'New normal' needs an innovative push

China is undergoing major changes and requires fresh ideas to avoid risks and uncertainties

Although six years have passed since the global financial crisis broke out, many countries have not yet overcome its impact, while the global economy is still facing uncertainties. And given the economic slowdown, albeit slight, in China, it can be said that the Chinese and global economies have entered stages - which can be called "new normals" - far different from those in pre-crisis times.

In the past three and half decades China has passed two historic milestones. In 1998, it graduated from a low-income to a lower-middle economy, according to World Bank criteria. And in 2001, it became an upper-middle-income economy. China now faces new challenges to cross the next economic threshold because of the "new normal", which is marked by six factors.

First, economic growth will slow down. After more than 30 years of fast-paced growth, China's economic engine is losing some steam due to internal and external conditions. The most important thing for it to do now is to free itself of the "speed complex" and "gear-shift anxiety" to achieve qualitative, as opposed to quantitative, GDP growth at a sustainable and more reasonable pace.

Second, the center of gravity of the Chinese economy will shift to the higher end of the industrial spectrum. As a rule, rising per capita income leads to greater focus on the services industry to develop an optimum industrial structure. The "new normal" means an increase in manufacturing and services industries, including more advanced manufacturing technologies, rapid growth in the service industry and larger market supply of high-quality capital and consumer products to generate greater added value.

Third, the gap between urban and rural areas will be narrowed. The warped distribution of national resources has hampered China's economic development and wealth growth. The "new normal" will lead to a "balanced development" of industries across the eastern, central and western regions, and large-scale farming and land reform will expedite the modernization of agriculture and thus enable rural and urban areas to develop in unison.

Fourth, commodity exports will give way to capital exports. China's foreign trade has for long enjoyed a double surplus, which is not sustainable and carries huge risks in the international market. So China has to import more resources, strategic products, and consumer goods. Possibly becoming a net capital exporter in the near future, China will see massive outflows of capital that will expand its global resources, giving it a much stronger edge in reshaping global industrial chains, as well as supply and value chains.

Fifth, the middle-income group will become the main consumers at home. China will have about 600 million middle-income people by 2020, and their total spending will be thrice as much as in 2010. This, along with rising farm incomes, will facilitate the simultaneous growth of China's consumption demand and purchasing power in the global market.

And sixth, small and medium-sized enterprises and new industries may become China's new growth engines. And new industries such as e-commerce, information technology and warehouse-logistics could bring about major changes in the traditional patterns of competition, organizational forms and business models.

History tells us that every global financial crisis has ended with the reshaping of the world economic structure, which this time may be to the liking of China. But China should be wary of the risks and uncertainties - such as local government financial debts, shadow banking, high debt-equity ratios of enterprises and overcapacity - which accompany the transition from the old to a new mode of economic growth. To preempt them, China needs to use innovative ideas to improve its macro-control measures and thus ensure that its economy has a "soft landing" and can grow steadily in the future.

The author is a researcher at the China Center for International Economic Exchanges. Courtesy: chinausfocus.com. The views do not necessarily reflect those of China Daily.

(China Daily Africa Weekly 02/13/2015 page10)