China’s GDP growth stood at 8.1% in the first quarter of 2012, continuing a fallback seen in several quarters running. Also, both April and May saw the country’s industrial added value grow by less than 10%, a development that has started hot discussions and analyses at home and abroad. How should we look at this situation? Most importantly, we should get into the right core of this round of economic downturn. In other words, we should try to make out whether the current slowdown of the Chinese economy is a temporary pullback resulting from implementation of stringent macro policies, or a sign of contraction of its mid-term or even long-term growth potential. The real fact, as we have come to see, is that the Chinese economy is switching from the stage of fast growth to one of moderate expansion.
International experiences have shown that all the economies that have risen into the fore ranks after World War II have experienced fast growth for 20-30 years, such as in the case of Japan, South Korea, Taiwan, and Germany. Once their average per-capita GDP hit 11,000 Geary-Khamis Dollars (a unit different from the US dollar for measuring purchasing power parity), however, they have all come to suffer a growth slowdown as much as 30%, as seen in Japan during the 1970s, South Korea in the mid and late 1990s, and Germany in the late 1960s.
The growth of the Chinese economy since the late 1970s has followed almost the same track of these latecomers. According to our calculation, China’s average per-capita GDP neared 9,000 Geary-Khamis Dollars in 2011, and will reach the 11,000 mark in one or two years if the current development momentum is kept, a development that will send China’s economic growth potential into considerable contraction, around 30-40%, possibly, in the late 12th Five-Year Plan Period (2011-2015). Some new signs have already appeared in China’s economic development since 2011, such as the substantial slip of nationwide fixed assets investment growth and the fall back of many economic powerhouses along the southeast coast including Guangdong, Jiangsu, Shandong, Zhejiang, Shanghai and Beijing in national ranking of economic and investment growth. And recently, the risks of the local government funding vehicles and the real estate industry have become a growing concern among all people. All these signify the start of the switch of the Chinese economy from the stage of fast growth to one of moderate expansion.
It is necessary for us to correctly see and understand this stage switch of China’s economic growth. First of all, this is a normal phenomenon revealing the regular pattern of economi growth. Second, it is a fallback of growth potential different from the short-term fluctuations seen during the days of high-speed growth. And third, this switch from fast growth to moderate expansion will be a process of considerable vulnerability and full of uncertainties.
Viewed from an international perspective, a 6-7% growth rate is not so small. If the ever growing base number is taken into account, the growth scale is still fairly impressive. It is unnecessary, therefore, to get pessimistic about any slowdown of the growth. On the contrary, we have every reason to feel optimistic about the development prospects of the Chinese economy. If China can keep its economic growth at 6-7% for some time, it will bring its society as a whole into moderate prosperity by the year 2020. From an international viewpoint, it may also achieve two major goals: coming close to or even surpassing the United States in terms of total GDP calculated in current price, and nearing or reaching the threshold of high-income countries in terms of average per-capita income.
A major challenge before China today and for some time in the future is its effort to ensure the smooth stage switch of its economic growth. Specifically speaking, it is necessary to change the development model suitable for the stage of fast growth to one suitable for the stage of moderate expansion. There are here lots of work to be done, including organic dovetailing of short-term steps to mid- and long-term regulation and reform measures. From a short-term viewpoint, it is necessary to take due measures to curb any fast downturn of the economy in a short period of time; and from a longer-term viewpoint, it is necessary to systematically weigh policy adjustments designed for the stage switch of economic growth, with due consideration given to issues such as widening of the range of market access, encouragement of competition, remodeling of the current investment and financing mechanisms, release of growth potentials, acceleration of efforts in income distribution reform, devotion of greater efforts to development of the public service system, attachment of greater importance to improvement of people’s livelihood, and promotion of equal access to social opportunities. Active efforts should also be made to spur restructuring, innovation and industrial upgrading among enterprises, so as to usher in a development stage full of innovative vitality, of high quality and great efficiency, and with strong sustainability after the Chinese economy enters the stage of moderate expansion.
Liu Shijin is deputy director of the Development Research Center of the State Council in China.