Economist: Bo Xilai's Downfall Shows China's Commitment To A More Open, Market-Oriented Economic Model

China, Beijing, Flag, Child

Photo: Yepoka Yeebo / Business Insider

The downfall of former Chongquing party chief Bo Xilai has spelled the end of the Chongquing economic model, in favour of the more open Guangdong economic model, according to HSBC’s chief China economist Qu Hongbin.Chongquing, the only municipality under central government rule in western China, reported 16.4 per cent GDP growth in 2011 driven by government-led investment. This compared with 10 per cent growth in Guangdong last year.

But Qu argues that Chongqing’s rise stemmed in large part from the central government’s Western Development programme to improve growth in poorer regions, and a Beijing approved experiment to integrate urban-rural development. When Bo was still standing and very seriously in the running to become a member of the Politburo Standing Committee, this economic model had started to overshadow the Guangdong model, which is more open and focuses on private business growth.

Guangdong which has long been a manufacturing and trade hub has been cutting its GDP growth target from 9 per cent to 8 per cent in the latest five-year plan and it is also moving its economy to be more services-oriented and less export-oriented,

Qu writes:

“Guangdong’s economy, building on the success of Shenzhen, is far more open, with booming small firms and joint-ventures boosting efficiency. Its economic growth has benefited from globalization, which brought in foreign capital, technology, expertise, management and access to markets. By linking with, and learning from, foreign partners many local suppliers have emerged as well-known manufacturing groups or brands. The region’s trade represents 91% of local GDP, making it one of China’s most open provincial economies.

Chongqing is at least a decade behind Guangdong in terms of reforming state-owned enterprises. Most private companies are quicker to respond to changes in demand and better at innovation and cutting costs. But while globalization and privatization have contributed to Guangdong’s impressive expansion over the past two decades, future growth hinges on sustaining the current rapid productivity improvement and industrial upgrading.

Guangdong enterprises are moving up the value chain. Market forces, not government policy, push local firms to produce higher-value added products and adopt advanced technologies. Guangdong thus has higher R&D investment and greater high-tech exports.

To sustain China’s rapid growth it is essential to sharpen competitiveness and speed up productivity growth. This will require reforms that could shrink the role of government and let the market take a leading role in allocating resources. The fall of Bo Xilai in Chongqing shows Beijing is committed to its long-held practice of market-oriented reform and recognises the private sector’s importance in driving the economy.”

Don’t Miss: Jim Rogers Identifies The Biggest Mistake China Is Making Right Now >

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.