|Perspectives on Current Chinese Economy|
——Speech by Consul General Zhao Weiping At the Quinlan School of Business of Loyola University Chicago
(October 13, 2015)
Dean Stevens, Distinguished Faculty and Students，
Good afternoon. It is my great pleasure to be here at the Quinlan School of Business and share with you my perspectives on current Chinese economy.
Recently, there has been widely-spread pessimism on China’s economy in the Western media and academic circle, and we can even feel a kind of panic among some observers, who believe that the Chinese economy is on the verge of a collapse.
So what’s the real situation of China’s economy now? Let’s look at some of the facts.
First, it is true that China’s economy is slowing down, but the slowdown itself has been slow. As you know, the slowdown started with the year 2012. The annual GDP rate for the year was 7.7%, which was for the first time since the turn of the new century that the annual GDP rate of China dropped below 8%. In the following two years, China’s annual GDP rates were 7.7% and 7.3% respectively. For the first half of this year, the growth rate was 7%, which was exactly in line with the target set by the Chinese government for the whole year.
Second, although the economic growth continues to decelerate, many fundamental elements of the economy remain positive. Employment situation has been good so far with more than 7 million new urban jobs created for the first half of this year, which means that 72% of our annual target for new jobs has been accomplished. Inflation rate has been kept at or below 2% for 13 consecutive months. The income of the public has been rising at a faster rate than the economic growth. China’s foreign trade still enjoys surplus, its fiscal revenue continues to increase and its foreign reserve as well as currency exchange rate remain relatively stable.
Third, the economic weakness is seen in certain sectors,but some other sectors are still very strong and new growth points are emerging. Manufacturing sector, especially small and medium-sized enterprises and manufacturers relying on export, suffers most in the current slowdown. However, the service industry has been growing robustly. Especially, consumer demands for information, cultural, health and tourism products are stronger than ever, and domestic consumption contributed 60% to the national economic growth in the first half of this year.
Fourth, China’s economic performance is still one of the best in the world and remains as one of the major engines for global economic growth. For the first half of this year, among the major economies, only India overtook China by a small margin in terms of growth rate. China didn’t suffer any such problem as severe currency devaluation or flight of capital which has been experienced by many other emerging economies. Today, China contributes about 30% to global economic growth and its share in global economy has reached around 15%.
The above facts told us that China’s economic growth is steady in general. The issue or the problem of the current Chinese economy we are dealing with is the slowdown of its economic growth speed, rather than any possible collapse, recession or stagnation as some observers may have hinted.
To my understanding, there are three major reasons for the slowdown of China’s economic growth.
First, it is the natural correction after the Chinese economy has been growing at a rocketing speed for almost one decade. Since the turn of the new century, there have been ten years witnessing an annual growth rate of over 9%. In the year 2007, the GDP rate even reached as high as 14.2%. After the financial crisis in 2008, China’s GDP rate continued to soar in spite of the recession in the West and many other parts of the world, achieving 9.2% in 2009, 10.4% in 2010 and 9.3% in 2011 respectively. It’s impossible for China or any economy to maintain such a high growth rate forever. China has been acting like a speeding driver for too long, and it can not continue to drive above the speed limit. It’s time for China to loosen the accelerator.
Second, it is because of the impact of the sluggish global economy. So many countries were hit hard in the recent financial crisis. Although the economies of the US, Germany and a few other Western countries are now doing relatively well, generally speaking, quite a number of European countries, Japan and many emerging economies are still experiencing great difficulties. Shrinking global demand has put increasing pressure on China’s exports in recent years. In 2012, China’s exports increased by 7.9% over the previous year. For the first half of this year, it only increased 0.9% over the same period last year. The difference is huge.
Third, it is the result of the deliberate policy choice by the Chinese government. Rapid economic growth over the past three decades has brought about serious sideline problems such as degradation of environment, overcapacity of production and the imbalance of development among different regions. In order to achieve long-term sustainable development, the Chinese government is now focusing more on improving the quality and efficiency of economic growth rather than seeking high growth speed. In line with this thinking, the Chinese government decided to adopt 7.5% as the target for annual growth in 2012, which was for the first time reduced to below 8% since the turn of the new century. The target for this year is 7%.
Because of the above-mentioned reasons, the slowdown of the Chinese economy may continue for some time ahead. The question is how long it will last and whether there is a bottom line.
To answer those questions, we shall first have an accurate understanding of China’s economic goal. One quantitative goal is clear that China will strive to double its 2010 GDP and per capita income of the people by the year 2020 on the basis of making its development much more balanced, coordinated and sustainable. In order to achieve this goal in the remaining five years ahead, some experts suggest that China should sustain an annual growth rate of no less than 6.8%, while others believe that 6% is enough.
The Chinese government is currently drafting the 13th Five-Year Plan, and I don’t know what official target for growth will be set. However, the Chinese government has made it clear time and again that China will keep its economic growth within a proper range and make efforts to maintain a medium-high growth speed. The upper limit is to prevent inflation running high while the lower limit is to ensure steady growth and employment. Once there are signs indicating that the economy is sliding out of the reasonable range, China will certainly act timely to deal with the situation.
Obviously, the Chinese government remains fully confident in the prospect of the Chinese economy and it has many reasons to be confident.
First, the Chinese economy is resilient and full of potential. The process of a new type of industrialization, IT application, urbanization and agricultural modernization in China is far from being completed, which will continue to generate strong domestic demand. Unbalanced development between urban and rural areas as well as between different regions in China will also provide broad space for China's further growth. In addition, China continues to hold many unique advantages in economic development, such as its largest population in the world, rapidly increasing people's wealth, fairly sophisticated infrastructure, still relatively low labor costs,complete modern industrial system and well established supply chain,etc.
Second, the ongoing ambitious reform program is constantly delivering benefits. China announced over 330 reform items at the end of 2013, which cover almost all the aspects of the economic system with the purpose of rationalizing the relationship between the government and the market so as to let the market play the decisive role in the economy and the government play its functions better. Many concrete measures have been taken in transforming government functions, reforming fiscal and tax systems, deepening the reform of financial sector, advancing the reform of the management model of investment, moving ahead with price reforms and deepening reform of the income distribution system. As a result of those reforms, pro-business environment has been and will continue to be strengthened in China.
Third, the Chinese government has rich experience and necessary capability in navigating the giant ship of the Chinese economy. For Western observers, it is important for them to pay due attention to the uniqueness of China if they want to have a correct understanding of the Chinese economy. Western economic theories cannot always provide us explanations to the economic phenomena or solutions to the economic problems in China. China’s economic miracle in the past three decades didn’t come easy, and there were several times when our economy encountered severe problems and challenges. However, the Chinese Government and people have finally overcome all those problems and challenges, and each time Chinese economy became even stronger. It’s fair to say that the Chinese Government and people know best how to manage the Chinese economy. In addition, the Chinese Government has a host of policy instruments at its disposal to meet with any challenges ahead.
By saying that, I don’t mean that we can be over-optimistic. Similarly, I don’t think there is any ground for anyone to be over-pessimistic. It’s always necessary to stay calm and not to rush to conclusions.
There was recently an obvious example of over-reaction to China’s reform of the pricing mechanism of setting the value of the RMB in mid-August. The new policy means that China will now set the daily midpoint for the Chinese currency’s trading band in line with where the currency closed the previous trading day, while in the past the daily midpoint was set basically in disregard of the market price at all.
In essence, such a move by China was a major step in reforming its foreign exchange rate in the direction of marketization. The purpose is not for devaluation so as to gain export advantage at the expense of others, but rather to give the market a bigger play in deciding the value of the Chinese currency. China has no intention to devalue its currency by a large margin. So far, the RMB has just depreciated by about two percentage against the US dollars on the basis of the exchange rate before the reform. As the Chinese government has said time and again, there is no basis for sustained devaluation of the Chinese currency. China doesn't see the need to devalue its currency for the purpose of saving its economy as alleged by some Western media, because China's economy is safe and there is no need to save it in the first place.
Now I wish to conclude my speech and I am happy to take any question you may have. Thank you.