For­get fears, econ­omy is alive and kick­ing

The Pak Banker - - OPINION - Wang Hui

THE 6.9 per­cent growth was within peo­ple's ex­pec­ta­tions, given the in­creased down­turn pres­sure on China's econ­omy as re­vealed by fluc­tu­at­ing macroe­co­nomic data last year. The growth, how­ever, was also be­yond ex­pec­ta­tions be­cause some pre­dic­tions put it at an even lower level, which was in­di­cated by the pos­i­tive stock mar­ket re­sponse af­ter the data were re­leased. Al­though last year China's growth rate slipped below 7 per­cent for the first time in a quar­ter cen­tury, it was within the pa­ram­e­ters set by the Chi­nese au­thor­i­ties. Premier Li Ke­qiang has said that in­stead of ob­sti­nately try­ing to main­tain a very high growth rate, China will see to it that the econ­omy grows rea­son­ably well. Be­cause of the huge size of China's econ­omy, the ad­di­tional out­put from the 6.9 per­cent growth is equiv­a­lent to that of a middle-sized econ­omy and higher than the ad­di­tional value pro­duced by the two-digit growth rate of pre­vi­ous years. That's why de­spite aim­ing for a high growth rate, we should also re­al­ize that with China's econ­omy hav­ing al­ready ex­panded con­sid­er­ably, it is nat­u­ral for growth to reg­is­ter a grad­ual de­cline.

A sim­ple com­par­i­son of growth rates dur­ing dif­fer­ent pe­ri­ods could lead to fal­la­cious con­clu­sions. For a $2-tril­lion-plus econ­omy, a 2.5 per­cent growth rate is con­sid­ered high. So a 6.9 per­cent growth for the about $10-tril­lion Chi­nese econ­omy should be con­sid­ered very high. This is to say that peo­ple should not rack their brains over a lit­tle higher or lower than 7 per­cent growth and, in­stead, wel­come a mod­er­ate eco­nomic growth as China en­ters the "new nor­mal" stage. Af­ter three decades of fast-paced growth, China to­day is quite dif­fer­ent from what it was in the 1990s in its eco­nomic fun­da­men­tals, de­vel­op­ment model, in­dus­trial land­scape and driv­ing force. The na­tional econ­omy, too, has un­der­gone no­table changes both in terms of quan­tity and qual­ity. It's time, there­fore, for China to fo­cus on eco­nomic gov­er­nance in­stead of blindly pur­su­ing a high growth rate.

De­spite be­ing the low­est in 25 years, China's 6.9 per­cent growth in 2015 should not come as a sur­prise, be­cause it has de­cel­er­ated grad­u­ally rather than abruptly. The de­cline from 7.0 per­cent in the first quar­ter of 2015 to 6.8 per­cent in the fourth quar­ter was very mod­er­ate. Also, no dras­tic changes have oc­curred in China's eco­nomic en­vi­ron­ment and it still main­tains a dy­namic bal­ance be­tween up­ward growth and down­turn pres­sures. And since ei­ther of the two fac­tors can over­power the other, it is nor­mal for China's econ­omy to ex­pe­ri­ence short-term fluc­tu­a­tions. Be­sides, the 6.9 per­cent growth ba­si­cally met the 7 per­cent or so of­fi­cial tar­get for last year. Con­sid­er­ing its colos­sal eco­nomic size, the growth rate is more than sat­is­fac­tory for China, es­pe­cially be­cause of the harsh global eco­nomic en­vi­ron­ment.

More im­por­tantly, the in­crease of the ter­tiary sec­tor's share to more than 50 per­cent of China's GDP au­gurs well for an econ­omy un­der­go­ing trans­for­ma­tion and up­grad­ing. With con­sump­tion re­plac­ing ex­ports and in­vest­ment as a main driver of the econ­omy, it has be­come clear that China can wean it­self from the in­vest­ment- and ex­port-driven eco­nomic model and fur­ther tap into the vast do­mes­tic con­sump­tion po­ten­tial. Since the 6.9 per­cent growth for 2015 was made pub­lic, pes­simistic opin­ions have flooded the In­ter­net with com­ments such as "a 25-year low for China's GDP", "China's eco­nomic trans­for­ma­tion only looks beau­ti­ful", "a precipice-style growth fall". But most of them talk only about the prob­lems while ig­nor­ing the "bright side" of China's econ­omy. True, the "list of mer­its" re­cently pub­lished by the au­thor­i­ties in­di­cates China has not done very well in ev­ery as­pect, as re­flected by its de­clin­ing GDP tra­jec­tory, soft in­vest­ment, sag­ging prof­its of en­ter­prises and in­creased de­fla­tion pres­sures. But we can­not ig­nore the sil­ver lin­ings - for ex­am­ple, the ser­vice sec­tor ac­count­ing for 50.5 per­cent of the GDP. A ris­ing share of the sec­tor means de­clin­ing en­ergy con­sump­tion per unit of GDP - and the rea­son why we should not make a fuss over the de­cline in China's power use. The 66.4 per­cent that con­sump­tion con­trib­uted to China's GDP growth in 2015, an in­crease of 15.4 per­cent­age points year-on-year, is also a laud­able per­for­mance. Those view­ing China's eco­nomic per­for­mance through tinted glasses can­not make a cor­rect read­ing of the Chi­nese econ­omy.

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