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Staying Power of China’s Economy

Nov 19 , 2015
  • Ding Yifan

    Deputy Director, China Development Research Center

When the world was much concerned about China’s economic slowdown, China issued its 13th Five-Year Plan. The world worries that because China’s economic growth is one of the important world economic growth engines, if China’s economy slows down in the future, those countries whose economy heavily relies on China will suffer “collateral damage”.

However, China’s 13th Five-Year Plan suggests that China’s economy still has much room for growth in the future and will still make an important contribution to world economic growth. But people need to take a different look at China’s contribution to world economic growth.

Room for China’s economic growth in the future

The approval of the draft 13th Five-Year Plan by the CPC tells the world that China will make efforts to keep a medium to high economic growth rate, setting 6.5% as the annual economic growth target so as to double China’s economy in 2020 based on 2010. Thus, the growth prospects of many industries in China’s economy are good opportunities for foreign enterprises.

For example, the growth of service and the development of new-type industries are both the result of China’s economic transition and the foundation of future growth. In this aspect, foreign enterprises have already increased their investment in China, which both increases China’s economic growth power and make the multinationals benefit a lot from China’s economic growth.

The 13th Five-Year Plan makes a more detailed plan for China’s economic opening up. More foreign enterprises can fairly enter Chinese market for investment. Meanwhile, financial field can be more open as the main part of the service industry. The reform of China’ financial market will attract more foreign investment and create more profits.

China’s economic growth will rely more on innovation, technological innovation in particular. It will not only offer development opportunities to Chinese high-tech enterprises but will also provide some foreign high-tech innovating enterprises with new opportunities. In fact, many innovating technological personnel feel hard to find opportunities to develop new products in the developed economies. Soon after they develop some new products, those products will be bought out by many large multinationals. These multinationals control these technologies, unwilling to spread them to the market for fear of possible competition with the existing technologies. Innovators who feel this is unfair, and who hope that such products can be quickly introduced to the market and bring benefits are greatly attracted by China’s huge market and wish to realize their China Dream in China. These technological personnel are precious human resources available for China to develop an innovative economy.

A surging Chinese overseas investment spurred trade growth

In recent years, China’s overseas investment grew sharply. It both means that Chinese enterprises have increased their capacity and China has a huge demand for international industrial cooperation. Since China put forward the initiatives of the Silk Road Economic Belt and Maritime Silk Road, the initiatives enjoyed wide support from the countries along the routes. China’s overseas investment and foreign trade also have continuously developed with the implementation of the One Belt One Road initiative.

With the growing investment by Chinese enterprises in the countries along the One Belt One Road, China’s trade with these countries also grew substantially, partially offsetting the export slowdown to the traditional developed countries’ markets. For example, in the first seven months of the year, Guangdong’s import and export value constantly ranked first in China, totaling RMBY3.39 trillion, but a fall of 1.8% over the same period in 2014. At the meantime, Guangdong’ trade with the countries along the Silk Road showed upward momentum, with an export increase of 14% in the first seven months of the year.

Take a different look at China’s contribution

Although China’s economic growth is declining, China is still an economy that makes the largest contribution to global economic growth. China made a 30% contribution to the world economic growth in 2015.

China still has a huge market demand and is still the largest world importer of resources and energy. On the surface, China’s imports fell in 2015. But it was mainly caused by the price change of international commodity markets and does not indicate a fall of China’s total imports of raw materials and energy. The price drop for resources and energy was due to the change of the US dollar-exchange rate. To solve the issue, the exporting countries of resources to China have to consider denominating in the Chinese currency so as to avoid fluctuations in the future.

China has established industrial parks in many countries along the One Belt One Road, which has promoted their industrialization. These newly industrialized countries will bring the world markets more low-priced products that will counteract the huge liquidity released by the central banks of the developed countries since the world financial crisis, depress the world inflation rate and create a more stable expectation of the global economic development.

In the past, people measured China’s contribution to the global economic growth through China’s GDP growth. But many factors in the GDP are the profits created by the foreign companies’ investments in China. In recent years, with the big increase of China’s overseas investments, the profits made by the Chinese enterprises overseas also went up. Therefore, China’s GNP is rapidly growing, gradually reaching its GDP level. So people should take a new look at China’s contribution to the global economic growth.

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