The “new normal” is an essential step toward unleashing the potential of the Chinese economy. As the pace of development slows to a moderate rate, policymakers will continue to fine tune the industrial structure and seek new sources of growth. Compared to other countries, China’s growth rate of 6 to 7 percent is relatively high, which is conducive to structural adjustment and the formation of a new model for development. Moreover, under the new normal, China has historic opportunities.
 

China, currently an upper-middle income country, is likely to pass three milestones in the next three decades. By 2020, the GDP and GDP per capita will double relative to 2010 levels, making China a high-income country. To hit this target, the country must maintain an average annual growth rate of 6.5 percent for the next five years.

By 2030, China will surpass America to become the largest economy in the world. This requires an average annual growth rate of 5.5 percent from 2020 to 2030. Furthermore, by 2050, China will catch up with developed countries in terms of GDP per capita as long as it maintains growth comparable to the world average for the intervening two decades.

China has a solid foundation to realize these milestones. There are three basic factors that affect the growth rate: labor, capital and total factor productivity. Of these, only the labor supply, which is dwindling due to a decline in the working-age population, has the potential to negatively affect growth, but it is not severe. The nation’s industrialization drive has entered its final sprint and the country is undergoing a period of accelerated urbanization, creating the conditions for a sustainable economy.
 

Geographically, more balance in regional development has also lent support to sustainable growth. Regional imbalances are a manifestation of an underdeveloped economy and represent a stage major developing countries are bound to undergo. At present, the eastern part of the country is completing industrialization, and its growth rate is slowing, while growth is accelerating in other areas that have not achieved full industrialization, unleashing great potential for long-term development.
 

The nation is experiencing demographic challenges, such as slow population growth and population aging. However, the large population of China, which accounts for 22 percent of the world’s total, will continue to contribute to sustainable development. In addition, the progress of urbanization has brought profound changes to the population structure, stimulating new demand and supply. Rural life has been transformed in the process, thus creating new demand. Moreover, accelerated urbanization is closing the gap between urban and rural incomes, and total national savings are increasing.

To seize these opportunities, the key is to seek new sources of growth. China should increase investment in innovation to upgrade leading industries, in modern services to promote post-industrial development, and in energy and green industries to support long-term growth as well as in education and health to accumulate human capital.
 

Moreover, policymakers should focus on supply improvement because high-quality supply will create demand while low-quality supply will restrain demand. Low consumer demand is mainly attributed to low-quality supply. In areas that lack information transparency, such as health care and food, quality cannot be guaranteed. Therefore, China should strengthen quality supervision and optimize the product mix to provide effective, high-quality supply, which will in turn expand demand.

 

The article was translated from the People’s Daily. Liu Wei is president of Renmin University of China.