“New normal” has become a buzzword in China since the second half of 2014. “New normal” was first used by President Xi Jinping during his visit to Henan province in May 2014. At the APEC CEO Summit on November 10, 2014, President Xi characterized China’s “new normal” as slower growth, economic restructuring and innovation-driven growth, adding that the “new normal” would bring new development opportunities to China.
Around 2011, China’s economic community began to realize that the slowdown from double-digit growth that had lasted for many years to the growth rates of 7% to 8% was not caused by cyclical factors but that it represented a structural deceleration, i.e., a new chapter of China’s economic development had been ushered in as the foundation of China’s economy had been transformed. In retrospect, the 1980s witnessed a transition of the Chinese society from scarcity and poverty to exuberant materialism and a preoccupation with material achievements, particularly the overzealous pursuit of GDP growth. It is understandable that scarcity leads to overvaluation of materials and a strong psychological propensity towards growth rate. Given the significant size of China’s economy after decades of rapid growth, people have begun to turn their eyes to the problems arising from the crude pattern of growth that persisted over the years. Environmental quality, equitable distribution of income, shared public services, and social justice and fairness are becoming priorities of growing importance. Public sentiment on these issues requires a “new normal” and new thinking.
An important characteristic of the “new normal” is the advancement of reform on all fronts. While growth stability is a short-term target and restructuring is a mid-term one, the advancement of reform requires long-term efforts. Nevertheless, long-term reform must be supported by appropriate drivers and incentives. Willingness to reform may derive from two sources: a mindset of the rule of law and the spirit of innovation. The former attribution believes the rule of law and reform look for development of reasonable systems and the “top-level design” is needed. This approach generally applies to a reform under centralized power. Promotion of innovation entails the development of favorable systems that are welcomed by the people, which can only be accomplished with initiatives at the grassroots level. In the “new normal” chapter of China’s economy, the most important direction of reform and policy orientation is to rebalance the relationship between fairness and efficiency, which is the key to the transition from factor- and investment-driven growth to innovation-driven growth. Efficiency cannot grow sustainably without a level playing field. In the “new normal”, industry entry barriers and market monopoly must be eliminated in order for more players to take part in competition in a level playing field.
In the “new normal”, China’s economic development will be guided by a strategic mentality of patience, public interest and sustainability. Hasty growth will give way to long-term horizons. Although “remarkable” and “instant” achievements become less easy, the “new normal” will lead to long-term prosperity, stability and solid steps towards the Chinese dream.
Copyright: China Economist