Increased productivity key to economic future
By Robert Blohm (China Daily)Updated: 2007-03-16 16:54
The National People's Congress (NPC) is taking two most important steps for
China's economic future, the new property law and the reduction in the corporate
tax rate. At the same time, it has set the tone for continued economic
performance by emphasizing efficiency, not just output.
The property law
can move China in the direction of ultimately solving two major concerns, real
estate over-investment and agricultural efficiency.
China can solve the
real estate problem by actually increasing the supply of property released by
the State, as the city of Beijing seems to be doing. Agricultural efficiency can
be improved by facilitating land consolidation for large-scale agribusiness and
transitioning farmers to new sectors.
The reduction in the average
corporate tax rate has gone unnoticed by media distracted by consolidation of
the tax rate into a single rate for foreign and domestic companies.
As
the key component of supply-side economics, the tax rate reduction assures
future economic growth with increased future tax revenue. Add to this the
abolition of the agricultural tax that started last year and you have a
continuing supply-side economic revolution in China.
While last year's
NPC focused on the direction of economic growth by recognizing the opportunity
for domestic investment and improving health and education for the rural
workforce, this year's has focused on sustaining the economic growth engine.
This boils down to encouraging improved productivity. This can be done
by increasing units of output per unit of input or decreasing units of input per
unit of output. A management culture still alive in State-owned organizations
emphasizes maximizing output alone, not input or the difference between the two,
which is profit or savings.
And the output maximized often tends to be
visible output, in other words hardware, not software. For example, in real
estate, many new buildings are erected in content-producing sectors like
universities and the performing arts but they are a low-yielding input compared
with teachers, performers and information technology.
Over-investment and
productivity are two sides of the same coin. Over-investment means low
productivity.
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