Saturday, Jul 22, 2017, 8:52 AM CST – China


China must look beyond the growth rate to address its economic problems

Although domestic officials have stressed that the Chinese economy will not experience a ‘hard landing,’ most agree that the country will face a long period of economic slowdown

Based on data recently released by the authorities, it has become clear that China’s economic slowdown has not come to an end. Total trade volume in the first half of 2015 fell by 7.3 percent, and the Producer Price Index has remained in negative growth for 40 consecutive months. Combined with a Consumer Price Index languishing at below 2 percent growth for a long period of time, it is safe to say that the Chinese economy has entered a period of deflation.

Moreover, overall stagnation in the world economy also presents a challenge for China, still seeking to maintain the official central government target of 7 percent growth set at the beginning of the year.

Although domestic officials have stressed that the Chinese economy will not experience a “hard landing,” most agree that the country will face a long period of economic slowdown, which has been described as an economic “new normal.”

To a large extent, what concerns China’s leaders most is not the economic slowdown itself, but various social problems that may intensify and become a threat to political stability if the economic situation deteriorates further. These problems include environmental deterioration, excessive industrial capacity, an overheated real estate industry, huge debts incurred by local governments which may threaten the financial system, and various social problems, including the income gap.

In the past, many government officials appeared to believe that as long as China could maintain a rapid growth rate, it could limit the impact of these problems without actually addressing them. Such a mentality partly explains the seemingly sacred position held by the GDP growth rate in the government’s decision-making process.

But now, as economic slowdown has become inevitable, the government must let go of a mentality centered on an economic policy set according to the growth rate. Instead, it should look beyond this to focus on addressing other fundamental problems.

Growth may slow further. For example, cutting excessive industrial capacity will inevitably bankrupt many companies in relevant industries, increasing overall efficiency but also negatively impacting economic growth.

With its long-term goal being economic restructuring, the government should have the courage to weather some short-term economic difficulties. As several major factors that have undermined China’s economic development in the past decades, such as a high savings-income ratio and a continuing process of massive urbanization, have remained unchanged, the Chinese government should have the confidence to restore market mechanisms to its currently distorted economy. In the long run, this would mean that China can eventually resume rapid economic growth.


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