Editorial Notes

Can China carry out needed reforms to achieve 'new normal' economy?: The Japan News

The administration of Chinese President Xi Jinping is aiming at the "new normal", a policy designed to shift from investment-led high growth to consumption-led stable growth.
The administration of Chinese President Xi Jinping is aiming at the "new normal", a policy designed to shift from investment-led high growth to consumption-led stable growth.PHOTO: EPA

In its editorial on Oct 22, 2015, The Japan News says that it is important for China is to concentrate on facilitating a structural switch as a means of improving the quality of its economy, instead of implementing temporary economic stimulus measures.

There is an even clearer sign that the Chinese economy is slowing down.

How will China promote structural reforms that entail pain while also trying to prevent its domestic economy from slumping further?

Close and unremitting attention must be paid to the consequence of "China risk", a factor that can cast a shadow on the global economy.

During the July-September quarter, China's real gross domestic product increased 6.9 per cent from the same period last year.

China's gross domestic product (GDP) rate fell below the 7 per cent mark for the first time in 61/2 years, following a similar drop during the January-March period in 2009 in the wake of the so-called Lehman shock.

The latest GDP drop was mainly due to sluggish growth in corporations' capital investment and production activities.

The administration of Chinese President Xi Jinping is aiming at the "new normal", a policy designed to shift from investment-led high growth to consumption-led stable growth.

The Chinese leadership lowered its growth target for this year from "around 7.5 per cent" to "around 7 per cent".

It has said the latest economic slowdown has taken place in accordance with the administration's policy, emphasising that the situation was within the scope of the anticipated target.

However, it is probably premature to believe that China will be able to bring its current economic condition to a soft landing under the current circumstances.

Even the latest 6.9 per cent growth has been barely made possible through a mix of various policies, including repeated monetary relaxation and additional public works projects.

Furthermore, it is generally believed that China's actual growth rate is much lower judging from statistics such as the volume of railroad traffic and electricity consumption.

There are concerns that the Chinese government may have sought, first and foremost, to come up with "plausible figures" to save face. Doing so would put the essential reform efforts on the back burner, making it impossible for China to draw up a road map for the pursuit of stable growth.

What is important for China is to concentrate on facilitating a structural switch as a means of improving the quality of its economy, not just implementing temporary economic stimulus measures.

To be more specific, there is a pressing need for China to carry out reforms at inefficient state-owned enterprises.

The country must increase the percentage of private-sector corporations in its economic activities while also making it possible for them to use their abilities without restraint.

It is also necessary for China to fundamentally reconsider its financial system if it wants to attract foreign capital and further rejuvenate its economic activities.

A particularly important task is to liberalise interest rates and relax regulations on transactions involving the yuan.

This summer, China triggered a sharp stock price fall worldwide after it abruptly devalued its currency.

It is essential for China to correct its self-righteous policy management, a task necessary for gaining the trust of the international market.

China is only seeing slow progress in its efforts to eliminate excess in production facilities and inventory.

This has been coupled with slackened growth in the corporate sector's capital investment and production activities, as well as a downturn in the amount of imported raw materials.

On the other hand, the level of personal consumption has been favourable.

Such trends in the Chinese economy are likely to last for some time, given that China is seeking to achieve a shift to the new normal.

We believe Japanese corporations need to rethink their business strategies so they can adapt themselves to changes in the Chinese market.

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The Japan News is a member of The Straits Times' media partner Asia News Network, a grouping of 22 newspapers seeking to promote coverage of Asian affairs.