January 26, 2011 / 6:03 PM / in 8 years

China's economic micromanaging unsustainable: Belgian minister

DAVOS, Switzerland (Reuters) - Belgium’s economy minister said on Wednesday that heavy state involvement in emerging market economies is unsustainable, and it urged China to open sectors up to foreign companies.

Belgium's Minister of Economy and Reform Vincent Van Quickenborne attends a session at the World Economic Forum (WEF) in Davos January 26, 2011. REUTERS/Vincent Kessler

Vincent van Quickenborne, Belgian minister of economy and reform, told Reuters on the sidelines of the World Economic Forum in Davos that China gives hefty state subsidies to companies such as Huawei Technologies Co Ltd HWT.UL.

“In certain sectors like energy, construction, transport, telecommunications, national champions are protected because there’s a tendency to fence off the market from foreign companies, and there are subsidized loans at the rate of $30 billion for Huawei,” van Quickenborne said.

“The country is closed. If you want to compete in these sectors, there’s no way you can get in. That’s the problem I have with China’s state capitalism. Governments should be a referee, not an actor in the economy.”

He said state capitalism has helped rapid growth in emerging economies but it was unsustainable in a long run.

“They’ve done a fantastic job in reducing poverty,” he said.

“But in the long run, this kind of micromanaging by the government of economics at the scale of China is unsustainable because they are destructive toward (small and medium-sized enterprises) and aggravate the problem of overcapacity. They should open up gradually.”

Many emerging economies have sovereign wealth funds and other state-owned institutions investing windfall surpluses into local markets to develop industries and diversify their economies.

At the Davos forum in 2009, at the height of the financial crisis, sovereign wealth funds came under heavy pressure as Western governments suspected them of investing with political rather than commercial motives.

But the atmosphere was decidedly more positive toward state investment funds.

“You cannot get the government out of the market. The question is where they get involved. There’s no fundamental difference between public and private corporations,” Nobel Prize winning economist Joseph Stiglitz said on Wednesday.

“Countries in a different state of development need different state involvement in terms of entrepreneurship.”

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