The Chinese Economy Is Still Full of Power
Liu Xiaoming, Chinese ambassador to the UK
A glass is filled halfway with water. Pessimists would say it’s half empty, while optimists would say it’s half full. The same is true when it comes to the Chinese economy. Quite a few pessimists have been forecasting doom and gloom since the beginning of the year. However, they have failed to see the country’s resilience and the new driving forces that have emerged.
In fact, the recent moderation in China’s growth is the anticipated result of reform measures and regulation. This is therefore the “new normal”: we are seeing slower yet better quality growth helped along by proactive and deeper reforms. Of course, China’s growth rate could easily have exceeded 7 per cent if the energy- and- pollution-intensive industries had been given free rein, or if massive stimulus measures had been applied.China, however, chose not to opt for this kind of unsustainable growth – because it would come with a huge cost and would sacrifice the long-term development of China and the world.Instead, China has chosen to focus on the following five key areas: addressing excess capacity, downsizing property inventories, expanding effective supply, helping enterprises reduce cost and guarding against financial risks. This approach, like losing weight, won’t be without its discomforts or pain. But just as perseverance will see one through a diet – to less fat, stronger muscles and a healthier body – so it is with the Chinese economy.
Despite the moderation in growth, the fundamentals of the Chinese economy remain strong. While the stock and foreign exchange markets have their own patterns, the key is to look at the bigger picture. It is true that the 6.9 per cent growth in 2015 was the lowest for China in 25 years. But this was achieved by an economy that is 10 trillion dollars in size. The actual increment is equivalent to the yearly GDP of a medium-sized country and it is larger than the amount generated by double-digit growth years ago.In other words, against the background of the sluggish world economy, China remains one of the fastest-growing major economies – and it contributes over one quarter of global growth. Consumption now accounts for two thirds of China’s growth and the service sector now makes up more than half of GDP.China’s solid material foundation, abundant human resources and vast market potential will continue to provide a sound basis and condition for sustained economic growth. The gap between the eastern and western regions, and between the urban and rural areas, indicates ample spaces and untapped potentials for further development. Moreover, the ongoing process of new industrialisation, IT application, urbanisation and agricultural modernisation is generating strong driving forces for growth. China’s fiscal deficit and government debt is also secure and much lower than that of the US, Europe and Japan, leaving enough room for further positive regulation.
Going forward, five new engines will drive forward China’s economy. The first engine is the 13th Five-Year Plan. With its five key development concepts – innovation, balanced growth, a green economy, opening up and inclusive development – this Plan will map out the way for China to get over the “middle-income trap” and join the high-income economies.The second engine is supply-side reform. Rather than being a copy of Reaganomics or Thatcherism, China’s supply-side reform is a response to the economic “new normal” in China. Its core mechanism is to replace ineffective and low-end supply with effective and high-end supply, which will increase competitiveness.The third engine is open development. China will continue to improve its domestic business environment in terms of legal, international and business-friendly practices.The fourth engine is China’s active involvement in global economic governance and in providing public goods. The Asian Infrastructure Investment Bank, officially inaugurated last month, is just one example of this.The fifth engine is innovation-driven development. China will optimise the allocation of key resources in order to stimulate innovation, to create new demands and new supply, and to give rise to new businesses.
Since the financial crisis, China has made an outstanding contribution to global growth. It is widely recognised as the world’s economic powerhouse and has fulfilled its responsibility as a key global player. Make no mistake: that engine is still full of power and will continue to bring opportunities and benefits to the world.“Although Zhou was an ancient state, it had a reform mission.” This line from a 3000-year-old Chinese work, the Classic of Poetry, best portrays the country’s commitment to reform. Today, reform and innovation remain the source of confidence and strength for China. There is every reason to look to a world-embracing China for steady progress and for a promising economic future.