2018 another year of ‘New Normal’ realization
Approximately three years ago, the Chinese administration embarked on the attempt of transforming the country’s national economy. Qualitative and sustainable growth became the new long-term objective giving its place to the previous emphasis on the industrial output, construction activities and exports. Known as the ‘New Normal’, the then launched economic model sought to achieve a rebalancing in order to guarantee prosperity for the coming decades.
The task has been hard because this rebalancing would entail lower growth numbers instead of the double digit rates exhibited by the Chinese economy for many years. Also, the transition period could be provisionally turbulent as the 2015 stock market crisis outlined. No surprise, several Western commentators were employing disastrous scenarios. The term ‘bubble’ was extensively used – especially in relation to the housing market – and concerns for serious consequences at the international level were raised.
A clerk, right, helps a woman shop for chicken at a supermarket in Beijing, Friday, May 12, 2017.[Photo: AP/Mark Schiefelbein]
The beginning of 2018 finds China robust and optimistic while its critics are in the awkward position of having to reconsider their wrong estimations. Numbers provided by the Chinese government show that growth is and will be stable almost reaching 7 percent. Numbers published by the World Bank share the same predictions. There is no grim picture of the Chinese economy any longer and fears have been generally appeased.
There is a main reason why the ‘New Normal’ is on track. This is the systematic effort of the Chinese government of making the change gradually happen. The decline in growth rates, for instance, is not an unexpected development but goes in line with specific economic goals set every year. As opposed to the 2007-2008 financial crisis, which suddenly created a wave of instability, the situation in China is different being under control. The Chinese government is able to meet its long-term objective, although the road can be sometimes difficult.
The policy of reforms is a fundamental principle of success. Governmental supervision when required in parallel with the introduction of market elements are creating a sound economic environment. Within this context, the ‘supply-side’ policy is yielding results. The excessive production capacity is being reduced, corporate costs are being reduced and the environment for innovation is being flourishing. China is slowly creating the presuppositions for relying more on domestic consumption and innovative investments instead of exports and its traditional heavy industry.
The advancement of technology along with the development of research and science are turning China into a country which will not only produce at low cost but will also create in different sectors of the economy. Even here, foundations of progress are solid. In 2015, China’s State Council has unveiled a ten-year national plan, the ‘Made in China 2025’, designed to transform the country from a manufacturing giant into a world manufacturing power.
More openness is obviously helping. China is often criticized in the West for not allowing foreign companies to invest without restrictions. This is also changing in though. A few months ago, the Chinese administration decided to increase access to the service and manufacturing sectors and relax restrictions on foreign ownership. In the words of Prime Minister Li Keqiang, ‘to make it easier for foreigners to set up enterprises, China will test a process whereby Chinese and foreign companies can register at the same window’.
On the whole, perspectives for 2018 are bright. As President Xi Jinping said during the New Year gathering the efforts in 2018 should be made to comprehensively implement the spirit of the 19th CPC National Congress. The priority will be the strengthening of the healthy and continuous development of the Chinese economy. Reform was one of Xi’s key words.
Problems do of course exist and the next twelve months will not suffice for them to be eliminated. But what matters more is the determination of the Chinese administration to look for remedies and apply them in practice. This tendency will be certainly reinforced in 2018.
(Dr George N. Tzogopoulos is a senior research fellow and advisor for EU-China relations at the Centre international de formation européenne, Nice/Berlin.)