** As to the "New Normal" of Chinese economy, numbers of analyses and reports have been published. The following is a summary of all influential scholars' perspectives. It is also widely spread among overseas think tanks.**
1.Whether it should be called “New Normal” or not?
**Fan Gang **, Director of China's National Economic Research Institute, refutes to use the phrase of “New Normal” to describe the current China’s economy.
He emphasizes that we mistakenly treat the former double digit growth rate as “Normal”, but regard the low to moderate level growth rate as “New Normal”.
According to his observation, all years in which 10% growth rate is reached also simultaneously have over heated economic situation, it is not a normal growth rate;
Presently, the growth rate of 7%-8% annually is just back to the “Normal” track, it means China’s economy is out of over-heated economic stage.
Zhang Jun, Director of China Center for Economics Studies at Fudan university, does not agree with the phrase of “New Normal”.
He thinks that the officially summarized “New Normal” is the combination of three economic phrases, economic growth rate change phase, economy adjustment phase, economy stimulus digestion phase.
He debates that “New Normal” has been understood that China’s economy can never go back to his previous growth rate, the current economic situation would become the future’s “New Normal;
However, according to his research, so far, there is no sufficient evidence to show the existence and persistence of the so-called “New Normal”.
Hu Angang, An economics professor at Tsinghua University, thinks that China is not nearing the edge of a cliff; it is entering a new stage of development.
“New normal” means a crucial rebalancing, one in which the country diversifies its economy, embraces a more sustainable level of growth, and distributes the benefits more evenly.
The new normal is in its early stages now, but if Beijing manages to sustain it, China’s citizens can count on continued growth and material improvements in their quality of life.
The rest of the world, meanwhile, can expect China to become further integrated into the global economy. The Chinese century is not at the beginning of the end; it is at the end of the beginning.
Huang Yiping, An economics professor at National school of development ,Peking University, and Cai Fang ,an economist in academy of social science of China, say that evidence shows that the Chinese economy is transitioning toward the ‘new normal’, involving slower but more sustainable economic growth, although this process is still at an early stage.
Growth potential probably lowered from ten per cent during the first decade of the twenty-first century, to six–eight per cent during the second decade.
In the meantime, current account surplus narrowed significantly; the consumption share of GDP started to rebound; and even income distribution began to improve steadily.
Hu Zuliu, Founder and Chairman Primavera Capital Group, thinks that from Chinese national conditions, international experience and economic growth theories standpoints, China’s economy is entering a new growth and development phase.
Different from 1978-2012 high growth rate of economy,2013 witnesses a huge change in China’s economy structure. Since 2013,China’s GDP growth rate would be located in a new range, the average growth rate would be obviously lower than previous 30 years.
Li Yining, An emeritus economics professor at Guanghua management school of Peking university, thinks that “New Normal” means that China’s economy is being transformed to normal track, compared with previous Extraordinary growth rate.
He stresses that continuous high growth rate of economy is abnormal, unsustainable and violation of economic development law.
Hence, in his opinion, “New normal” should be to request academic circles to have a common sense that we should do what we are capable to do, instead of just pursuing high growth.
2.What are their understanding on “New Normal” among Chinese Economists?
Hu angang, thinks that to a certain extent, China’s latest slowdown was inevitable. Three decades of breakneck growth have left China with an economy that is simply massive, making marginal increases in size all the more difficult.
Growth on this scale was bound to become unsustainable at some point. It essentially requires an unlimited supply of energy and puts enormous stress on the environment.
China already emits more carbon into the atmosphere than the United States and the EU combined, and its emissions are still increasing. Given all this, China has little choice but to pare back.
Wu jinglian Senior Research Fellow for the Developmental Research Centre of the State Council of the PRC, believes that “New Normal” has two components.
The first is a lower rate of economic growth – this is plain reality. The second is transformation from extensive economic growth to intensive economic growth.
He accepts that the first component of low growth rate of economy is already a common sense, but the second component of efficient economic growth model remains to be seen.
Zhang jun, disagrees with seemingly widely accepted concept of “New Normal”. In his views, the existence of lower economic growth rate in China is due to more and more accumulated debts borrowed by national companies and local governments when central government stimulated China’s economy after financial crisis in 2008.
Central government initiated the stimulus package of 4 Trillion Yuan to bring in more demand, however, while including the total credits given by financial institutions and local governments’ corresponding stimulus plans, the amount of stimulus package would be up to 10 Trillion Yuan.
Unfortunately, during the stimulus period, central government felt pressure from over-heated economy and quite high inflation, so , he ordered all local governments to stop stimulus activities, naturally, debts would be accumulated thanks to incomplete construction activities of roads, houses and etc. Currently, lower growth rate of economy is just a reflection of debts adjustment.
Fan gang, thinks that the current lower growth rate of economy should be attributed to central government’s policy. After a series of stimulus policies in 2008, Chinese government stopped stimulating the –already-heated economy in 2010, even he took deflationary policies to cool the economy, e.g, purchasing quotas of properties, deposit reserve ratio up to 20% ,interest rate up to 3%(other countries 0%).
After 3-4 years, central government does not make deflationary policies back to the neutral level, hence, once economy is returned to the normal level, but government policies are not, the macro economy is problematic. All in all, lower growth rate of economy in China is a short term response, instead of long term direction.
Hu Zuliu, emphasizes that China’s economy is already in a new stage where the amount of GDP is more than 10 trillion dollars, the GDP per capita is up to 7000 dollars, the growth rate of economy is inevitably below the previous stage.
Even if we consider about business cycles factors, China would be continuing keeping the growth rate of 6-7%.With reference to other countries economy history, when GDP per capita surpasses 7000 dollars, Korea had 6.7% annual growth rate, Taiwai 6.6%, Hongkong 6.3%, Singapore 6.3%,so, it should be no doubt that China would have growth rate with 6-7% annually.
Gu Shengzu, assistant director of Financial and Economic Committee, NPC of China, says that the “New Normal” has many signs. New growth rate would be single digit percent from double digit percent, but the bottom line should not be below 4-5%, so, it requests stability of economy.
Innovation –driving forces are used to resolve four types of barriers of China’s transitioning economy: deleverage of finance, deleverage of manufacture, removal of bubble in properties, elimination of pollution to environment.
Li Daokui, Director of the Center for China in the World Economy (CCWE) at Tsinghua University's School of Economics and Management (SEM),thinks that China’s economy would fluctuate up and down due to the concourse of old driving forces of economy and new driving forces of economy in China.
From his perspective, the old driving forces of economy are export ,investment and housing sector, but the potential new driving forces of economy are long-term infrastructure investment(High speed rail, control pollution), upgradation of heavily-polluted sectors, promotion of consumption of households. During the transition process from old model to new model, the economy would be inevitably fluctuate.
Bao junyu, the former vice president of All-China Federation Of Industry & Commerce, thinks that new nature of “New Normal” is to place market as a decisive mechanism to allocate scarce resources instead of government dominance, at the same time, rules and laws should be used to guarantee fair transaction in market.
Li yang, Vice-President, Chinese Academy of Social Sciences (CASS) analyses the reasons economy enters into “New Normal” path.
- One is inefficient resource allocation mechanism;
- Two is the insufficient supply of factors of production;
- Three is the insufficient innovation capability; Four is the constraint of environment pollution.
He thinks we should positively see the change of economy growth rate to “New Normal”, because it helps to solve some tough challenges, over capacity of some sectors, over investment, economy imbalance, high social inequality.
3.How to Respond the Restructure of Economy in “New Normal”?
Central Government’s Response:12th five-year plan, which was approved in 2011 and will run through 2015. Despite the plan’s unfolding in a time of declining growth, five of its goals have strengthened the economy and improved the lives of Chinese citizens.
a.The first was a commitment to creating 45 million new jobs in urban areas;
b.The second involved economic restructuring, calling for the expansion of the country’s service sector from 43 percent of GDP in 2010 to just over 48 percent in 2014;
c.The third objective, an emphasis on scientific innovation, mandated an increase in state funding for research and development from 1.75 percent of GDP in 2010 to 2.20 percent in 2015.
d.The fourth priority was social welfare, including an expansion of the health-care system, which now covers more than 95 percent of China’s total population.
e. The last emphasized conservation. It called for improvements in eight environmental indicators.
The plan’s growth targets, meanwhile, were relatively modest by China’s standards. The central government set a goal of seven percent GDP growth and aimed to double per capita GDP by 2020 compared with the 2010 level.
These targets sent a clear signal, especially to state governments that look to Beijing for guidance: when it comes to growth, focus on quality, not quantity.
Scholars’ Suggestions
a.Yiping Huang, Cai Fang, Peng Xu and Gou Qin suggest that the primary drivers of the transition of the growth model are changes in factor markets, especially labour market changes. Justin Lin, Cai Fang and Li Zhou argue that the key to this success was the transition from the heavy industry-oriented to comparative advantage-oriented development strategy .
China’s economic reform approach is sometimes described as ‘asymmetric liberalisation’, which freed up the product markets but continued with distortions in the factor markets .Such cost distortions included such examples as subsidies to the corporates, but taxes on households, which contributes to the imbalance, and inequality and inefficiency problems, as well as strong economic growth .
Emerging labour shortages and associated rapid wage increases in recent years are largely responsible for the current transition to the ‘new normal’, with slower growth but more balanced structure.
The next-step reforms should focus on redefining the relationship between the government and the market.
- The first is to complete the transition to a market economy by liberalising the factor markets.
- The second is to establish macroeconomic policy frameworks that are compatible with emerging market economies.
- And the third is to change the government’s role from directly supporting production and investment to facilitating innovation and upgrading.
b.Justin Yifu Lin, former vice president of WB, reiterates that China has huge potential in industrial upgrades and infrastructure investment, with enough monetary and fiscal leeway to boost the economy.
According to Lin,"It is entirely possible to achieve an economic growth of above 7 percent and the favorable conditions will not disappear in one or two years, not in the coming five years or even longer time."
He emphasizes that more investment does not necessarily build on the already excessive capacity but can be directed towards industrial upgrades and infrastructure construction, which are important areas that will help the future economy.
Lin also advocates a stronger government role in infrastructure investment. Such investment is crucial for economic growth but is not attractive to private companies as it takes longer to make profits, so the government should play a leading role in this area.
Wu Jinglian, lists some advices to control systematic risk in China’s economy.
- First, all level governments should stop to invest those projects which have very low even zero return on investment.
- Second, governments should use government-controlled assets to repay contingent liabilities.
- Third, all level governments should stop to save those low-profit earning companies. Fourth, any company which has more liabilities than assets should go bankruptcy.
- Fourth, governments should try to liquidize remnant assets in order to reduce risk of liabilities.
- Fifth, reform on government owned companies, e.g, wage structure reform of heads of them. Sixth, promotion of Shanghai Free-Trade Zone to further deepen our open up level to the world.
Zhang Jun, advises China’s companies to learn from Western countries to create value through creative destruction. It means that we should encourage the latest and more efficient economic activities to write off the cost of previous expansion of economy.
He thinks that if one economy is able to do this, then it is a resistant economy. According to his observation, almost all successfully transitioned economies have such nature of creative destruction which encourages new and efficient economic activities to replace the former out-of-date ones.
Liu shijin, assistant director at development research center for state council of PRC,suggests that governments should further life the restriction of entry on basic industries to make more competition, especially, energy, rail, telecom and so on. These fields should break the monopoly ,relax the market access, encourage competition to improve the efficiency of operation.
If rail construction is lack of capital support in domestic regions , then governments should let foreign investors step in. He also advocates that “internet plus” should be researched so as to integrate the online platform and offline business.
In future, internet would totally reshuffle those over-capacity sectors, then new industrial restructuring would spur new production processes and commercial models.
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