China’s ‘new normal’ is still astonishing

Widespread international concerns rose when Beijing announced a week ago that it is economy grew by 6.9 per cent in 2015, just neglecting to meet the official target of seven per cent for that year.

The gloomy news out of China continues using its weakening stock exchange, its falling trade figures, its depreciating currency and its softening interest in a range of commodities. Even those discredited advocates of a “China Collapse” from a decade ago have resurfaced to create an “I-told-you-so” comeback.

But even serious China watchers are involved. Will the Chinese economy possess a hard landing? Will the underside fall out of China’s stock market? Will the Chinese government intervene to stimulate the economy, because it did on the massive scale in late 2008, to lift the rest of the world?

Those who fear China’s growth story has ended should note that only half of its 1.4 billion people are urbanized

People long for the old days, when Beijing set a GDP target at the outset of the year, simply to begin to see the real GDP numbers far exceed the state number at year’s end. They miss the commodity super-cycle, which characterized much of the first decade of the century, when China showed an appetite for devouring whatever energy and resources all of those other world could produce.

But let’s put things in perspective.

First, size matters. China’s GDP rate of growth for 2015 is indeed the slowest it has been in the past 25 years. However, it had been still an astonishing US$710 billion more as a whole value than its 2014 GDP baseline – equal to 50 per cent of Australia’s entire economy. In comparison, when the Chinese economy was accelerating at its peak rate in 2007, it added under US$500 billion to the GDP. Therefore the takeaway is the fact that China generated 22 percent more wealth in 2015, when growing at 6.9 percent, than it did in 2007 when growing at 14.2 percent.

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Second, quality matters. Even though China’s exports dropped significantly and its imports decreased dramatically last year, its overall economic structure is moving in a much healthier direction. During China’s peak GDP growth years, then Chinese premier Wen Jiabao famously said that the performance was “unstable, unbalanced, unco-ordinated and eventually unsustainable.” Beijing is correcting these complaints today.

Structural transformations for an economy of these size do create pain, uncertainty and even turmoil, as we have seen lately in China’s stock exchange. But today’s China needs to maneuver from the high-speed growth phase to some medium-high-speed growth phase; from a comprehensive development model that emphasized scale and speed to some more intensive one which emphasizes quality and efficiency, including caring for environmental surroundings; from being driven by more investment and production to being driven by innovation; and from exporting more to the rest of the world to expanding domestic consumption.

China now has the world’s largest middle class. Its service sector, still much smaller than other advanced economies by proportion, is over 50 per cent from the economy and rapidly expanding. Despite the short-term volatilities, China’s economic adjustments, if successful, have been in the earth’s welfare in the medium and long-term.

Third, potential matters. People who fear that China’s growth story is over should observe that only half of the 1.4 billion Chinese are urbanized. The ongoing migration in the countryside to cities will continue they are driving more development when the current inventory of housing and other materials are cleared in the next few years.

Beijing is also redirecting much of its infrastructure and construction capabilities beyond its borders through international mega-initiatives, like the new, US$100 billion Asian Infrastructure Investment Bank and also the “One Belt, One Road” proposal to advance cohesive economic integration across a lot of Eurasia, the center East, and Africa. Duplications of China’s economic miracle in other emerging economies are extremely possible soon.

Yes, China’s speed of development has slowed up, but only a little, and there is a lot more towards the story. With all the numbers set for 2015, China still represents some 30 per cent from the world’s economic growth for that year. And this trend will continue in the coming years, and likely decades. The planet must get accustomed to China’s economic “new normal.”

Dr. Wenran Jiang is the Director of Canada-China Energy & Environment Forum along with a Global Fellow at the Woodrow Wilson Centre for International Scholars in Dc.