China economy enters 'new normal' eyeing 7% growth rate

Xinhua, September 6, 2015

The Chinese economy has entered a "new normal" status and economic growth is predicted to be around 7 percent in the coming 4 to 5 years, said Chinese Finance Minister Lou Jiwei on Saturday.

Lou said it in a written statement after the 2-day G20 Finance Ministers and Central Bank Governors Meeting in Ankara, Turkey.

Zhou Xiaochuan, Governor of the People's Bank of China, pointed out in the joint statement that there is no foundation that RMB will keep devaluing in the long term.

Zhou Xiaochuan stated that the bubble in Chinese stock market keep increasing before June 2015. The Shanghai Composite Index surged 70 percent from March to June.

Risks occured during this period of time as investors' leverage rose rapidly. Since mid-June, China's stock market has seen three rounds of corrections, among which the third time in August has some global impacts.

China has been taking measures to prevent its economy from systematic risks including injecting liquidity to the market through multiple channels.

The measures taken by Chinese government has prevented the stock market from declining drastically and the occurrence of systematic risks.

According to the statement, since the August correction in stock market, investors' leverage in stock market has been going down significantly and the real economy has not been impacted.

The reform of the middle price quotation of yuan exchange rate mechanism on August 11 is an important step to the marketing reform of renminbi rate.

Renminbi was devalued for a certain degree after the reform, but the renminbi was overvalued for reasons like the value-up of U.S. dollar, the generally value depreciate of currency in emerging market economies.

"But there is no substantial transformation in the real economy of China and large surplus still remains in the foreign trade of China, so there is no foundation that RMB will keep devaluing for a long term," Governor Zhou said in the statement.

"The status of Chinese economy is till in predication. The Chinese Economy has entered a "new normal" status and the growth rate of economy is predicted to be around 7 percent in the coming 4 to 5 years" Chinese Finance Minister of Lou Jiewei said in the joint statement.

There are mainly two reasons that the growth rate of China will enter the 7 percent period, Chinese Finance Minister Lou Jiewei said in the joint statement.

Firstly, the rapid growth rate which keeps 9-10 percent in the past and highly depends on the stimulation of policy is not sustainable, and is over the potential growth rate of China which lead to over capacity and mass increase of inventory. It will take years to consume these over capacity and inventory.

The next 5 years will be a painful period for the reform of Chinese economy, and the main goals need to be achieved by 2020. China's economy will be mainly driven by consumption rather than investment and foreign trade during the reforming period, and this will not be an easy job to accomplish.

Secondly, China's economic cycle is different with the developed countries. Developed countries generally initiated the process of deleveraging after the global crisis, however, China initiated its leveraging process between 2009 and 2010 and achieved the 10 percent in growth rate.

The contribution rate to growth of global economy was as high as 50 percent above during that time. China now is initiating its process of deleveraging and the growth rate will down to 7 percent but still making 30 percent contribution rate to growth of global economy.

Lou stressed in the statement that there are some positive changes in Chinese economy despite the lower of growth rate, including the contribution rate to growth of consumption comes higher than that of investment, the proportion of service in GDP over passed industry, the proportion of trade surplus in GDP has been decreasing, 7 million new jobs was created in the first half year, the quality of economic growth keeps rising etc.

China will continue to implement a proactive fiscal policy and the increasing rate of central government spending is predicted to be 10 percent, which is higher than the 7 percent budget.

China is taking measures to plug fiscal gap to maintain moderate economic growth and support the structural reform, the statement added.

"The Chinese government will not pay particular attention to a seasonal short term economic fluctuation, and will keep the stability of macroeconomic policies," Lou pointed out in the statement.

China has achieved a 7 percent growth despite the decreasing of demographic dividend and falling on rate of capital return.

The huge potential of Chinese economy lies in reform and China is unswervingly promote reform and opening up in accordance with the established plan.

"G20 financial ministers and central bank governors have talked about the economy problems in China and we are not pessimistic about China keeping the 7 percent growth rate in the future,' Deputy Prime Minister of Turkey Cevdet Yilmaz said in the press conference Saturday in Ankara.