Protectionism and anti-globalization are damaging the global economy. According to latest prediction by the International Monetary Fund, global economic growth will fall to 3 percent in 2019, its lowest since the 2008 financial crisis. Further, it said, the global slowdown will jump from manufacturing to services. In the first half of 2019, global trade in goods slowed dramatically, increasing a mere 0.6 percent year-on-year and becoming the heaviest drag on global economic growth.
With tough conditions at home and abroad, the state of the Chinese economy attracts global attention. Protectionism and the uncertainties of trade frictions remain the biggest external challenges for the Chinese economy. Although China and the U.S. have achieved positive progress on reaching a phase one trade deal, related uncertainties remain high and the aftermath of tariffs already activated lingers on.
No matter how trade talks proceed, China will continue to deepen reform, expand opening-up and do its own things well. It has strengthened its economic transformation in the past few years.
Since the cultivation of new growth engines is often slower than the fading away of old growth drivers in the transition process, economic transformation is inevitably accompanied by three stages of growth — stated as “fall-platform-revival” — which suggests that the economy may linger for a long while at the bottom, especially as trade frictions between China and the U.S. are taken into account.
Export-oriented sectors and industrial departments have suffered different degrees of shock, domestic demands have weakened and economic growth has seen seasonal drops.
China’s GDP grew 6.2 percent in the first three quarters, and 6 percent in the third quarter. Though downward pressures remain, economic performance remains in a reasonable range, while such signs as structure optimizing, quality improvement and industrial upgrades are also presenting themselves.
China-U.S. trade frictions have accelerated the transition and upgrade of the structure of exports.
The U.S. has imposed high tariffs in four batches on $531 billion worth of Chinese exports, resulting in Chinese exports falling 0.4 percent in the third quarter. But general trade in the first three quarters increased 3 percent, conspicuously better than overall. Growth of processing with customer materials and with imported materials were respectively down by a dramatic 11.3 percent and 9.6 percent, dropping more deeply than overall. Since tariffs have driven up costs for exporters and profits are low for processing trade, many companies are inclined to reduce processing trade, which has also to some extent accelerated the trade structure transition.
The high-tech and new-technology sectors have defied the downward trend and retained considerable profits.
Since statistics became available in 2015, investment growth in high-tech manufacturing has remained above 10 percent and even grew 12.6 percent year-on-year in the first three quarters 2019 — 7.2 percentage points higher than overall investment. Meanwhile, some advanced manufacturing sectors have also maintained considerable profit growth.
Another important sign is the transition from industry to services.
Service consumption has become a new growth point in the Chinese economy. The growth of residents’ service consumption outpaces that of goods consumption, with the former accounting for almost 50 percent of overall consumption in 2018.
Accepted wisdom says that demand matters for the short-term, supply matters for the long-term. While short-term macro control may reduce economic amplitude to cope with mid- and long-term downward economic pressures and help break the bottleneck of imbalances in development, the priority should be to accelerate supply-side reforms and promote the transfer of old to new dynamism.
Raising productivity factors sand the efficiency of resource distribution are the key to quality development. In fact, there is a historical necessity for the Chinese economy to turn to quality development.
On one hand, against the backdrop of long-term changes in the demographic structure’s weakening the country’s advantages in labor costs, it is imperative to raise productivity.
On the other hand, high growth is unsustainable. Take exports as an example: Chinese exports now stand at $2.5 trillion a year, hovering around 13 percent in global exports.
Manufacturing has also surpassed 25 percent of the global total, entering a relatively stable state, all of which means that China will bid farewell to the stage of high growth, and enter a phase that pursues quality trade growth.
At present, Chinese total factor productivity remains only 43 percent of the U.S. level. From such perspectives as total capital stock and per capita capital stock, China lags far behind advanced countries. There is lots of room for capital accumulation, and the country still needs to increase capital stock via investment.
In the past, some macro policies focused too much on “hard investment” (in infrastructure), and neglected “soft investment” (in technological innovation and research and development). But the country has continuously increased its support for soft investment and innovation over the past two years. In 2018, Chinese spending on R&D reached 1,966 billion yuan, or 2.18 percent of its GDP.
Trade frictions have had far-reaching influence on the Chinese economy. The country still has a very long way to go on a path of quality development. In the process of structural optimizing and upgrading, it will have to both foster a number of globally competitive companies to further expand opening-up.
The fourth Plenary Session of the 19th National Congress of the Communist Party of China proposed to build a new “higher level” open economic system. In the future, China will emphasize the fundamental position of competition policies, introduce foreign capital in competitive fields, attract more investors from around the world and promote quality economic development with a higher level of openness.
