The Chi­nese econ­omy is still full of power

The Pak Banker - - OPINION - Liu Xiaom­ing

AGLASS 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 en­er­gyand- 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 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. To­day, re­form and in­no­va­tion re­main the source of con­fi­dence and strength for China. 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.


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