China a booster, not a burden, for world economy as country shifts to consumption

By Zhang Zhengfu Source:Global Times Published: 2016/8/23 22:38:39

China and its role in avoiding the "new mediocre" that threatens the global economy are again in the spotlight as the country prepares to hold the 11th G20 summit in Hangzhou.

Recent news about China's economy has not all been good. Economic growth has slowed, and expansion in retail sales, industrial output and investment have decelerated.

For those who cannot see the forest for the trees, pessimism and worries may persist about the state and future of the Chinese economy. Some have even pointed to China as a potential burden on global economic recovery.

The anxiety is understandable, given the huge role China plays in the world economy. The slowing Chinese economy contributed over a quarter of global economic growth and added the equivalent in size of the Swedish economy in 2015. Any faltering of the second-largest economy would ripple throughout the world.

However, if one looks a bit deeper, it is clear that the transforming Chinese economy will only improve the lackluster global situation.

Sure, the slowdown may linger, at least for the near future, as it will take time to digest the legacy of a long economic boom. And China, the largest developing and most populous country, has to strike a balance between remaking the economy and securing growth to create jobs.

From slashing industrial overcapacity to shutting down polluting factories, the short-term effects of China's efforts to nurture consumer-driven growth and reduce reliance on investment, low-end exports and energy consumption will be felt acutely.

In addition, new problems, such as high debt levels, industrial overcapacity, environmental degradation and sluggish global demand, mean the economy must be directed along a more sustainable path.

However, global investors are poised to reap gains from a more robust market.

As David Dollar, a senior research fellow at the Brookings Institution, puts it, China's continued strong growth in recent years, despite slowed investment, was achieved thanks to increasing consumption.

China's economic growth is entering a positive cycle, as domestic consumption grows due to rising wages, leading to the expansion of services, which generate more jobs and higher spending power, said the former official of the World Bank.

For China's massive economy, the transition to a service and consumption-driven economy, accompanied by an improved social security system, will unleash huge demand and business opportunities.

From Uzbek cotton to Chilean wines, from Brazilian soybeans to Ecuadorian seafood, from Japanese robots to US movies, more and more countries are discovering the growing market for their exports as China's 1.3 billion people become more prosperous and start to consume more.

As China transitions from being the world's workshop to an influential global consumer of goods and services, its economy will boost developing and developed countries alike.

The transition is already under way, with the service sector expanding 7.5 percent in the first half of 2016, accounting for 54.1 percent of the overall economy, up 1.8 percentage points from a year earlier.

In 2015, consumption accounted for over 66 percent of China's gross domestic product, up 15.4 percentage points from 2014.

As heavy industry and traditional manufacturing wrestle with slowing demand overseas and overcapacity at home, new engines are humming: social media, cinemas, travel and R&D are driving consumption, services and the high-tech sector.

Growing demand from Chinese consumers is set to continue, bringing more services, imports and new investment opportunities for the world economy.

China's economic transition will continue and will be positive overall for the global economy, the International Monetary Fund said in a report earlier in August.

"Many countries could only dream of achieving growth rates that China has and is likely to achieve, which also reflects positively on the reforms that Chinese policymakers have undertaken," said James Daniel, the IMF mission chief for China.

The author is a writer with the Xinhua News Agency. The article first appeared on Xinhua. 

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