China Center for International Economic Exchanges

Chen Wenling: Three key periods in China’s economic development will be extended
Date:Jan 12,2018    Source:CCIEE

Currently, there are four misunderstandings of China’s economic development.

First, some people tend to overvalue the rating of China’s central and local government debt but ignore the actual situation. Sometimes, borrowing can create effective and high-quality assets, which will continue to support China’s economic development and gradually become new assets. Although some debt will become receivables, most of which will become effective assets. For example, the local debt could be invested in infrastructure and form new effective assets, such as the internet and internet of things, which are necessary support for boosting China’s economy. Thus, we should not only see the burden brought by debt, but also the potential benefit it will generate. A study shows that China’s debt did not reach the international warning level because its total debt is 249% of GDP, of which local debt plus central bank debt accounted for 56%. Furthermore, a large proportion of the debt come from the corporation and the personal debt is not so high. In my opinion, it is inappropriate to use the corporate debt as the standard of national sovereign rating, the government debt should be adopted instead.

Second, the speed of China’s economic growth has been ignored by many people. China’s GDP growth is maintained at 6.9%, which is better than expected. In 2015, China’s GDP grew 6.9%, and in the first half of this year, this figure was also 6.9%. Yet, the same growth rate should be interpreted differently. The current growth rate can be seen as a great success because China has gone through the optimization and upgrading of its economic structure, industrial restructuring, which can extend the economic cycle at lower costs, however, the U.S. rating agencies have taken this as a risk factor, which is clearly not appropriate.

Third, there is a lack of analysis and correct judgment on the relationship between China’s high saving rate and financing potential. The high saving rate is a common phenomenon in Asian countries and it is actually a stabilizer that supports China’s economic growth. With such a high saving rate, deposits in our financial institutions remain stabilized and become a strong financing power. Therefore, the United States rating companies did not correctly analyze the relationship between the high savings rate, investment and financing, nor did they see that China’s high saving rate is the guarantee of China’s economic development.

Fourth, there is not enough understanding of China’s strategic dividend and market dividend. The strategic dividend includes the BRICS mechanism, the SCO mechanism, and other new initiatives launched by China in the new economic globalization, as well as the new ideas and new initiatives proposed by China. In addition, China has a huge market dividend. By 2018, China will overtake the United States and become the largest consumer country. The sustained release of this market dividend will bring an important impetus to China’s future economy.

Three key periods in China’s economic development will be extended

There are still three key periods in China’s economic development which will be extended, giving China a window opportunity for sustained development.

First, the period of strategic opportunity will be extended to create new strategic opportunities. The previous strategic period is from 2000 to 2020. However, as the Belt and Road Initiative continues to advance, we will have a new period of strategic opportunities. If the period of this strategic opportunity takes effects in 15 or 25 years’ time, it will represent a new strategic period for China.

Second, the economic development cycle will be extended. In the past 40 years, China’s economy has experienced from high to medium-high growth and it should have no problem to achieve a growth of 6.5% during the 13th Five Year Plan period. By 2030, China’s economy will continue to maintain its medium-high growth. Some people define the medium-high growth as 7%, while others believe that any figure above 5% can be seen as medium-high growth. I personally think that 5%-6% should be considered as medium-high growth. If China’s economy continues to grow by more than 5% for another ten years, it will become the first country which has achieved rapid and medium-high growth for as long as half a century.

Third, the prosperity in the manufacturing industry will be extended. The manufacturing boom is very important. For instance, the U.S. manufacturing cycle has continued to the present since the end of World War II, which has provided great support to the rapid development of the U.S. economy and made it an economic power. China needs to modernize its agriculture industry, but this is not enough to make China a strong nation. An advanced manufacturing sector is the root of building a strong nation and thus, we should work hard on extending the manufacturing boom. China is transforming and upgrading its manufacturing industry, and has started to make progress in transforming its industry to the high-end value chain.

China’s economic development is characterized by six synchronizations

The characteristics of China’s economic development this year can be summarized as six synchronizations.

First, China’s economic growth is synchronized with the global economic recovery. The external environment for China’s economic growth is also changing, which is under our expectation. According to IMF forecast, the global economic growth will be 3.5% this year, a slight increase from the 3.4% in 2016.

Second, the synchronization between China’s macroeconomic and microeconomic policy and structural adjustment. The macroeconomic policy guarantees the sustained economic development while the microeconomy continues to optimize and adjust itself.

Third, the synchronized changes in the supply-side structural adjustment and the demand-side structural adjustment.

Fourth, the synchronization of China’s old-new momentum transformation, and China’s economic recovery synchronized with old-new momentum transformation.

Fifth, economic growth synchronized with CPI. China’s CPI has been maintained below 2%, PPI is out of negative growth but inflation did not occur. Although the growth rate of steel price is slightly higher, the overall price is stable. Overall, the Chinese economy has achieved a good recovery while maintaining price stability.

Sixth, we need to pay attention to the current economic trend and the fact that the RMB is getting stronger. The M2 growth target of this year is 12%, and in the first half the figure was actually 8.9%, even lower than that of 2016, indicating that the major adjustments in monetary policy have received the expected results and returned to normal while the economy has made a great recovery.

Five Suggestions to China’s Economic Development

First, we should accelerate the system design in transforming the old economic momentum, and provide intelligence support by conducting in-depth research in the following areas, the revolution of the internet and traditional industries, the next generation of trade and so on.

Second, special attention is needed for extending China’s manufacturing cycle. Although China economic development cycle has been relatively long, and the manufacturing industry has developed rapidly with its output value accounts for 25% of the world’s manufacturing capacity, we should treat the manufacturing industry as the root of building a strong China. If China’s manufacturing industry is hollow, just like the US and Japan, it will be very hard to revitalize the manufacturing and bring us fatal problem. Therefore, it is advisable to keep the leading manufacturing industries within China and form a new industrial chain in the surrounding countries along the border. For example, the Beijing Automobile Group established a factory in Ruili City, Yunnan Province, the starting point of the Bangladesh-China-India-Myanmar Economic Corridor. Within a short period, more than 200 auto parts enterprises were founded in Myanmar to satisfy the demand of the group. This is a good example of the new industrial chain we should have as it not only extend China’s manufacturing cycle but also helps the neighboring counties to develop their economies.

Third, we must resolve the structural contradictions, especially the shortages and unreasonableness in system design. Moreover, we should not assess the new economy and new momentum with old thinking and outdated management.

Fourth, we should further deepen government reform. Apart from inclusive and prudential supervision, the government also need simple and effective supervision. We found that some places in China have generated very successful experience during our fact-finding trip. Taking Henan Province for example, the local authorities have combined 35 different certificates into one, which is a huge success. However, there are still many post-approval items need to be completed in some places and therefore, further reforms are required to improve efficiency and effectiveness.

Last but not least, we should focus on the cultivation of three major resources, namely, human resource, data resource and strategic resource. Data resource did not attract enough attention from all parties concerned and requires further study. With the rise of China’s economy, the strategic resource will generate boundless bonanza.


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