Prospects for the Chinese Economy
By staff reporter JIAO FENG
THE 2015 Government Work Report set China’s economic growth target for the year at 7 percent, the lowest for the past 20 years, so marking the fourth consecutive year that the Chinese government has reduced its economic growth expectation. Although in accordance with the middle- to long-term development law of the Chinese economy, this modest target has nonetheless generated worry about mounting pressure from the economic downturn and the high risk of deflation – apparent in feeble investment growth, paucity of new consumption hotspots, and mediocre performance on the international market.
The Government Work Report also pointed out that China will still be at the primary stage of socialism for some time to come, and that development is of overriding importance as the foundation and key to solving all problems. We must make economic development our central task, rely on reforms to promote scientific development, and accelerate transformation of the economic development mode to realize high quality and efficient sustainable development.
Chinese Economy Enters New Normal
In 2014, China entered the so-called new economic normal characterized by relatively lower economic growth. China’s focus is now on the quality rather than speed of economic growth.
What is the “new normal”? According to well-known economist Li Yining, the new normal has three characteristics. One is a growth rate gradually gearing down from high speed to middle-to-high speed. The second is a readjusted economic structure wherein many industries continuously upgrade. A new motivating force is the third.
Li Yining believes that China’s economic growth needs to slow down due to the immense size of the country’s economic base. From the economic development perspective, the broader the base, the lower the growth rate; hence the latter’s diminution. The quality of Chinese economic growth at the early stage was poor, featuring excessive production capacity and a consequent glut of products. All of these factors caused the present downturn. In addition, the global economic situation as a whole is far from good, with great uncertainties that greatly affect exports of Chinese commodities. Even enterprises that have achieved market transformation will not see results in the short term. Moreover, although industrial adjustment has begun, it will not be plain sailing. Restructuring inevitably entails “labor pains,” difficulties, and thorny adaptations. It hence requires patience and constant adjustments. Technical innovation can play a leading role in economic growth, but there is a considerable time gap between research and actual effect.
Although China’s slowing economic growth is a focus of public concern, most economists and enterprises remain optimistic. Yang Kaisheng, former president of the Industrial and Commercial Bank of China, holds that although China’s economic growth was only 7.4 percent in 2014, due to its broad base the increment can nevertheless satisfy the needs of the newly-increased population and also has the capacity to improve its present life quality.
The year 2014 saw an additional 13 million new jobs, implying a change in the elastic coefficient between economic growth and employment. This is also the result of economic restructuring. In addition, although excessive production capacity is not easy to address, urbanization, industrialization, and informatization are not yet accomplished, public service standards are not high, and there is inadequate supply of public goods, new investment opportunities nevertheless exist.
“In February this year, the PMI was 49.9 percent, still below 50 percent (a reading of 50 or above indicates expansion, while a reading below that level indicates contraction), but it was 0.1 percent higher than the January figure, so ending a decline over four consecutive months. More important, the index of new orders has risen to 50.4 percent. This implies a good momentum of economic operation,” Yang Kaisheng said.
Industry Plays the Leading Role
National Bureau of Statistics data show that China’s industrial added-value in 2014 amounted to RMB 22.8 trillion; also that its exports of industrial products make up one-seventh of the global total. Both have a top worldwide ranking. China has indeed lived up to its reputation as a great manufacturing power. In 2013, the proportions of China’s first, second and tertiary industries began to change, whereby the tertiary industry for the first time surpassed the second industry. Following readjustment of industrial structure, there is now strong consensus on the need to develop service industries, featuring low consumption, low emissions, and big capacity job creation. In 2014, the tertiary industry proportion was 48.2 percent, and that of the second industry 42.6 percent, so confirming a widened gap. “But industry still plays the leading role in China’s economic development,” said Li Yizhong, deputy director of the Financial and Economic Committee of the Chinese People’s Political Consultative Conference and former minister of Industry and Information Technology.
According to Li Yizhong, the industry has provided the service industry with rich commodities and extensive service targets. The service industry in developed countries in the post-industrialization period makes up 70 percent of GDP, of which producer services make up 60 percent. The manufacturing industry can extend downstream by developing after-sales service, professional service, value-added service, and entire life-cycle service, and can also conduct electronic business. The manufacturing industry can extend upstream by providing research and development, design, consultation, information, and energy conservation and environmental protection services. Large and medium-sized backbone enterprises can push their internal services to the market through restructuring and reform, so forming a social service platform. Small and micro enterprises, meanwhile, can share the results of social reform through service outsourcing. Manufacturing servicization not only raises the additional value of industrial enterprises, thus helping the related enterprises achieve transformation and upgrading, but also expands producer services. It is an important way to develop the service industries.
“For example, do automobiles and domestic electric appliances belong to manufacturing or services? They should combine manufacturing and services. Auto makers need 4S stores to provide services and maintenance, and the same is true of domestic electric appliances. They not only produce domestic electric appliances, but also provide door-to-door services, installations and repairs, and even conduct electronic business. Manufacturing servicization is an important orientation of industrial upgrading, and also one of the channels through which to develop service industries,” Li Yizhong said.
The work report at the 18th National Congress of the Communist Party of China states that China will be a moderately prosperous society in all aspects by 2020. Basically realizing industrialization is a main task towards this end. At present, China is in the middle to late period of industrialization and, taken as a whole, in the middle to lower end of the global value chain, Li Yizhong said. Eliminating outdated and excessive capacities and carrying out industrial transfers will readjust industrial structure and distribution without weakening the second industry. Developing the tertiary industry, moreover, does not imply the withdrawal of the second industry. In the historical period of realizing industrialization, the leading role of industry must be brought into full play.
