World needs to understand China's 'new normal' growth

(Xinhua) Updated: 2014-11-17 16:37

BEIJING - It has been an eventful week in China, not only because the country played host to a successful APEC meeting, but also because Chinese businesses are busy fulfilling orders for goods snapped up online Tuesday during a national e-commerce extravaganza.

The unprecedented Singles' Day sales volume of $9.3 billion in 24 hours, made possible by both foreign and domestic consumers, is one of a few encouraging signs in the world's second-largest economy, which is undergoing a clear slowdown.

China is having a rocky year, with growth sliding in the third quarter to a low not seen since the 2008-2009 global financial crisis in the third quarter, dragged by a housing slowdown, softening domestic demand and unsteady exports.

China's GDP is likely to grow slower than the government-set target of 7.5 percent this year, but it will still outperform other countries and people should understand China's "new normal" growth, said Shen Jiangguang, chief economist at Mizuho Securities.

The slowdown has been labeled the "new normal," which Chinese President Xi Jinping elaborated on at last week's APEC Beijing meeting.

"A new normal of China's economy has emerged with several notable features," Xi said on Nov 9.

First, the economy has shifted gear from the previous high speed to a medium-to-high speed growth. Second, the economic structure is being constantly improved and upgraded. Third, the economy is increasingly driven by innovation instead of input and investment, Xi said.

A raft of weaker-than-expected economic data released later last week further signaled downward pressures for China's economy. Total retail sales, industrial output and fixed asset investment all posted lackluster performances in October, causing more concerns of continued sluggish growth.

The Chinese economy has been the world's outstanding performer since 1980, but now it is entering a new phase of development, observed Clive Tasker, CEO of the Standard Advisory (China) Ltd.

Investment as a share of GDP will fall in coming years. This is normal in industrialization. It is no surprise that fixed asset investment is growing more slowly, Tasker said.

"First and foremost, a hard landing is not what we will see. China is undergoing a reduction in its potential growth rate. But even growth of 6 percent over the next five years will require constructive and smart reforms," said Tasker.

The Chinese leadership has repeatedly indicated that slower growth is the "new normal" as the country carries out tough reforms and adjusts from an economic growth model reliant on investment to one supported by consumption and higher productivity, which in the short run will weaken growth performance.

In the 35 years between 1978 and 2013, annual growth of the Chinese economy averaged close to 10 percent and, between 2003 and 2007, it was over 11.5 percent.

However, the "good old days" are gone, at least for now. Growth decelerated to 7.7 percent in 2012 and 2013, and in the first three quarters of 2014, its was down to 7.4 percent.