China's economic slowdown and transition
- By Yu Ning
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E-mail China.org.cn, October 28, 2014
At the same time, Li said that China will launch major investment projects in the fields of information networks, environmental protection, infrastructure and water conservation, and put more effort into developing the service sector instead of manufacturing.
That means China is on the right track to pursue "green" GDP, which can manifest itself in various ways, such as less pollution, more efficient use of energy, innovation and better management of the future consequences of any expansion in stimulus policies.
He also called for a "flexible" fiscal and monetary policies and "appropriate targeted adjustments" to support the real economy.
In September, the People's Bank of China (PBOC), the central bank, injected 500 billion yuan into big five banks via a three month standing lending facility operation and it will give another 200 billion yuan to certain commercial banks this month, earlier reports said.
The recent liquidity injections are aimed at lowering market interest rates by offering cheaper liquidity to commercial banks. This may support credit and boost growth, but smaller risks still remain because of weaker domestic demand. In addition, more aggressive policy actions such as interest rate cuts are not expected in the near term.
As a result, the economy will continue to grow in a more moderate way over the medium term, and the structural shifts will become more evident during the rest of the year, as the challenges to adjust the country's economic model from one heavily reliant on investment and exports to one more driven by innovation and consumption are still underway.
The bright side is that that the PBOC has also relaxed lending policies to offer a maximum 30 percent discount to first time home buyers, and with more housing rules to ease housing being rolling out, the move will further boost the real estate market, and hopefully bring better results in the near term.
To reach the target of having "green" and sustainable GDP, China also needs to invite more private companies to participate in the public sectors, particularly in infrastructure development, construction and energy. Public-private partnerships offer a good platform for inviting more non-government participation.
The IMF projects that Chinese growth will slow almost imperceptibly over the next five years, from about 7.4 percent this year to 6.3 percent by the end of the decade. The IMF's forecast for China's growth over the next five years may seem slightly bearish, but it is wildly optimistic by historical standards.
Barclay's said in a report that the Chinese government is expected to set a lower growth target of 7.0-7.5 percent for 2015, compared to the target of 7.5 percent in 2014, and to maintain a below-consensus 2015 GDP growth forecast of 6.9 percent.
The bank also forecast two 25-basic-point cuts in benchmark market interest rates, one in the fourth quarter this year and the other in the first quarter of 2015.
To sum up, the slowdown in the economic growth rate may not be a bad thing for Chinese economy, in the contrary, it is beneficial to our economic transition and reform.
The writer is Lecturer of Beijing International Studies University, Associate Researcher of Stevenson Center in U.S.
Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.
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