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The Chinese Economy: Moving Forward Steadily with Increased Quality and Efficiency
LIU Kan
2015/05/29

Recently, friends who pay attention to Chinese economic development might have noticed two events. One is that the National Statistic Bureau of China released macroeconomic data on 15 April. The other is that the Political Bureau of Central Committee of the Communist Party of China had a conference analyzing current economic situation and performance. The former shows the present Chinese economic status, while the latter points out the direction and prospect of Chinese economy.

According to the preliminary estimation, the gross domestic product (GDP) of China in the first quarter of this year was 14,066.7 billion yuan(2301 billion U.S. dollars), a year-on-year growth of 7.0 percent. From the data released, we find several highlights:

Firstly, retail increased by 10.6%, a growth rate higher than that of GDP, while online retail sales of goods grew by 41.3%. These demonstrate the policy implemented by Chinese government to stimulate domestic demand has been effective to some extent.

Secondly, the percentage of service to GDP increased significantly to 51.6%, up from 48.2 percent in 2014 and 46.9 percent in 2013. Simultaneously, energy consumption per unit GDP continued to fall, recording a drop of 5.6 percent in Q1, after last year's 4.8 percent decline. China's labor productivity increased 7 percent in the first quarter on year-on-year basis. All these changes make it clear that Chinese economy is being in the process of turning more balanced and greener.

Thirdly, industrial output of the high-tech sector jumped by 11.4 percent, outpacing the overall national economic growth. In the high-tech sector, new energy automobiles and robotics saw industrial output gain more than 50 percent during the first quarter. The higher growth rate in hi-tech indicates the remarkable results achieved from state policies and measures to encourage hi-tech growth and more dependence of Chinese economy on scientific and technological innovation. The fast expansion of the high-tech and modern service industries demonstrates the Chinese economy is advancing to the middle and high end.

Furthermore, thanks to efforts to cut red tape and simplify administrative procedures, newly registered companies mushroomed, with the number of newly registered companies surging 38.4 percent and more than 3.2 million jobs being created.

All items in the economic data of the first quarter indicate downward pressure of domestic economic development in China is intensifying in the backdrop of complicated international situation and slow recovery of global economy. But after analyzing the economic situation in China, the conference held by the Political Bureau of Central Committee on 30 April made the judgment that the comprehensively deepening reforms carried out in China had ensured the economy to perform in a reasonable range and economic growth to meet the expected target. The conference also made it clear that Chinese economy should adhere to the general tone of “moving forward while maintaining stability”, focus on improving efficiency, give prominence to structural adjustment, deepen the reform and opening up, vitalize the market, improve people’s livelihood in the New Normal, have a smooth development with restructuring advancing steadily and create impetus showing momentum.

Admittedly, after many years of two-digit growth, China’s economy has bred some problems and risks,and the old model of economic growth has been unsustainable. These problems include high energy and material consumption in manufacture, excessive industrial capacity, environmental pollution, over supply of property, and etc. These problems are also reflected in parts of the economic data, such as decreasing housing sales volume and shrinking profits for large industrial firms.

Despite the slowdown, I am of the opinion that Chinese economy is still one of the world's fastest growing and enjoys sound fundamentals. Q1 economic growth was within a "reasonable range" and the slowdown was within expectation. Firstly, as the economy continues to grow in size, one should not focus on growth rate only when looking at China's economy. Chinese economy focuses more on improving quality and efficiency, and gives even greater priority to shifting the growth model and adjusting the structure of development. China is shifting gear from high speed to medium-to-high speed growth, from an extensive model that emphasized scale and speed to a more intensive one emphasizing quality and efficiency, and from being driven by investment in production factors to being driven by innovation.

Secondly, there are still enormous potential, huge resilience and ample room for the country's development. Unlike advanced economies with high public debt and zero interest rates, China has further room for government borrowing and monetary easing to bolster growth. China has the firepower to avert a hard landing, and should the slowdown cause widespread unemployment or a drop in citizens' incomes, it would not hesitate to intervene with macro-economic control measures. The People’s Bank of China (the Chinese central bank), which has cut interest rates three times since November last year and twice lowered the amount of cash the banks must hold as reserves, will roll out more policy easing measures if necessary. For fiscal policy, China can carry out acceleration of infrastructure projects, tax rate cutting among others.

Thirdly,ongoing industrialization, urbanization, agricultural modernization and digitalization will be the major source of growth momentum for the economy. When combined with macro-economic control measures, the economy is poised to maintain stable and healthy development.

Fourthly,China is encouraging entrepreneurship and innovation among the people by offering preferential policies to micro businesses and individual start-ups. This is becoming a new engine for the economy in pursuit of a moderate to high speed of economic growth as well as a medium to high level of the economy. On the other hand, Chinese government is spending more fiscal fund on supplying more public goods and services. Chinese government will deepen reform and opening up. Policies of reform and opening up have been formulated and will be implemented this year, covering finance, taxation, investment, price, state owned enterprises, pension, enterprise incorporation, high-tech industry incentives, innovation, research and development, etc. The role of government in providing public goods and deepening reform will become the second engine for Chinese economic growth. These two new engines will generate more power to bolster economic growth.

From the above data and analysis, we can get the conclusion that Chinese economy has been being undertaking some fundamental positive change and made eye-catching achievements in the first quarter, although the pace of growth slowed down. Chinese economy still has great potential and large room for further development, and will surely have a bright future.



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