Economic Work Should Adapt to the “New Normal” of China's Economic Development

Between December 9-11, 2014, the Central Economic Work Conference was held in Beijing. Xi Jinping, General Secretary of the CPC Central Committee, President and Chairman of the Central Military Commission, delivered an important speech. The speech was included in The Governance of China by Xi Jinping Vol. 2, published by Foreign Languages Press in English.

The speech pointed out: “The meeting held that in order to understand the current situation scientifically as well as in order to accurately judge the future trend and prospects, we must understand the stage characteristics of China's economic development historically and dialectically, and accurately grasp the new normal of economic development.”

The “Speech” is based on the judgment that China's economic development is in the phase of "three stage superimposition", namely the period of changing gears of growth, the period of structural adjustment and the period of digestion of previous stimulus policies, and the analysis of the characteristics of the new normal of China's economic development, and the analysis of the trend changes brought about by the new normal of China's economic development from nine aspects.

Firstly, from the perspective of consumer demand, China’s consumption in the past had obvious imitation wave-type characteristics. Now, the imitative wave-type consumption phase has basically ended, and personalized and diversified consumption has gradually become mainstream, ensuring product quality and safety, and activating demand through innovative supply. The importance has increased significantly, and correct consumption policies must be adopted to release consumption potential so that consumption will continue to play a fundamental role in promoting economic development.

Secondly, from the perspective of investment needs, after more than 30 years of high-intensity large-scale development and construction, traditional industries are relatively saturated, but infrastructure interconnection and some new technologies, new products, new business models, and new business models have a lot of investment opportunities. New methods of financing have been put forward, and we must be good at grasping the direction of investment, eliminate investment barriers, and make investment continue to play a key role in economic development. China's total savings rate is still high.

Thirdly, from the perspective of exports and balance of payments, the international market space expanded rapidly before the international financial crisis, exports became an important driving force for China's rapid economic development, now that global demand is sluggish, and China's low-cost comparative advantage has also been transformed. At the same time, China's exports Competitive advantages still exist, and high-level introductions and large-scale outbounds are happening simultaneously, and steadily advance the internationalization of the RMB, the internationalization of RMB has increased significantly, and the balance of payments balance is moving towards a balance of payments. We must accelerate the cultivation of new comparative advantages, positively influence the reconstruction of international trade and investment rules, and make exports continue to play a supporting role in economic development. We must step up the cultivation of new comparative advantages so that exports will continue to play a supporting role in economic development.

Fourthly, from the perspective of production capacity and industrial organization mode, the traditional industry's supply capacity has greatly exceeded demand. Under the condition of overcapacity, industrial structure must be optimized and upgraded, corporate mergers and reorganization, and relatively concentrated production are inevitable. With the rapid development of internet technology and the emergence of innovative methods, the role of emerging industries, service industries and small and micro enterprises is more prominent, and production miniaturization, intelligence, and specialization will become new characteristics of industrial organization.

Fifthly, from the comparative advantages of factors of production, the population is aging, the total population of working age is decreasing, and the surplus labor force in agriculture is decreasing. As the quality of factors continues to improve, economic growth will be more relying on the quality of human capital and technological progress, innovation must be the new engine driving development.

Sixthly, from the perspective of market competition, competition is gradually shifting to qualitative and differentiated competition. Consumers pay more attention to quality and individualization. Competition must grasp the potential market demand and meet demand through supply innovation. Enterprises rely on preferential policies such as taxation and land to form competitive advantages, and the way that foreign capital exceeds national treatment has become unsustainable, unifying the national market and improving the efficiency of resource allocation are endogenous requirements for economic development. We must deepen Reform and Opening-up, accelerate the formation of a unified, transparent, orderly and standardized market environment, and create conditions for full market competition.

Seventhly, from the perspective of resource and environmental constraints, the carrying capacity of the environment has reached or approached the upper limit, making it difficult to carry high consumption and extensive development. The people's demand for ecological products such as fresh air, clear water and clean environment is becoming more and more urgent, and the ecological environment is becoming more and more precious. It is necessary to comply with the people's expectations for a good ecological environment and promote the formation of a new green and low-carbon cycle development method.

Eighthly, from perspective of economic risk accumulation and mitigation, as the economic growth rate is reduced, various hidden risks are gradually manifested. Some of these risks come from the government’s offside behavior in the adjustment of economic structure, some from the blind investment of market entities during economic prosperity, some come from excessive commitment without long-term considerations, and some are directly related to the impact of the international financial crisis. The risks are generally controllable, but the work of guarding against various types of risks with high leverage and financial bubbles should continue for a period of time.

It is necessary to treat both the symptoms and the root causes, as well as setting up a sound institutional mechanism to resolve various risks.

Ninthly, from the perspective of resource allocation mode and macro-control methods, the marginal effect of the comprehensive stimulus policy is obviously diminishing in terms of demand; on the supply side, it is not only necessary to comprehensively resolve the excess capacity but also explore the future industrial development direction by using the role of market mechanisms. We must comprehensively grasp the new changes in the relationship between total supply and total demand and proceed scientifically carry out macro-control, and truly form a new model of reasonable division of labor between the market and the government so as to promote development.

The speech emphasized that the above changes in trends indicate that during this stage of “three stage superimposition”, the speed of economic development will inevitably decline, but it will not decline indefinitely; the adjustment of the economic restructuring is painful, but it has a hurdle that has to be passed; early policy digestion is necessary, but the impact of various risks in the digestion process can be mitigated through effective guidance. This also shows that our economy is evolving towards a more advanced form, more complex division of labor and a more rational structure. These trend changes are both external features and internal dynamics of the new normal, some of which may further intensify, while others may change. In general, after China's economic development has entered the new normal, the growth rate is shifting from a high growth rate of around 10% to a medium-high growth rate of around 7%, the mode of economic development is shifting from a sloppy growth in terms of scale and speed to an intensive growth in terms of quality and efficiency, the economic structure is shifting from an incremental expansion to a deeper adjustment in terms of adjusting the stock and optimising the increment, and the momentum of economic development is shifting from traditional growth points to new growth points. China's economic development has entered a new normal, which is an inevitable reflection of the stage characteristics of China's economic development and is not subject to human will. We should recognize the new normal, adapt to the new normal, lead the new normal, is the current and future period of China's economic development of the great logic.

The speech pointed out that it must be clear that to say that China's economic development has entered a new normal does not change the judgment that China's development is still in an important strategic opportunity period that can make a big difference, what has changed is the connotation and conditions of the important strategic opportunity period; it has not changed the fundamentals of China's economic development that is generally positive, what has changed is the mode of economic development and economic structure. We must have an accurate, in-depth and comprehensive understanding of the changes in development conditions, follow the trend, take advantage of the situation, courageously promote reform and innovation, accelerate the transformation of the mode of economic development, effectively change the dynamics of economic development, and strive to create a new situation of economic and social development on a new historical starting point.