China must adapt to the 'new normal' of slower growth and resist the temptation of a quick stimulus-driven GDP pick-up
As the Chinese economy weakens, a number of high-profile economists and investment gurus have rung alarm bells - and concerns have worsened following the World Bank's move to trim its China growth forecasts on Monday.
Such worries are well-grounded, but moderate growth slowdown is a must-pay price for China to continue its economic restructuring drive so that the economy can gain renewed growth momentum for the middle term, at least.
Admittedly, the Chinese economy is facing serious challenges. Apart from the growth slowdown, it has to face the risks of a potential crisis if the real estate market continues to sour and effective solutions cannot be found to the pile-up of the local government debts. Growth slowed to 7.4 percent year-on-year in the first quarter of this year, the lowest since the first quarter of 2009, sparking concerns that growth may not be sustained if policymakers do not mete out new stimulus.
Latest data show that industrial production growth fell to 6.9 percent year-on-year in August, significantly lower than in June and July, which was 9.2 percent and 9 percent, respectively. Retail sales growth remained flat in July and August.
On the external front, year-on-year export growth dropped sharply to 9.4 percent in August from 14.5 percent in July, although it remained higher than in June, when export growth was only 7.2 percent.
All data have pointed to China's economic softening and it is not surprising for the World Bank to downgrade its China growth forecasts. The bank said growth was likely to slow to 7.4 percent this year and further to 7.2 percent in 2015, before dropping to 7.1 percent in 2016.
In an April report, the bank had forecast that China's growth may come in at 7.6 percent this year and 7.5 percent in 2015 and 2016.
The forecast adjustments by the World Bank and other institutions are well in line with China's economic realities. After 10 years of fast expansion that has sprouted a real estate boom but colossal amounts of local government debts, China needs to slow its pace and focus on economic rebalancing and restructuring, because the current economic development pattern has proved unable to deliver the country's next-phase growth.
China now more than ever needs to restructure its economy to shake off its excessive reliance on investment and exports and shift to a more sustainable consumption-based growth pattern. Unfortunately, China's restructuring attempt has coincided with the necessity to delever-age the real estate sector and the local governments and, externally, the lingering recovery uncertainties of the global economy, making the road of restructuring especially bumpy.
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