The New Normal of Moderate Growth
After going through the 2008 global financial crisis, the world economy as a whole has switched from high-speed growth to a deep industrial transformation. Domestically, the Chinese economy has also moderated, with some old balances being disrupted, and long-standing models and conceptions being dismantled. In the process, an array of new norms have emerged.
To begin with, undergoing an economic slowdown is inevitable following years of rapid growth. According to statistics from the Commission on Growth and Development sponsored by the World Bank, since World War II, no more than 10 countries have managed to keep economic growth above 7 percent for more than 25 consecutive years.
With the exception of those countries, all other economies, without fail, began to slow down after two decades of high-speed growth. From this perspective, the fact that China's economic growth has slowed to 7.5 percent is not surprising in the least.
Aside from that, the relationship between growth and employment has changed. In the past, some people held that sufficient jobs could be created only when China's economic growth was maintained above 8 percent. The reality is, when the growth rate stood at 7.7 percent in 2013, the economy still created 1 million jobs more than that in 2011 when the growth was 9.2 percent.
More importantly, the current status of employment is much healthier than expected. Last year, a total of 13 million new urban jobs were created, far exceeding the stated goal of 10 million. Even when the economy slowed down to 7.4 percent in the first quarter of this year, the employment rate remained stable. The reason behind this is that the expansion of China's service industry. Last year, the service industry contributed more to output growth than the manufacturing industry, a feat without precedence in the past 50 years.
Without a doubt, China's economy will face numerous uncertainties, and some things are bound to happen. First of all, great changes are taking place in the composition of the workforce. As the developmental history of the world economy shows, economic achievements registered in the past have nothing to do with future successes. With an aging population, the cheap and abundant labor forces that formerly fueled China's economic growth will dwindle. For this reason, China should reinforce reforms on its education, employment and household registration systems in order to foster a sustainable momentum in growth.
The second inevitable change will relate to the supply-and-demand structure. In the past three decades, China has evolved from being an impoverished low-income country to reaching the status of lower middle-income country in 1998, before further metamorphosing into a higher middle-income country by 2010.
The country is expected to have the largest middle class in the world before 2020, representing a purchasing power of 64 trillion yuan ($10.36 trillion). In the near future, China will grow into the world's largest market for medical equipment, foodstuff and even robots. As the catchphrase goes in the business community, those who ignore China risk missing out on their greatest opportunity.
Another change relates to the deepening of reform and opening up. It's much more difficult for China to carry forward reforms now than three decades ago. To forge ahead, the Chinese Government should continue its transformation. Since the Third Plenary Session of the 18th Central Committee of the Communist Party of China in November 2013, China has quickened its reforms of the fiscal and financial systems to allow the market to play a decisive role.
For example, authorities are moving to delegate powers and slash administrative approval procedures. Meanwhile, the country is to further advance its strategy of promoting free trade zones and opening up to the outside world, and will attempt to attract quality production factors to China by lowering investment thresholds.
The last point raises the issue of the transition toward an innovation-driven growth model. At present, the global economy has yet to completely rebound from the global financial crisis, and countries around the globe are eager to find new growth points. A new wave of industrial, scientific and technological revolutions, such as 3D printing and "Big Data," are under way. The world is entering a new era featuring far-reaching innovation and newly emerging industries, and China will not stand idly by.
In recent years, China has consistently pledged more resources to innovation, with its investment in research and development (R&D) surging from 2.2 percent of the total spent by all countries in the world in 2000 to 14.5 percent in 2011. In the future, the country will make further investment in R&D and human capital, and take the initiative to incorporate itself into the global innovation network, thus gaining momentum for another round of economic growth.
This is an edited excerpt of an article by Zhang Monan, a researcher with the State Information Center, published in China Business Journal
1.97 bln yuan
Money earned on the Chinese mainland by Transformers: Age of Extinction, the fourth installment in the robot movie franchise, in its month-long run ending July 27
49.62 bln yuan
The sales revenue of China's gaming industry in the first six months of 2014, an increase of 46.4 percent from the same period in 2013
The loss of Chinese enterprises caused by overseas technical trade barriers in 2013
China's total trade in services in the first half of 2014, an increase of 15.3 percent year on year
14.17 tln yuan
Total outstanding loans to small and micro-enterprises at the end of June, an increase of 15.7 percent year on year
The newly employed population in China's urban areas in the first half of 2014, with the registered unemployment rate remaining low at 4.08 percent
"The consumption tax should be rationally designed. For example, luxuries and products carrying high environmental costs should be levied higher consumption taxes, whereas taxation concerning cigarettes, alcohol and fuel oil should be delegated to local governments."
Jia Kang, head of the Research Institute for Fiscal Science of the Ministry of Finance, speaking at the China Fiscal Reform Forum on July 28
Email us at: email@example.com