China's lower growth rate is now the "new normal" as its economy matures, but concerns over a hard landing are overblown, experts told a forum yesterday.
The new normal, they said, is inevitable and brings its own benefits. Slower growth is conducive to the Chinese government's efforts to restructure and rebalance the world's second-largest economy.
"It's a slowdown, but only by Chinese standards. China can't be expected to grow 6-7 per cent forever; no economy can keep growing at such high rates," Professor John Wong of the East Asian Institute at the National University of Singapore told close to 200 people at a quarterly briefing as part of The Straits Times Global Outlook series.
China's US$1 trillion (S$1.36 trillion) economy, a crucial driver of global growth, grew by 6.9 per cent last year, the slowest rate in 25 years. It is tipped to expand just 6.5 per cent this year. Exports growth, long in the double digits, fell into negative territory. Investment rose by just 8 per cent compared with the 20 per cent seen only a few years ago.
Yet, to President Xi Jinping, the "new normal" can be a chance to step up reforms and rebalance and restructure the economy, Prof Wong said. He noted that Mr Xi is driving economic policy instead of leaving it to Premier Li Keqiang as is the longstanding practice in the Communist Party.
Domestic demand and the service sector have risen to account for a larger share of gross domestic product (GDP), with consumption becoming the main driver of growth last year. At the same time, steel plants have been closed amid overcapacity while inefficient state-owned enterprises are being shaken up.
"China's economy is really being restructured; growth used to be externally driven and labour intensive, now it's domestically driven and capital intensive," said Prof Wong, who has circulated many policy-related reports to the Singapore Government.
China's most pressing challenges and its longer-term growth prospects were the focus of yesterday's briefing, organised in partnership with sponsor OCBC Premier Banking. The last briefing, in August, will be on India, another rising power in Asia, and will lead up to the ST Global Outlook Forum in November.
China's economy is really being restructured; growth used to be externally driven and labour intensive, now it's domestically driven and capital intensive.
PROFESSOR JOHN WONG, of the East Asian Institute at the National University of Singapore, on the benefits that China's lower growth rate brings
Prof Wong, ST's senior regional correspondent Li Xueying and Mr Teo Joo Wah, chief strategist with OCBC Group's Lion Global Investors, analysed recent political, economic and financial issues that have put Beijing on the defensive and the world on guard.
Ms Li outlined political challenges for China in the form of Hong Kong and Taiwan where pro-independence movements look set to flare up in the coming years.
"Hong Kong and Taiwan are shaping up to be bigger headaches than ever for China. I don't see any resolution of the issues in the near future," said Ms Li .
Mr Teo outlined investors' top worries about China's slowdown and its volatile stock market.
"China's policy actions don't assure people that policymakers know what they are doing," said Mr Teo, referring to the overheated stock market, the resulting turmoil last year, and the authorities' ham- fisted corrections, such as a circuit breaker that "doesn't work".
Both Mr Teo and Prof Wong also identified two main challenges facing Beijing as it tries to manage the slowdown: increasing debt and the stability of the renminbi.
The national debt has risen from 125 per cent to 254 per cent of GDP in the past 10 years, noted Mr Teo.
"When the economy cools down, good debts may become bad debts," quipped Prof Wong.
Maintaining a stable renminbi, which affects exports, is also difficult, given weaker GDP as well as investment growth, capital flight and a stronger US dollar. Mr Teo noted more than US$600 billion flowed out of China last year, while the renminbi was devalued by 5 per cent.
Beijing's huge task is to maintain a delicate balance between stability and reform, said the experts.
"They will take two steps forward but if they find it too painful, they will take one step back," said Mr Teo.