After more than 30 years of reform and opening up and a fast growth, China’s economy is presenting new phase characteristics. But the importance of these characteristics is not much recognized by all.
Zhang Monan
Globally, since the global financial crisis in 2008, the world economy has turned from the fast growth before the world financial crisis into a period of deep transformation. The world is now in the process of industrial restructuring and reorganization and is getting rid of the old growth cycle. Internally, China is entering a new phase of moderate growth after a fast growth and is breaking some old balance, old model and old concepts, giving rise to many “new normalities”.
The “new normality” first is demonstrated by the slowdown in economic growth. In fact, “changing gear” after a fast growth is an inexorable trend. According to the statistics from the Commission on Growth and Development of the World Bank, only less than 20 small countries kept a 7% growth rate for 25 consecutive years after World War II, while the rest economies all began to have a slow economic growth after 20 years of development and some countries even suffered a big deceleration. So, the current slowdown in China’s economy to around 7.5% is both objective and reasonable.
Besides, this “new normality” is also reflected in the relationship between growth and employment. In the past, some argued that only when GDP kept at least an 8% growth rate could China create enough job opportunities, but this law is changing. Take the 2013 data for instance. China’s GDP slowed down by 1% year-on-year, but the urban jobs increased by nearly 1 million more than in 2011. The reason behind this is that the constant growth of China service industry created more jobs.
Of course, China’s economy will possibly face many uncertainties in the future, but there are some inexorable things to happen. The first trend is the change in the quality and structure of the human resources. In the past, China’s fast economic growth partly came from the rich and low labor cost, but the demographic change such as the aging population will check this advantage. Therefore, China should constantly strengthen the reform in education system, employment system and the household register system, remove the obstacles for the sustainable development of the human capital and promote the transformation of the human capital into a sustainable growth factor.
The second trend is the change in the structure of supply and demand. China has implemented reform and opening-up policy for more than 30 years, completing two historical changes. According to the World Bank’s standards, China turned into a lower middle income country from a poor low income country in 1998. In 2010, China made its second change by turning from a lower middle-income country into an upper middle income country. After these years of development, China has long successfully resolved such “bottle necks” as housing, transportation, energy and the inadequate supply of capital. But the old “bottle necks” are broken and then followed by the new “bottle necks”. With the increasing income of the rich class and the increasing capital stock, China will produce the world largest middle class in the coming five years, creating a purchasing power worth of RMB64 trillion. This will evidently increase the demand for the service industry, particularly those industries related to the demand for personal finance, to the experiential consumption and to the demand for medicare of the aging people. China will possibly become the world’s largest market. Facing such a rising and booming market, “those who lose Chinese market will lose the biggest opportunity”.
The third trend is the further expansion of reform and opening up. Reform is based on the arising problems and gets deeper because of the constant resolution to the problems. At present, China’s reform has only covered 50miles along the long road of 90 miles. It is more complicated, more sensitive and more difficult to push the reform than 30 years ago. So China must continue its reform and never retreat, especially when Chinese government needs to push forward its own reform. Since the third plenary session of the 18th CPC National Congress, China has accelerated the reform in the fiscal, financial and resource fields, etc., allowing the market to play the guiding role. The Chinese government has accelerated the administration streamline and decentralization and implemented the system of power list and negative list, which is both a reform in line with the market access and a reform of the government itself. At present, 416 items of administrative examination and approvals have been cancelled and decentralized by batches, involving three fourth of the government departments. Meanwhile, China should further expand its strategy of opening to the outside world and free trade areas, ease market access for foreign investments and push the investment liberalization in the service area. China can change the approval system of foreign investment items into a filing system; turn the examination and approval of the foreign investment enterprises’ contracts and articles into a register management. And China should also attract more high-end foreign production factors and more foreign investments. These will lead to the establishment of a new opening up of the Chinese economic system.
The fourth trend is that economic growth will be driven by innovation. Currently, the world has not yet got out of the crisis, but all countries have long been looking for a new path to economic growth. A new round of technology innovation and industrial revolution represented by 3D print and big data is springing up; the energy of world innovation breakthrough is constantly accumulated and the world is entering an era of developing innovation intensive industries and fast-growing new industries. Thus, China should not simply stand by. In recent years, China increased much more investments in innovation, with its ratio of R&D spending in the world increased from 2.2% in 2000 to 14.5% in 2011. In the future, China will continue to spend more on R&D and “soft investment” like human capital, etc. By making full use of the global new resources, China will foster and quickly build a highly efficient and modern new national innovation system, actively get integrated into the new network of global innovation so as to gain a new round of economic growth effect.
Zhang Monan is a research fellow at the China Center for International Economic Exchanges Associate.
