Global slowdown makes businesses innovate
Structural slowdown is a key characteristic that defines the new normal, and this is expected to last a long time and it cannot be reversed by any policy.
There are several causes that have led to the new normal. As the manufacturing industry is almost saturated, increasingly more labor and other resources have flowed into the service sector, which has dragged down labor efficiency as a whole.
Besides, demographic dividends are diminishing with the aging of the population, thus pushing higher the cost of labor. The aging population has also caused a downturn in deposit rates and a slowdown in the growth of investable capital.
This situation has been made worse by China's lack of innovation. When China first opened up to the world over three decades ago, it followed a mode "with both ends overseas", namely importing advanced technologies to manufacture products, and then exporting the manufactured products to the world. As the technology gap between China and the West shrinks and its protection of intellectual property rights has improved, that mode no longer applies. The pressures put on the environment have also made it impossible to continue producing in the old mode.
It should be noticed that the new normal is a global concept, too. Global growth rates remain low, trade protectionism is on the rise and different economies are taking measures in their own interests.
Even international politics is affected. The global governance mechanisms, on which the modern world relies, no longer function well; relationships among major powers are being reshaped, and the supply chains are changing.
But the new normal does not necessarily imply recession, on the contrary, it contains huge potential and there are possibilities for fast development driven by new forces. The prerequisite for exploiting that potential is a total reform of the old mode of development, which compels China to boost innovation so that it is the main driving force of future growth.
That's also the necessary measure for China to jump out of the cycle of downturn and find a new path toward prosperity.
Li Yang, vice-president of CASS
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