Bolder reform steps needed for emerging markets to regain growth momentum

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In the midst of global economic deceleration, world's emerging markets need to step up their pace of reform and roll out bolder initiatives to regain their momentum of growth.

A variety of reasons have contributed to the stunning economic performance of the emerging markets in the last decade: a global industrial structure deeply transformed by trade liberalization, a period of Great Moderation before the financial crisis and the huge population and resources bonus they enjoyed.

But most of these elements can barely do the magic now: the trade liberalization has sailed into a bottleneck; consumption demand is falling in sluggish rich countries; the population bonus is reaching the turning point in China; and resource-based growth model is beginning to crunch amid plummeting global energy prices.

In other words, this round of emerging-market slowdown is not a cyclic one, instead, it stems from some deep-rooted structural flaws. It leaves the emerging economies no choice but to take bolder and wider measures to deepen institutional reform.

The emerging powers might face different barriers to growth. But one common task they share is to tap new growth potential with economic restructuring, a sometimes painful process involving optimizing capital allocation, promoting labor market reform, improving innovative capability, enhancing product added value and further relaxing control over their markets.

The Chinese government, alert to the challenges, has showed strong determination to push ahead reform.

It is rolling out a string of detailed and well-targeted initiatives to stimulate domestic demand and improve economic efficiency by reducing the power of the government and giving companies more space to operate.

Positive changes have already occurred in some areas of the economy, thanks to the stimulus package, including a rising added-value of the country's tertiary industry in the first half and an improving retail sales.

Meanwhile in Mexico, a structural reform is also gaining momentum. A series of stimulus policies have been unveiled with an aim to revamp the educational system, invigorate labor market and introduce competition into such sectors as banking, telecommunication and media.

The government is also planning to implement reform in the state-run energy industry.

A sustained rapid growth rate is hard to achieve though. As a Morgan Stanley report has said, over the course of any given decade since 1950, on average, only a third of the emerging markets have been able to grow at an annual rate of five percent or more. Less than one-fourth have kept up that pace for two decades, and one-tenth, for three decades.

At a time when economic woes grip most part of the world, only those who commit to reform and succeed in restructuring can step onto the path of the next round of growth.

• Emerging markets: Not yet end of growth story
• Reform, not incentives, to drive expansion
• Emerging markets face growth headwinds
• China cautiously hastens capital account reform
• China plans to cut government economic intervention

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