. The club’s aim is to increase the number of non-executives to that level, as a step towards having more women in top executive posts. Ms Morrissey is against quotas, but believes that once companies reach 30 per cent, the voices of the minority will be heard in their own right and the system will become self-perpetuating.
There is some way to go. Women hold only 19 per cent of FTSE100 directorships. However, any man who wonders whether women can combine family with running a large company might like to note that Helena Morrissey has nine children.
For a hint of the future, look at Europe’s car sales
In economics, one is always looking for turning points, and in particular for indicators that give you early warning. One of my favourites is the motor trade. Cars are the largest single consumer purchase and in Britain the monthly sales gave a clear signal that the economy was turning up more than a year ago. Now, we have had three months of rising car sales on the Continent, with only Italy lagging. Absolute sales are still low, and this will be the worst year since the early 1990s. But there is a turning point and that is good news for the eurozone.Reuse content