China's Economic Trends in the Coming Years
By staff reporter JIAO FENG
AGAINST the backdrop of an intricate global economic climate, China is confronting the mounting pressure of a downward economy. The GDP growth rate fell to 6.9 percent year-on-year in 2015, a historic low. The beginning of 2016 witnessed lackluster performance in both stock and currency markets, and a breadth of fallen trade even larger than last year, which caused global concern on the state of the Chinese economy.
On March 2, Moody's lowered China's government credit outlook from stable to negative. However, the market responded calmly; the offshore RMB exchange rate was stable and domestic bond and stock markets were unaffected.
The year 2016 marks the initiation of the 13th Five-year Plan (2016-2020) for economic and social development. On the question of in which direction the Chinese economy is headed — whether the macro economy can defend the bottom line, and whether China can overcome difficulties to achieve the Five-year Plan targets — a collection of renowned experts and scholars gave their points of views. Their comments are summarized here.
Hard Landing?
The year 2016 marks the start of the decisive phase of completing the construction of a moderately prosperous society in all respects, and also a critical stage in advancing the structural reform.
On a global scale, uncertainties and unstable factors in China's external environment affected it in a way that cannot be underestimated: the world's economy is undergoing a profound adjustment and a sluggish recovery, with the international trade floundering, fluctuations in financial and commodity markets, and elevated risks in geopolitics.
From the domestic perspective, accumulative problems and risks have surfaced, which are exemplified by a lower growth rate, the travail of economic restructure, the switch of economic driving forces, and higher downward pressure. Concerns on the Chinese economy are constantly debated. George Soros even predicted that a hard landing would be unavoidable for China.
Cao Heping, economist and Peking University professor, holds that China's national economic system covers a full range of industries, thus emerging industries such as those related to the Internet Plus will offset the declining growth rate in trade and investment, and tap into the great potential in the economy.
Xu Shaoshi, minister of the National Development and Reform Commission, observed that the Chinese economy is flexible and capable of shielding against risks, as it has a solid foundation, huge market demands and vast room for development. What's more it is improving the quality of production factors, and has garnered rich experience in macro readjustment. "The Chinese economy will definitely not have a 'hard landing,'" Xu said, "We are capable of operating the economy within a reasonable range."
A Drag on World Economy?
The first quarter of 2016 saw substantial fluctuation in the global financial market and a slump in commodity prices, leaving emerging economies stuck in a rut. Some Western media attributed the world economy's "bad cold" to China's "sniffle."
"This is a false conclusion," said Liu Shijin, former vice director of the Development Research Center (DRC) of the State Council, a government think tank. "China's GDP growth rate in 2015 was 6.9 percent, still higher than the world's average and that of developed economies. It signifies China's positive role in world economy."
Zhang Xiaoji, former head of the Foreign Economy Research Department of DRC, said that China contributed a share of 25 percent to the world's economic growth last year, still a high level. He spoke frankly that the way of inputting huge investment in infrastructure to jack up commodity prices and spur the world economy that China once adopted during the global financial crisis is abnormal and unsustainable, which is negative for both China and the world in a long run.
Xu Shaoshi introduced that China currently ranks second globally in import volume, and that its demands kept rising in crude oil, iron ore, mineral and chemical fertilizer, natural and synthetic rubber, grain, and other products. Its contribution to the world economy is indisputable.
Slower Economic Growth A "New Normal"?
The growth rate in 2015 was lower than the expected seven percent, rousing questions as to whether China had lost its growth momentum.
Economist Li Yining believes that the rate is within the reasonable range. As the economy is shifting from industrialization to post-industrialization, the tertiary industry contributes more than a half of the GDP. From this perspective, the slide in growth rate is the same as that of other countries around the world.
The economist said that a prosperous second industry made it possible for China to attain a rapid development in the past several decades. From the experience of developed countries, in a phase when the tertiary industry dominates, a rate from three to four percent would be no mean feat. "In this period, China should be fully aware of the importance of restructuring and changing the mode of economic development, instead of focusing on the rate figures. In other words, restructure is more important than the aggregate economic volume."
"The Chinese economy is entering the 'new normal' phase that features lower speed, optimized structure, and switched driving forces. From this angle, China's economic performance is outstanding," Xu Shaoshi remarked. "For example, we created 13.12 million jobs, over 30 percent more than the target. People's income experienced steady growth, up 7.4 percent. The consumer price index (CPI) went up by a mere 1.4 percent. The environment has been improved significantly. That's why I believe the economy is operating within a reasonable range."
Difficulties and Challenges
A report from the DRC of the State Council predicts that in 2016 China will see a "dip" in its economy.
Xu Shaoshi said that China would encounter various adverse influences in its economic and social development by the uncertainties and instabilities in the world economy. The financial market fluctuations, the slump of commodity prices, and the risks in geopolitics can never be ignored. China is faced with three economic issues at this stage: to deal simultaneously with the slowdown in economic growth, to make difficult structural adjustments, and to absorb the effects of the previous economic stimulus policies. Meanwhile, China is facing a grim downward trend in its economy — slower economic growth, lower prices in industrial products, shrinking earnings of companies in sectors of the real economy, and less fiscal revenue — and growing risks in the fiscal and financial sector. In a word, more complexities lie ahead for China's future development.
Wu Xiaoqiu, director of the Finance and Security Institute at Renmin University of China, said that China was confronted with a three-faceted challenge in its economy. First, dealing with the severe overcapacity is still an urgent task. Second, China must change the way of economic growth and care more about the environment. Third, China should address the widening gap between the rich and the poor.
Financial writer Wu Xiaobo said that China was facing a bumpy road ahead in 2016. China's economy is likely to keep going down in the "new normal" period. "Traditional manufacturers are still struggling. Their suffering is far from over. But as we can see, the middle class is emerging and growing, and it contributes to the consumption. In both domestic and foreign trade, changes are likely to happen. "
A Medium-to-high Growth Possible?
The National Bureau of Statistics released some core numbers in January, which show that the CPI is rebounding and the decline in the PPI narrowed on a monthly-and-yearly basis. Trade surplus hit a record high of RMB 406.2 billion and foreign investment is growing fast thanks to the Belt and Road Initiative.
Although the growth rate in 2015 was lower than seven percent, Li Yining believes that the seven percent target is sustainable if the structural reform — the very key issue — can be implemented. "There's no denying that China has faced challenges in its economy. The economic downward pressure does exist. Only with reform can China get onto the path of 'new normal.'" Confidence, as Li said, is important at the moment.
Clearly, confidence comes from the achievements of the 12th Five-Year Plan period and China's resolution to deepen the all-round reform. At present, the supply-side structural reform — with an emphasis on cutting overcapacity, destocking, deleveraging, reducing costs, and identifying growth areas — is in action. With more reform benefits, periodical economic capacities will be strengthened and thus, in the long run, China's growth potential won't hit the sharp decrease.
Businesses are most sensitive to the market. Yang Yuanqing, CEO of Lenovo Group, said that companies should be confident about products like smartphones and PCs. While this market seems saturated, product improvement and upgrading can stimulate new demand. In this sense, quality should be improved and high-end and high-valued innovative products should be made. In addition, better services can be another opportunity to improve the economy.
Zhang Jindong, chairman of Suning Holdings Group Ltd, said that consumption would lead to future growth. The consumption of high-quality products and big brands will, undoubtedly, be leading the new trend. Zhang said the "new normal" was a period of important strategic opportunities for China. Measures, such as promoting the new industrialization, reducing the divide between urban and rural areas, increasing public goods supply, and advancing coordinated development across regions, will inject vitality and impetus to China's long-term economic development.
