unctad.org | The 2012 Liangjiang Forum
Statement by Mr. Supachai Panitchpakdi, Secretary-General of UNCTAD
The 2012 Liangjiang Forum
Chongqing, China
11 May 2012

[AS PREPARED FOR DELIVERY]
 
Global Sustainable Development and Corporate Responsibility
 
Mr. Xu Ming, Standing member of the municipal committee of Chongqing,
Honourable Panelists,
Excellencies,
Ladies and Gentlemen,
 
It is a great pleasure for me to be here, and to address this second Liangjiang Forum on the key opportunities and challenges facing Chongqing and western China in the current global economic context.
 
As you are all aware, the world economy is still reeling from the fallout of the global financial crisis.  The pace of the global recovery slowed in 2011 and the world economy remains in danger of slipping into a major downturn in 2012. According to the United Nations forecast, global output growth is expected to decelerate further to about 2.5 per cent in 2012, after growing by only 2.7 per cent in 2011.
 
China, along with a group of other dynamic developing economies, has been leading the global recovery. However, the country has not been immune from the consequences of the crisis, owing partly to the weakening of external demand from major developed economies. Growth of world import volume slowed from 13.6 per cent in 2010 to 6.6 per cent in 2011 and is projected to decelerate even further to slightly more than 4 per cent in 2012.  Unless growth is restored in some of the major export destinations in Europe and the US, East and South Asia must continue to contend with sluggish import demand.
 
The weakening export demand in developed regions, as well as tightening credit measures adopted by China's Government to rein in inflation and cool property markets, have already meant that economic growth in China has moderated significantly since mid-2011. GDP growth declined to 8.1 per cent in the first quarter of 2012, down from 10.4 per cent in 2010 and 9.2 per cent in 2011.  China recorded its first quarterly trade deficit in seven years during the first quarter of 2012 owing to weak demand from developed economies, stronger domestic demand, higher global commodity prices and the gradual but persistent appreciation of the Renminbi in real terms.
 
For a major exporter like China, the changing global environment therefore provides an opportunity to adjust its development strategy towards one based on domestic demand.  This will also allow the country to consolidate the gains achieved and ensure that they are shared widely, so as to build the base for sustainable growth and avoiding the "middle-income trap".  In this context, I see the following key challenges facing China:  Firstly, there is the need to re-orient growth towards domestic consumption. Secondly and closely related to the first, is the need to share the gains achieved in past decades more equally among the regions and to address the growing income inequality.  Here, the export-oriented regions along the coastline have done far better than the inland, while urban areas have done better than rural areas.  Thirdly, there is the need to strengthen the social services sector, such as health and education, so as to build the skilled workforce needed for the next stage in the development process, which is to attract more high value-added industries. Last, but not least, there is the need to support a transition towards less carbon-intensive production processes, so as to mitigate climate change, and to develop the technological capabilities needed for sustainable growth in the 21st century.
 
On many of these challenges, China has already made significant progress. The fact that China's current account has narrowed from 10.6 per cent of GDP in 2007 to 2.9 per cent in 2011, and is expected to decline to about 2 per cent of GDP in 2012, is a sign that China is already moving towards a more consumption-driven growth path and that its rebalancing efforts are advancing more rapidly than any other major surplus country.  In fact, domestic consumption growth has been supported by rising real wages, a shift that is likely to become even more pronounced in the near future, and which will support greater equality, as well as greater access to social services.  In addition, with inflation slowing, the recent easing of credit, combined with a slightly more expansionary fiscal policy stance show that China's authorities still have room to stimulate activity.
 
The successful development of Chongqing, and the Liangjian New Area in particular, can be a key part of this overall strategy.  The establishment of major manufacturing industries in Chongqing has created a central growth hub in inland China, which has brought some of the benefits of rapid growth to western China.  This has been further supported by the rapid development of infrastructure, which has been a key aspect of inland development.  More importantly, its strategic position on the Yangtze river creates sound transport opportunities through access to the international ports.
 
According to UNCTAD's Liner Shipping Connectivity Index (LSCI), China is already the country best connected to global liner shipping networks. Not only has it the highest LSCI since UNCTAD first developed the index in 2004, but it has also further improved its connectivity above average during the last 7 years, with an increase of over 52 per cent between 2004 and 2011. This improvement reflects above all the growth in the number of ships, their container carrying capacity, and the sizes of the ships that provide regular shipping services from and to Chinese ports.
 
While China's connectivity to overseas markets is excellent, in-land connections are still in the process of continuous improvement. In this context, the reforms and investments to improve the connectivity of Chongqing are noteworthy. Chongqing has been referred to as "the powerhouse of the industrial movement on China's Yangtze River". I has recently opened a new container terminal, increasing the river port's capacity from 800 000 TEU to 1.6 million TEU.
 
Beyond the shipping connection, Chongqing has also established major railway links, both with other major inland population centres, and internationally.  Already in 2009, the Asian Development Bank extended a $300 million loan to for a railway connection between Lanzhou and Chongqing.   The creation of such regional infrastructure can play a crucial role in the economic development of inland China.  Even more impressive, however, was the launch one year ago, on 9 May 2011, of the 5-days-a-week direct rail freight service between the Port of Antwerp, Europe's second-largest port, and Chongqing.  This is a crucial step in the process of developing the Eurasian Land Bridge.  Setting up this rail freight passage has significantly speeded up the process of transporting freight across Eurasia. As compared to the 36 days it takes for maritime transport from east China's ports to west Europe, the Antwerp-Chongqing Rail Freight service currently takes 20 to 25 days, and the aim is to very soon further shorten the duration of this journey to 15 to 20 days.  While westbound cargo largely includes automotive and technological goods, eastbound shipments are mostly chemicals.
Through its strategic position and linkages, as well as its investment-friendly policies, Chongqing has become a regional industrial centre and growth-hub.  It should now continue to draw on the presence of major international and national companies - including more than 200 of the Fortune 500 companies - to further develop infrastructure in the rural environment, and to create new industry clusters, particularly in the area of sustainable development.  In Chongqing and many other parts of China, we have seen rapid infrastructure build-up over the past decade, and public-private partnerships (PPPs) have contributed to this spectacular progress.
 
If managed well, public-private partnerships (or PPPs) can draw on the capital and technological know-how of the private sector and at the same time serve the wider political, social and developmental objectives as set by the public sector.  Characterized by the sharing of risk, responsibility and return between partners, these arrangements can combine the advantages of both the public and private sectors and, in some areas, present an effective way to address development challenges. In the context of public infrastructure, such as water and sanitation, this means ensuring universal access and affordability.  A key challenge therefore is find the appropriate mix of public and private sector involvement.
 
Another key potential area to explore is that of Research and Development, including in sustainable technologies. UNCTAD research has shown that PPPs on R&D can ensure that R&D is more responsive to local needs and sustainability challenges.  There are a number of policy instruments for host country governments to encourage this, such as targeted incentives, joint R&D and testing projects. A major challenge is to enhance knowledge spillovers from TNCs to local universities, research institutes and companies.
To maximize the benefits and minimize the risks related to PPPs, there is a need to set up a sound institutional and regulatory framework. A common misconception about PPPs is that they require less public sector involvement. In reality, they often demand more than even public investment.  PPPs require a strong public sector that is able to adopt a new role and perform new skills. Weak institutions can hamper the implementation of PPP programmes. Moreover, poorly constructed, non-transparent projects can lead to failure and considerable frustration. The intrinsic involvement of the public sector is the basis of PPPs.
 
 
Ladies and Gentlemen,
 
The proactive role of the government, at both central and local levels, in major infrastructure development in China already provides a very valuable lesson to other developing countries. I am confident that the use of similar such PPPs can be harnessed for other areas, so as to further strengthen Chongqing's contribution to the sustainable economic and social development of western China.
 
Thank you very much.
 


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