Source: Guangming Daily
Introduction

For the big picture of the Chinese economy, the most popular topic nowadays is the “New Normal”.

Currently, the key is to develop a scientific understanding of “New Normal”. Mainly a topic within the economic field, this concept should not be misused in generalization. In the current situation, with risk controlled and reduced, overall economy kept stable, further reform firmly conducted, a New Normal will be ensured.

In recent years, most people have realized that China’s previous fast growth style (low efficiency and huge investment) cannot sustain anymore and a new normal must be established. Of course, a deceleration in growth without better quality is not what China is looking forward to. Instead, a slowdown accompanied by better quality, optimized structures, and higher efficiency, can reduce the shock of the slowdown and give citizens more bonus. Therefore, a medium-high speed with higher efficiency is what we expect to have as the new normal.

Although there are significant risks in China’s economy, generally speaking, they are not incontrollable. As long as we take right measures, systematic risk can be avoided. In my opinion, a lot of measures can be taken.

For example, inefficient investments towards low-return or no-return projects should be stopped, and capital supply to “Zombie corporations” should also be prevented. This is the lesson learned from Japan’s failure in stimulating domestic demand in the 1980s. In addition, we need to revitalize the “dead assets”. Previous excessive investment and extensive growth has left some vacant development zones, and large ghost cities in different parts of the country. Though revitalizing them is difficult, efforts should be taken in this regard so that leverage ratio can be lowered.

Besides those measures to plug up loopholes and control risk, fiscal and monetary policies for the overall economy should also be taken for short-term adjustment. Combination of the two will enable us to keep the macroeconomy stable, avoid systematic risk, and win enough time for further reform and in the end guide reform and development into a benign circle.

Deepen reform in a firm and order way; Realize a desirable “New Normal”

Some economists think that China has to keep a GDP growth rate of more than 8% a year for the sake of employment. However, though keeping unemployment rate low is necessary, this claim doesn’t stand economically as it considers the connection between employment and GDP growth as linear, which is not the case in reality, because there is a factor of growth structure: some industries growing 1% can bring more than 1% growth in employment.

For example, in recent years, China’s growth has lowered from above 10% to 7.4%, but employment, especially for those with low education level, has improved. In 2013, there were 13.1 million new jobs created instead of the target of 9 million. In 2014, though growth was slowing, 13.22 million new jobs were added, which is actually better than 2013.

The main reason for this is the accelerating growth in the service industry, once a bottleneck for China. In the past 2 years, the service industry has accelerated due to two important reforms.

The first reform was the change from sales tax to value-added tax, started in Shanghai in 2012 and then spread to the whole country. Fiscal authorities regarded the tax reform as reducing burden for corporations. This change is good for the deepening of labor division, which is especially evident for online retailers. The second reform was the facilitation of industrial and commercial registration, which is considered as an important issue in the transformation of government function. It was started in Guangdong in 2012. These two are enough to give us confidence that reforms are able to solve economic problems.

2014 was the first year for comprehensive deepening reform. From the economic perspective, orderly progress is required of some reform projects. For example, satisfying progress has been achieved in liberalizing interest rates and exchange rate, reforming tax and fiscal system, and streamlining the state council’s administration.

The China (Shanghai) Pilot Free Trade Zone is a significant experiment. Besides, in the 336 reform projects led by the Central Comprehensive Reform Leading Group, state owned economy reform scheme was formulated by 4 units. Among them, the reform project of salary system of centrally managed corporations’ leaders has already been aired and implemented. The Central Comprehensive Reform Leading Group has sent out 8 teams to survey the state-owned sector, which is a sign for the acceleration of reform in the state-owned economy.

 
Translated by Lin Qiaohui