Xi's ‘new normal’ theory

Source:Xinhua Published: 2014-11-10 10:05:28

The "new normal" theory elaborated by Chinese President Xi Jinping would be one of the hallmarks to be engraved in history by the ongoing meetings of the Asia-Pacific Economic Cooperation (APEC) in Beijing.

In his speech delivered to over 1,500 business leaders from the Asia-Pacific region at the APEC CEO Summit on Sunday, Xi, for the first time ever, sketched out a full picture of Chinese economy's "new normal."

"A new normal of China's economy has emerged with several notable features," the President said.

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

New normal vs old normal

"New normal" is nothing new. It was first popularized by the California-based bond fund giant Pacific Investment Management Co. to describe below-average growth after the global crisis.

The term gained ground in China when in May, President Xi, during his inspection tour in central China's Henan Province, described the need to adapt to a "new normal" and remain cool-headed as the brakes went on.

The world's second-largest economy is having a rocky year, with growth having slid to a low not seen since the 2008/09 global financial crisis in the third quarter, dragged by a housing slowdown, softening domestic demand and unsteady exports.

This slowdown is labelled the "new normal," because there used to be an old one.

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. Along with this came the change of the destiny of several hundred millions of Chinese, which were lifted from abject poverty.

However, the "good old days" cannot last forever. Growth decelerated to 7.7 percent in 2012 and 2013, and in the first three quarters of 2014, we saw a figure of 7.4 percent.

Even if this can continue, it is something not desirable, as the three decades of almost uninterrupted double-digit growth came at a high price of choking air pollution and exhaustive exploitation of natural resources.

It is long overdue to rethink China's growth story under a new normality, with new thinking and a new framework.

New normal, new mode

The Chinese economy does need a break and, more importantly, an overhaul, which weans it from the unsustainable growth mode.

Some analysts saw the "new normal" as a synonym of slowdown, and got nerved at the lukewarm data about the engine of the global economy.

An article in the UK's Daily Telegraph in September gave China's slowdown as No.1 in "10 warning signs of global financial meltdown".

Slow down is an important part of the "new normal," but it is far from the whole story of it.

The essence of the "new normal" is not just about speed. It is more relevant to an improved economic structure which relies more on the tertiary industry and consumption demand, and innovation.

This change is already happening. In the first three quarters of this year, final consumption overtook investment by contributing 48.5 percent to economic growth, official data showed.

The value added of the services industry, accounting for 46.7 percent of GDP, continued to surpass that of the secondary industry.

Hi-tech industry and equipment manufacturing industry grew by 12.3 percent and 11.1 percent respectively, notably higher than the average industrial growth rate.

These figures show that the Chinese economy is undergoing profound structural changes and improving in quality and structure, Xi said.

The new normal doesn't mean there are no risks. The Chinese economy is currently faced with potential risks arising from property bubble, financial sector, shadow banking, overcapacity, and lack of innovation.

"Indeed, there are risks, but not that formidable," Xi said.

"Resilience best equips the Chinese economy against risks." "Given the strategies and policy options at our disposal, we have the confidence and capability to cope with potential risks," Xi said.

Reassurance & new opportunities

Chinese leader's elaboration about the "new normal" on the international stage would first serve as a reassurance to the world about the health and vitality of the Chinese economy, observers said.

"A Chinese economy entering the 'new normal' would be good news for both the Asia-Pacific and the world," said Wang Xiaoguang, a policy-making expert with the Chinese Academy of Governance.

According to Xi, under the new normal conditions, China' s economy has still registered considerable increment albeit the slowdown; China's economic growth has become more stable and been driven by more diverse forces; the Chinese economic economic structure has been improved and upgraded, heralding a more stable development prospect; the Chinese government has vigorously streamlined administration and delegated power, further unleashing market vitality.

Wang said, even China's economic growth slows down, the boosting effect to the world economy wouldn't get weaker, as the Chinese economy is getting bigger.

The increment in 2013 alone is equivalent to the annual economic aggregate of 1994 and big enough to rank as the 17th in the world. Even a growth rate of around 7 percent would place the Chinese economy among the top in the world in both speed and increment.

In addition, the new normal conditions would help unleash new investment opportunities for companies at home and abroad in the service, hi-tech, consumption and urbanization-related sectors, experts said.

Easier market access and more efficient market would also come along with the "new normal," under which the Chinese government will continue to lift restrictions on the "invisible hand" of the market and ensured the proper role of the visible hand of the government.

That said, Chinese economy under the "new normal" conditions can not only avoid collapse as foreseen by some pessimists, but also provide new opportunities for the world.

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