BEIJING — While the growth rate for the first quarter of 2015 was the slowest since 2009, a closer look at the data shows that China is on track for a “new normal” in economic development, featuring slower but higher quality growth.
First quarter’s growth declined to 7 percent from the previous quarter’s 7.3 percent, the weakest performance since the global financial crisis, when growth fell to 6.1 percent in the first quarter of 2009.
Some doomsayers forget that much of the decline has been self-imposed as the country tries to steer the economy to more sustainable growth driven by domestic consumption, the service sector and, most importantly, innovation.
There used to be an “old normal” during the 35 years between 1978 and 2013, when annual growth of the Chinese economy averaged close to 10 percent. Between 2003 and 2007, it was over 11.5 percent.
However, the good old days cannot last forever. Growth decelerated to 7.7 percent in 2012 and 2013 and to 7.3 in 2014.
Even if the old normal could continue, it is not desirable, as three decades of almost uninterrupted double-digit growth came at the high price of air pollution and exploitation of natural resources.
The Chinese economy has embarked on a new track featuring a shift from high-speed growth to medium-high growth, a shift from quantity and speed to quality and efficiency, and a shift to an innovation-driven growth model.
The first-quarter data is filled with signs that this transition is taking place and a new growth mode is coming into form.
Energy consumption per unit of GDP continued to fall, marking a drop of 5.6 percent in the first quarter after last year’s 4.8 percent decline.
The service sector, which grew much faster than the industrial sector and the economy as a whole, accounted for 51.6 percent of GDP in Q1, up from 48.2 percent in 2014 and 46.9 percent in 2013.
Thanks to efforts to cut red tape, simplify administrative procedures and cultivate new growth engines, newly registered companies mushroomed and high-tech industries blossomed.
The number of newly registered companies surged 38.4 percent from January to March, while new energy automobiles and robotics saw industrial output gain more than 50 percent during the same period.
Fan Jianping, chief economist at the State Information Center, pointed to the changes in the industrial sector as evidence for the transformation in the Chinese economy.
While industrial output grew 6.4 percent year-on-year in the January-March period, down from 8.7 percent growth a year ago, the industrial structure continued to improve.
The industrial value added of the high-tech sector and equipment manufacturing jumped by 11.4 percent and 7.7 percent respectively in the first quarter, outpacing overall growth.
In 2014, the country’s spending on research and development (R & D) accounted for 2.1 percent of GDP, a record high. The proportion in some regions such as Shanghai reached up to 3.6 percent.
A focus on innovation has made some Chinese companies, such as telecommunications giant Huawei, climb up the value chain.
The Shenzhen-based company, which was on a shoestring budget at the time of its founding in 1987, reported a 32.7 percent increase in profits in 2014 to 27.9 billion yuan. Its revenue grew to 288 billion yuan, up 20.6 percent.
A close look at the company’s track record reveals its main driver of growth is its attention to innovation and R & D. In 2014, 40.8 billion yuan went toward R & D, 29.4 percent more than in 2013 and 14 percent of the company’s revenue.
In the past decade, Huawei has spent more than 190 billion yuan on R & D. Of its 150,000 employees, more than 45 percent are in innovation, research and development positions.
There is still a lot more potential and room for China’s manufacturing sector and companies to upgrade themselves, and this will be where the future of the Chinese economy lies, J.P. Morgan China chief economist Zhu Haibin told Xinhua in an interview.
While overcapacity is cut in energy-intensive sectors such as steel and cement, the output of which slumped 3.6 percent and 20.5 percent respectively, growth of emerging sectors will accelerate and play a key role in the long-term development of the economy, Zhu said.
In addition to innovation, the “Internet Plus” action plan unveiled by Premier Li Keqiang during the parliamentary sessions in March will serve as another new engine for future sustainable growth, Zhu added.
The plan aims to integrate mobile Internet, cloud computing, big data and the Internet of Things with modern manufacturing. It will also encourage the healthy development of e-commerce, industrial networks, and Internet banking and help Internet companies increase their international presence.
In addition to Internet giants such as Alibaba, Baidu and Tencent, many traditional companies are also looking to the Internet as a tool to transform themselves.
Despite a cooling consumer market, Haier, China’s leading home appliance maker and one of its first firms to have established a global presence, recorded 19.6 percent net profit growth in 2014, thanks to its “determined shift” to an Internet-based factory-to-consumer business model.
In a few short years, Haier Group has been quietly building Internet-based smart factories, where factory-based production of customized products has replaced traditional large-scale manufacturing.
Li Pan, vice-president of Haier’s home appliance industry, told Xinhua that many of the company’s products are designed to cater to special user needs.
The growth model and potential of companies such as Huawei and Haier will be the new normal of the Chinese economy, and there is no turning back to the old development path, Fan at the State Information Center said.