While world powers are engaged in a turf war in the Middle East, with bullets and bombs eating away precious human lives, far away from the media scanner China’s economy is witnessing another paradigm shift quietly. After almost 40 years of fast economic growth, it is changing gears from fast paced to stable and balanced growth driven by innovation and reforms.
Of late, China’s economy has been the focus of attention of the international community. Most analysts believe that there have emerged some problems with China’s economy which, according to their calculations, is faced with huge challenges and bleak prospects. Some have even claimed that China’s economy will be a drag on the world’s economic growth. This is all far fetched thinking, without any in-depth study and lack of basic knowledge about what is really happening in China. On the contrary, China’s economy still has incomparable advantages and potential for future sustainable growth.
Presently, China’s economy remains stable but steadfast. in 2015, it achieved a GDP growth rate of 6.9 per cent and continued to take the lead among all the major economies. This hard-won achievement was made on the basis that China has overcome the global economic downturn with the total economic size exceeding 10 trillion US dollars.
China’s economy is passing through a transitional period from fast growth to innovation-driven growth. economists across the globe understand that innovation is the engine of economic growth. Competition in free markets pushes entrepreneurs to outperform others by coming up with new, better, less expensive products and services, and more efficient processes and technologies for producing them. hence, the Chinese leadership has declared that its economy would be innovation-driven during the next five years and more emphasis would be put on scientific and technological advancement.
The change is a bold step as per the vision of China’s President Xi Jinping and other top cadres of the Communist Party of China (CPC). Since the Chinese economy has been an engine of global growth for the past many decades, this paradigm shift has made ripples across the global economies. The decision was taken at a recent session of the National Peoples’ Congress (NPC). The approval of the plan was a part of the guidelines for the 13th five-year-plan which covers the macro economy of China. China would allocate more funds on scientific and technological research to develop innovative products. Moreover, the growth model would be aimed at a balanced growth, by attaining a medium-to-high-speed development model, maintaining the growth rate from 6.5-7 per cent. This would mean that Chinese GDP would reach 16 trillion US dollars by the year 2020.
This plan is very ambitious by all means under which the Chinese government aims to taking up the per capita income to 12,000 US dollars by the year 2020. During the next five years, China would also encourage reforms and opening up to the world. it has been decided that China would also be focusing on overseas investments by Chinese companies under an Open-China policy.
The vision of the new normal adopted by the Chinese leadership is being confused largely. New normal is a term used by Chinese President Xi Jinping under which the growth rate of China would be lowered down to six or seven per cent but at the same time it would expand the consumer base for the economy.
But this all doesn’t mean that the new normal would affect the Chinese growth negatively. Even if annual real GDP growth cools to 5.5 per cent, below the official target, China’s consumer economy may expand to $6.5 trillion by 2020, says a forecasts made by Boston Consulting Group. The incremental growth alone over the next five years would be comparable to adding a consumer market 1.3 times larger than that of today’s Germany or UK.
Other than consumer products, services like health care, education and entertainment are seen as high-growth spots. At the BFA, Chinese Premier li Keqiang assured global investors that “there are more hopes than difficulties,” and China has enough policy tools to keep the economy stable.
The country’s pro-growth policies have yet to spur a rebound in the economy, but macro economic data showed stabilisation. Although trade still plummeted and manufacturing remained weak, other indicators for the first two months of the year, including investment, property sales, fiscal revenue and power consumption, suggested improvement in the economy.
China’s economy has solid foundations. China has a huge market of 1.3 billion people and the household savings rate has stayed above 38 per cent over the years. China’s foreign exchange reserve surpassed 3.3 trillion US dollars by the end of last year, ranking the top in the world. The FDI inflow to China last year reached 126.27 billion US dollars, the highest among all the developing countries.
China’s economic structure is being continuously optimised. In China, the contribution of residents’ consumption to economic growth reached 66.4 per cent, exceeding that of investment. The share of service sector in GDP rose to 50.5 per cent. Regional development became more balanced and coordinated.
Innovation brought fresh vitality and impetus for China’s economy. The implementation of “made in China 2025” and “internet+” action plan are being implemented. Mass entrepreneurship and innovation are being promoted. Last year, the added value of the high-tech industry increased about 10.2 per cent. China’s e-commerce transaction has reached 3.3 trillion US dollars, with a year-on-year increase of about 27 per cent.
China has always been committed to developing an open economy at a higher level. China has set up 14 FTAs with 22 countries and regions. In 2015, China’s imports totalled 1.68 trillion US dollars, remaining the second largest in the world.
The outbound direct investment reached 127.6 billion US dollars, up by 10 per cent year-on-year. Through opening up, China contributed over one quarter to world economic growth. China’s role as an engine of global economic growth is beyond all doubt.
The Chinese leadership is committed not to stop its pace because of what it has achieved is itself an evidence of its commitment to help boost the world economy. Chinese government is also looking to adapt to the new normal of the economy with a more proactive approach. China plans to push on innovation with its policy instruments, promoting supply-side structural reform and advance the five philosophies of innovative, coordinated, green, open and sharing development. Innovation is aimed to explore new driving forces and get new potential unleashed.
Coordination means balanced development. Green is aimed to pursue the harmony between human development and the preservation of nature. Openness is aimed to integrate the interior and exterior developmental elements. Sharing emphasises the distribution of developmental fruits among all the people.
These facts and figures clearly show that China’s economy has entered into new normal with steady growth and diverse driving forces. This would definitely help stabilise dwindling world economy too.
