Ef­fect of ‘new nor­mal’ ex­pected to be hot topic

China Daily (Canada) - - FRONT PAGE - By CHEN JIA chen­jia1@chi­nadaily.com.cn

TheChi­nese busi­ness press likes to talk about the econ­omy’s “new nor­mal”, while the true pic­ture of the econ­omy is not nor­mal at all, ac­cord­ing to eco­nomic ex­perts.

In fact, the coun­try’s econ­omy is at its most crit­i­cal mo­ment since the 2008 global fi­nan­cial cri­sis. To un­der­take in­tended re­forms, the ex­perts say, a slow­down in GDP growth is needed. At the same time, for re­forms to suc­ceed— or at least to avoid prob­lems— the coun­try also needs to main­tain a cer­tain growth rate.

The ap­proach­ing two ses­sions, or two-week­meet­ings of theNa­tional Peo­ple’s Congress andtheNa­tion­alCom­mit­tee of the Chi­nese Peo­ple’s Po­lit­i­cal Con­sul­ta­tive Con­fer­ence, will fo­cus on how that can be done this year.

The cen­tral gov­ern­ment will prob­a­bly set its most mod­est year-on-yearGDPin­crease tar­get in 11 years, ad­just­ing it down to 7 per­cent from last year’s tar­get of 7.5 per­cent, said Wei Jian­guo, vice-chair­man of a gov­ern­ment think tank, China Cen­ter for In­ter­na­tional Eco­nomic Ex­changes, and for­mer vice-min­is­ter of com­merce.

The ac­tual GDP growth last year reached only 7.4 per­cent over­all, the slow­est pace in 24 years. This year, the cen­tral gov­ern­ment may be less tol­er­ant of GDP growth lower than 7 per­cent.

“Seven per­cent should be the bot­tom line. Oth­er­wise, un­em­ploy­ment and other so­cial fac­tors could rise and be­come a bar­rier to re­form,” Wei said.

In the long run, China will be char­ac­ter­ized by an econ­omy that is more fo­cused on in­no­va­tion, pro­duc­tiv­ity gains and ef­fi­ciency in us­ing re­sources, econ­o­mists said.

The twoses­sion­s­maybe dif­fer­ent from the meet­ings of pre­vi­ous years be­cause Chi­nese pol­i­cy­mak­ers are aware of the risks fac­ing the econ­omy dur­ing the tran­si­tion, par­tic­u­larly the high lever­age ra­tio and var­i­ous ex­ist­ing “bub­bles”, saidWangTao, chief econ­o­mist in China for UBS AG, a global fi­nan­cial ser­vices com­pany.

“The gov­ern­ment will be more dis­ci­plined in its pol­icy re­sponses, and the thresh­old for the tra­di­tional type of credit ex­pan­sion and quasi-fis­cal stim­u­lus will be quite high in the fu­ture,” she said.

“But the gov­ern­ment will not shy away from us­ing in­fra­struc­ture spend­ing and macro poli­cies to sup­port growth to re­solve the risks,” Wang said. “We ex­pect the gov­ern­ment to pro­vide ad­di­tional liq­uid­ity, make more cuts in the in­ter­est rate and fa­cil­i­tate lo­cal debt re­struc­tur­ing and se­cu­ri­ti­za­tion in 2015.”

Some econ­o­mists have al­ready com­plained that gov­ern­ment was too slow in shor­ing up the nec­es­sary growth. De­fla­tion is a con­cern that may be aired by pol­i­cy­mak­ers and ad­vis­ers dur­ing the com­ing two ses­sions, they said.

The gov­ern­ment’s tar­get for con­sumer price in­fla­tion for this yearmay be low­ered from 3.5 per­cent last year to 3 per­cent, ex­perts said.

But China is cur­rently edg­ing close to de­fla­tion, the cen­tral bank’s news­pa­per, Fi­nan­cial News, said on Wed­nes­day.

This is caused by two fac­tors, said Chen Kexin, an econ­o­mist with Lange Re­search Cen­ter in Bei­jing. One is fall­ing com­mod­ity prices in the glob­al­mar­ket, while the other “is the fact that per­haps the cen­tral gov­ern­ment has re­mained too tight on the money sup­ply for too long”, Chen said.

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