China on the road to 34New Economy34: First impressions

(MENAFN- The Journal Of Turkish Weekly) China’s first quarter economic figures for the year reflect positive signals for China’s “New Economy” a concept projected by the Chinese government to guide the country’s economic policies during the period outlined in its 13th Five-Year Plan from 2016 through 2020. Stressing his confidence in the government’s newfound strategy Chinese Premier Li Keqiang delivered a government work report during the last session of the 12th National People’s Congress on 5 March noting the challenges and prospects that accompany the remarkable yet demanding transformation and structural reform of the Chinese economy. The Chinese economy experienced 6.9 percent economic growth in 2015; yet following three decades of much more outstanding figures this decreased rate preoccupied economies across the globe amid a flurry of pessimistic chatter on the prospects of the Chinese economy.

Nonetheless some commentators saw China’s less than desirable economic situation as the new threshold to be surpassed before the Chinese economy could reach new heights. In this context according to Xinhua News Agency the Chinese government moved to restructure the economy. As mentioned above the government released a new work report to address serious obstacles to economic reform including unbalanced uncoordinated and unsustainable development. In the report the Chinese government reiterated its ambitions to stabilize the economy declared targeted annual economic growth between 6.5 and 7 percent for the 2016-2020 period and announced its desire to transform China’s export-oriented economy into one that is more consumption-based. In line with these policies Premier Li declared that old and inefficient traditional industries like steel and construction companies will be narrowed to eliminate overproduction.

After the release of the government work report some economists scholars and writers especially in the Western media raised questions over the likelihood of the success of China’s new reform program. Critics specifically highlighted such points as China’s mounting credit in the first quarter and the limited share of domestic consumption in the country’s economic growth. For example according to the Wall Street Journal “more credit and debt-fueled spending helped China ease a slide in growth” yet could perpetuate preexistent ills in the Chinese and ultimately global economy. According to a statement of the People’s Bank of China outstanding bank lending stood at 15.18 trillion US dollars in the end of March up 14.7 percent year on year. Considering this a closer look at the data reveals quickening credit growth in new economic sectors composed of small-sized innovation-based enterprises and startups a point that was in fact articulated in the government work report. According to Chinese economists this buildup of China’s credit was required to cushion a potential slowdown resultant from the county’s planned transition from traditional inefficient industries to more efficient advanced technologies and innovation-based industries. “This growth is within a reasonable range considering the fact that pro-growth measures recovering property markets and rising commodity prices created a demand for loans” said Ma Jun Chief Economist at the People’s Bank of China as quoted by the Shanghai Daily News Agency.

Another convincing point for the Chinese argument is that credit growth for the less developed central and western provinces outpaced that of the more developed eastern provinces. This trend parallels China’s efforts to neutralize inequalities between the regions especially those between its eastern and western provinces. Moreover considering the fact that the most important aim of China’s “New Economy” is to increase and stabilize domestic consumption to underpin its robust economy this rise in credit slightly accelerated domestic consumption which accounted for more than 60 percent of economic growth in the first quarter.

All in all China’s economic transformation policy has already acknowledged the country’s economic slowdown when compared to previous years’ growth rates. Credit growth and debt-fueled spending can be challenging for China if the government cannot manage the traffic between strategic sectors which will be driving the “New Economy”. Yet as noted by the Xinhua News Agency China’s first quarter figures illustrate that the country’s strategic orientation seems to be pointed in the right direction.