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China to maintain medium-to-high growth

Updated: Feb 17,2016 3:50 PM Daily

As the world’s second-largest economy, China’s economic growth has always been a focus of the world. There was concern about China’s economic prospects when its GDP growth rate fell from 2014’s 7.3 percent to 6.9 percent in 2015. But the 6.9 percent growth rate still lived up to the government’s expectation, which was aimed at around 7 percent.

Indeed, China’s economy is witnessing structural changes. But considering the capacity of market demand and supply and government’s available policy tools, China has the potential to maintain medium-to-high growth.

Consumption and investment will keep driving China’s economy

People’s improving income, change in consumption structure and expanding consumption space all will create a huge consumption demand.

As a middle-income country, China is advancing to a high-income country, which means the space to increase consumption demand remains huge.

For example, in 2014, there were 105 car owners in China for every 1,000 people. Compared with the United States’ 800, Germany’s 620, and the Republic of Korea’s 340, there is still an enormous space for car consumption growth in China.

In addition, the Internet and modernized logistics make huge consumption possible, as on Nov 11, 2015, known as Singles Day, Alibaba reported 91.2 billion yuan ($14.33 billion) in sales on its online shopping platform Tmall, a 60 percent increase from 2014.

Urbanization will also create huge investment demand. Compared with developed countries, China still lags behind in urbanization. Transport system, underground tunnel system, environment improvement, and old city renovation will keep creating investment demands.

What’s more, traditional industries’ upgrade and emerging industries’ development will also drive huge investment demands.

Supply side a major engine to drive future economic development

China also has great potential in technology improvement. Currently, the added-value rate of China’s manufacturing industry is only about 20 percent. Compared with Germany’s 32 percent, Japan’s 34 percent, and the United States’ 35 percent, China’s technology level and efficiency still has huge space to develop.

On the other side, China has become the second-largest country in terms of research and development investment. Considering the ongoing innovation-driven strategies, such as for mass entrepreneurship and innovation, and 7.5 million college graduates last year, more innovation achievements will emerge.

In addition, the high savings rate in China makes it strong in capital accumulation. In recent years, Chinese people’s savings rate hit about 50 percent, higher than the world average level and in developed countries, creating a necessary foundation for capital accumulation.

Favorable conditions for economic growth

First, further comprehensive reforms, such as commercial system reform, opening market access for some industries, and breaking market monopoly, will create a favorable institutional environment for economic growth.

Second, proactive financial policies and measures, including raising fiscal deficit and implementing structural tax reduction policies, will help increase demand and improve resource allocation. In addition, the Public-Private Partnership mode and all kinds of government-invested and directed funds will attract more social investments.

Third, monetary and financial policies have space to maneuver. Compared with developed countries’ zero or even negative interest rates, China’s loans and deposits interest rates remain high, which means there remains space to lower interest rates to satisfy the real economy’s credit and loan demands and lower costs for social financing. In addition, high foreign exchange reserve enables China to cope with financial market fluctuations and calm investors’ expectations.

Fourth, space is huge to optimize resource allocation with industry policies. Through precise industry policies that are aimed at reducing overproduction and lowering costs, resources can be allocated to more efficient players. Currently, the focus of industry policies is to deal with the “zombie enterprises”.

Fifth, the implementation of policies regarding people’s livelihood will help increase demand. A large stock of financial fund can be used to alleviate poverty and improve people’s living conditions. In addition, shantytown renovation and real estate destocking will help promote housing consumption.

Sixth, further opening-up will improve the efficiency of resource allocation. Free trade zones set up in Shanghai, Tianjin, Fujian, and Guangdong will further improve investment and promote trade facilitation, increasing investment and consumption. Furthermore, international capacity cooperation, especially with Belt and Road countries, will further release the potential of China’s competitive industries.

Seventh, the implementation of mass entrepreneurship and innovation will further promote innovation and economic growth. Under the initiative, 4.43 million enterprises were registered and 13.12 million jobs were created in 2015.