New changesunder China’s ‘new normal’ economy

What is the China’s “new normal” economy? “New normal” seemingly means that the growth rate of GDP leaves two-digit era and the potential growth rate of economy is declining. However, the real reason lies in the changes of economic structure, that is, the factors which drive the economic growth have changed.

From the perspective of economic growth, there are four changes of China’s economy. Firstly, China’s economy used to be based on industry and oriented by export. However, as the world economy is trapped by low growth, it is hard to remain high export growth. As for the financing difficulties encountered by the export companies along the coastal advanced regions, the underlying reason is the weak market demand.

Secondly, previous urban-rural dual structure means that the rural labor supply is sufficient and the price is cheap, and the higher productivity in city can provide better income than in rural areas. But this condition has been changed. It is showed by survey data in 2012 that 70% of rural labors under 25 years old are no longer living in rural areas, which leads to the increase of salary and such increase are nationally. The statistic data of last year indicates that the growth rate of salary in Western region is higher than that of the middle-east areas, which brings challenges to China’s manufacturing industries which based on low costs.

Thirdly, the ageing trend is accelerating. An aging society means declining in saving ratio, and which consequently means the shrinking of investment resources. This demonstrates that it is hard to maintain the previous investment driving economy.

Fourthly, energy saving and emission reduction is the trend. In former economic growth, resources are priced cheaply. Environment is even free of charge. But in current days, our land resources, water resources and energies are becoming scarce. For example, 60% of the petroleum needs to be imported. Meanwhile, the wide spreading haze also reminds people of the importance of environment protection.

Accompany with the changes of the economic driving elements, the structure of the economy is changing and the potential growth rate is dropping, and these consist of the features of the new normal of China’s economy. But as for China’s economic development, the problem requires more concerning is that after descending of the growth rate of economy, will China’s economy keep stable on the new platform. Only after stabilized could the economy keeps on sustainable growing.

Although the current downward pressure on economy is stressful, there is a good chance that China’s economy can keep stable and going up. The recent four groups of indicators can prove something.

Firstly, the residential income is growing, especially in rural areas. In the past 5 years, the growth of resident’s income mainly keeps pace with the GDP growth. While, the income growth of rural residents is faster than GDP growth and additionally, the growth of rural consumption is also fast. Common opinions may take TV, refrigerator and furniture industries as sunset industries. However, it is showed by data that these industries regained new chance in rural market. It is safe to say that industries related with rural consumption are all “bud” industries.

Secondly, the development of service industry is extremely strong, and such service industries are mainly productive service industries, such as logistics, medical care, education, finance, internet, cultural creative industry. These are the new buds for China’s new normal economy.

Thirdly, the technology development is undergoing apparent speed-up. One of the targets which did not achieved in the “11th Five-Year Period” is that R&D should account more than 2% of the GDP, and the new statistic data indicates that this target has already been achieved. Meanwhile, the quantity of patent application as well as patent growth speed has all increased significantly.

Fourth, the structure of economic development of the East, the Middle and the West of China becomes more balanced. Industries related with the West economic development are the fastest growing “bud” industries.

View from the perspective of macro-economy, it still needs time for the “bud” to grow up into towering trees. And how to provide proper growing environment for the “bud” is the key areas macro-control should concern. To culture the “bud” and solid its root needs constant deepening and advancing of reform. For this purpose, on the one hand, government should stabilize the growing environment of the “bud” by macro control; on the other hand, government should inject vitality into the “bud” by deepening reform and opening up. In the next few years, it is out of question that China’s economy will still maintain a relatively high speed of growth, which will provides environment for the “bud” industries which represent the future of China’s economy and which can bring sustainability and health for the growth of China’s economy.

How to provide appropriate growing environment for the “bud” under China’s “new normal” economy? New normal economy also means updating of the ideas of macro-control. As for macro-control, government should adapt with the new economic trend that service industry will become the largest industry and consumption will become the primary growing drive. The key point of this adaption process is the innovation in ideas and systems. Speaking of macro-control, the focus in the past days was to promote economic growth, however, for now the point is to keep stable growth, instead of blindly pursuing fast growing.

From the perspective of function division of market and government, the status of innovation should be the foremost aspect under China’s “new normal” economy. And the government needs to create favorable environment for innovation.

However, more than one country had entered a so-called “lost era” after their high speed development. For the future of China’s economy, this risk also exists. However, it seems that this risk will not be so severe since China’s urbanization is still underway. Compared with the urbanization ratio of 70% of some countries before entering into the “lost era”, current urbanization ratio of China is only 53%. There is still space for China to improve productivity through urbanization.

Published on the Economic Daily | 2014-9-8