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Grasp the New Normal and Move to Double Medium-High Goals

Source: xinhuanet Date: 2015-03-04

According to a report carried by xinhuanet in Beijing on 4 March (the reporters are Qi Zhongxi, Wu Yu and Yu Wenjing), in 2014, China’s economic growth slowed and in response, some foreign media have reported pessimistically about the Chinese economy and so have some domestic comments. How to have a rational view in seeing the slowing Chinese economy and analyzing the outlook of the Chinese economy? During the sessions of the NPC and the CPPCC, the reporters interviewed Lin Yifu, economist and a member of the CPPCC National Committee.

A correct analysis comes before well-targeted measures.

Lin Yifu said, “last year, China’s GDP grew by 7.4%, representing a relative slowdown compared with past high-speech growth. But it was still the fastest among major global economies. In addition, China’s high-end manufacturing and modern services sectors are developing fast and the contribution of consumption to economic growth is fairly high. So, China’s economic performance is still relatively good, with quite a few highlights.” 

Lin Yifu pointed out that it is important to view in an objective light the internal and external reasons behind the slowdown.

Externally, Europe, the United States and Japan and other developed parts of the world still account for a major part of the global economy. The economies of these countries have not recovered from the international financial crisis in 2008, posing huge downward pressure on the global economy. Internally, as a developing country, China indeed has some institutional problems.

“But a very important reason behind the economic slowdown is the international external and cyclical factors. I have looked up the latest data by the World Bank. The growth rate all over the world, in both developed and developing countries alike, has been adjusted downward over last year’s predictions.” Lin Yifu said, “That is a global trend shared by all countries, which can only be explained by international cyclical reasons.”

Only a correct analysis of the reasons can help us to take targeted countermeasures. Lin Yifu said that we need to continue to deepen reform and at the same time take measures to stabilize growth in response to such external cyclicality.
 

To maintain medium-high growth in the new normal is both possible and necessary.

“China is a developing country. To maintain medium-high growth and move toward the medium-high end is both possible and necessary for China. Otherwise, it will slow the pace of catching up with the income levels of developed countries and also affect the realization of the goal set at the 18th CPC National Congress, i.e. doubling the 2010 GDP and rural-urban incomes by 2020. In addition, it will lead to problems in employment, financial and fiscal areas.

He analyzed that despite the considerable uncertainties facing China in the context of the downward international economic pressure, there is huge potential to be tapped into in terms of domestic demand.

He said, “There are still a lot to do in infrastructure development. Although we have many inter-city high-speed railway and road links and airports, there is a severe lack of track transportation, subway links and roads within cities. The underground pipe networks are aging and many cities are bothered by traffic jams and inner-city flooding. Therefore, investment in such areas will generate huge social and economic benefits.”

Besides, China is still in the process of urbanization, which calls for tremendous investment in infrastructure and municipal works.

  Lin Yifu indicated that China has a very high savings rate and its government debt is generally within control. China also has sizable foreign exchange reserves, thus abundant capital. It is quite able to make good use of government funding to generate private funding as a way to scale up investment. If we take a historical and dialectical view of the features of Chinese economic development at this stage and have a proper understanding of the new normal, we will realize that it is quite possible for China to achieve medium-high growth and move to medium-high income levels and China is well-conditioned to do so.

China still has the advantage of backwardness.

Lin Yifu said, “Economic growth, in the finally analysis, is driven by growing labor productivity. That depends on technological innovation and industrial upgrading.”

He believes that China still has some gaps with developed countries in terms of industrial upgrading and technology innovation but it also has many advantages. For example, as a developing country, China is making innovation and industrial upgrading at the forefront of international technology, which means a lot of ways for introduction, absorption, assimilation and re-innovation. Thus, the risks on the way ahead are relatively small, with low costs.

Lin Yifu also said, “If developing countries can make full use of their backward advantages brought by their technology gap with developed countries, they will be able to achieve fast technology innovation and industrial upgrading. So, as long as we use these advantages well, we will fully bring out the potential for economic growth.”

Lin Yifu believes that China still has the advantage of backwardness, with huge potential in technology innovation, product upgrading, environmental improvement and urbanization. As long as we further deepen reform, make full use of these advantages of backwardness, tap into the potential, make bold technology innovation and scale up investment, we will be able to keep relatively high growth of the Chinese economy in the coming decade and more.