The cost of China's economic transition

By Zhang Monan
0 Comment(s)Print E-mail, October 9, 2014
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In fact, China can achieve a faster growth rate but has no intention to do so. Why? As President Xi has said, China's economic growth must be a real, substantial, efficient, good quality and sustainable one. This means China should burst the bubbles that were blown up under the GDP mentality, and squeeze out the inflated growth. Since the 18th CPC National Congress, China has never stopped the work of "deleveraging" and "squeezing out the inflated growth" in its economy.

The first thing is to squeeze out the inflated investment. During the process of reducing the overcapacity, the new Chinese government has cut off the sources to the areas with overcapacity via reducing non-standard financing and window guidance in credit. In fact, it means squeezing out the inflated investment, shifting more resources to the areas beneficial to transformation and upgrading and to those livelihood service areas. The second thing is to squeeze out the inflated consumption. Since 2013, the anti-corruption tide has greatly curbed the government spending and consumption of luxury goods. The last thing is to squeeze out the inflated export. Since the release of Document No. 20 by China State Administration of Foreign Exchange, the authority has severely cracked down the inflow of arbitrage capital hidden behind the current account, heavily squeezing out the inflated trade. Chinese economic growth has returned back to a rational and normal status.

Not many people have noticed the correction of the imbalanced structure behind the slow growth rate. For example, in production area, the high-tech industry and equipment manufacturing industry is evidently better than that in the traditional manufacturing; in consumption area, there is an obvious increase in online shopping, e-commerce. E-commerce market transaction in 2013 reached USD9.9 trillion and is expected to arrive at more than USD20 trillion in 2017; in investment area, strategic emerging industries and modern service industry all show a good momentum. The investment in the high-tech industry and equipment manufacturing industry obviously grows faster than the average industrial investment. The ratio of the tertiary industry rose higher than that of the secondary industry for the first time in 2013. In the first half of this year, the ratio of the tertiary industry in GDP was 46.6%. The growth rate of the tertiary industry is constantly faster than that of other industries and its ratio in GDP continues to increase. Many eastern coastal areas in China have basically accomplished their industrialization and need to move into the post-industrialization stage to form an economic structure based on service economy. This new structural change is continuously and deeply influencing China's economy and even the world economy.

At present, there are indeed many worrisome problems in China's economy, but it could be a blessing in disguise. Maybe, the slower economic growth is the price that China has to pay for its economic transition as well as a beginning to move into a new growth model.

Zhang Monan is Deputy Researcher at the China Center for International Economic Exchanges.

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