• Sourcing Solutions
  • Services & Membership
  • Help & Community
Buyer Community> Trade Intelligence> news> China has potential for mid-high growth
Source: China Daily China Daily

China has potential for mid-high growth

Published: 25 Feb 2015 01:21:18 PST

China has potential for mid-high growth

An employee prepares money at a commercial bank in Ganyu, Jiangsu province. New loans stood at 1.05 trillion yuan($169 billion)in March, up from an average of 981.8 billion yuan in January and February. SI WEI/CHINA DAILY

Many pessimistic analysts just see the slowdown in economic growth, but they ignore the positive changes taking place in the economy.

The Chinese economy grew 7.4 percent last year, the lowest since 1990, and it is predicted the speed of growth will decelerate further to 7.1 or 7.2 percent this year. The government is willing to sacrifice a certain rate of growth for the transformation of the country's economic structure, because as economic growth is slowing, the quality of growth is growing.

The slowdown of the Chinese economy is caused by multiple factors. The government stabilized the economy with huge investment from 2008 to 2010. But the stimulus package raised the whole economy's leverage ratio and boosted the fast rise of housing prices.

Reducing the financial leverage ratio is an important target for the new government. The prudent financial policies and tightening monetary policies implemented by the current government have played an active role in stabilizing housing prices and deleveraging the economy.

Also, China's economic growth has mainly come from the fast expansion of the secondary sector. But its industrialization has peaked in the past decade. Were it not for the financial crisis in 2008, the peak would have lasted till around 2015. However, the financial crisis greatly reduced the outside world's demand for industrial products from China, ending the industrial peak prematurely. Yet this has brought some positive changes to the restructuring of the Chinese economy.

The last round of financial and monetary stimulus packages stabilized economic growth. But their help to manufacturing was limited. The growth in manufacturing has mainly come from investment in fixed assets.

|||

Also the Chinese economy has been plagued by high savings and low consumption since 2000. Although consumption's proportion of GDP started rising from 2010, the decline of external demand boosted the development of the tertiary sector, the added-value of which surpassed that of the second industry. This trend will continue for a certain period of time. By 2020, China is expected to become an economy built on domestic demand and a major world market.

The historical experiences of some successful economies prove the ending of the peak of industrialization does not mean an economy will inevitably decline.

Japan's economy continued to grow at 7 percent for years after the 1970s when its industrial peak came to an end. And South Korea maintained an economic growth above 8 percent on average for a decade after its industrialization peaked in 1988.

Industrial products from the two countries started entering the world on a large scale, electronics and automobiles in particular, after they reached the peak of their industrialization.

The robust stable economic growth of Japan and South Korea comes from their solid manufacturing industrial base, and innovation. Enterprises in the two countries pay more attention to product quality and innovation than the quantity of their output.

China has established a sound industrial base. If it can effectively develop a strong innovation capacity and turn innovation into industrial output, China can also maintain its economic growth at a mid-high rate.

The financial crisis has forced Chinese enterprises to upgrade their technology and improve their management. In the next 10 to 20 years, China will become the main destination for the relocation of the electronic and auto industries from South Korea and Japan. The Internet industry and the combination of the Internet and traditional industries will become new growth points for China's economy.

China will carefully adjust its monetary policies this year according to its practical needs, maintain the stability of its macro-control policies, and make its investment more efficient. Among the targets will be those fields that are essential to restructuring the national economy. The housing market will also recover to a certain extent, catering to the increasingly diversified demands of Chinese consumers.

It is predicted that the United States' economic growth will hit 3 percent this year. Every 1 percentage point of US economic growth can pull the world economic growth by 0.2 percentage point. The US will remain the major consumer market in world economy this year. Given the close connections between China and the US, China will be able to benefit from the US' stable growth.

The author is director of the China Center for Economic Research and dean of the National School of Development, Peking University.

 

Share this post:
Related Article
Most Popular
icbunews010176201116