Sustaining new-normal growth: experts

China's economy grew by 7.4 percent in the first three quarters of 2014. [Chinadaily Fiel photo]

Editor's Note: As China's economy enters a new normal, what are its prospects and what measures are needed to maintain stable growth? Experts discussed these issues at a recent symposium on the theme of "Growth, Structure and Drivers", held by the Chinese Academy of Social Sciences. The following are excerpts from two speeches.

　　Pastmodel of investment risks overcapacity

The economy's new normal features, above all else, a slowdown and that's where discussions are concentrated.

What has led to the slowdown? The answer to this guides thinking of the solution.

One popular forecast looks to history: Noting that the Chinese mainland's current per capita GDP is about 22 percent that of the United States, some experts are comparing it to Japan in the 1950s, the Republic of Korea and Singapore in the 1960s, and the Taiwan economy in the 1970s; all of which grew for about 20 years after those points. Thus they conclude that China could still grow at a high speed for some time.

Such a view, often combined with the logic that it is a lack of investment that has produced the slowdown, advocates more stimulus measures to maintain stable growth. This view is quite dangerous, as these measures might loosen regulation over enterprises and make "zombie" enterprises, raise financial and debt risks, and lead to overcapacity that ranges from manufacturing to infrastructure.

Another risk is in the labor market. By sending wrong signals to the market, stimulation often guides labor and relevant vocational education to industries without good prospects, thus raising fears of long structural unemployment.

To avoid these risks, we need some new thinking. In the old economic normal, it was possible to constantly raise productivity by allowing the labor force to flow from the agricultural sector into the manufacturing or service sector; but that cycle is no longer sustainable in the new normal because demographic dividends are diminishing. The new logic emphasizes the supply side as the cause of the new normal.

That requires China to accelerate innovations and adjust its economic structure, so that innovation, not investment, will drive the economy, which is also the theme of the conference, "Growth, structure and drivers". To maintain stable growth, China needs to adjust its economic structure and find new drivers.

Cai Fang, vice-president of CASS and director of its Institute of Population and Labor Economics

Global slowdown makes businesses innovate

Structural slowdown is a key characteristic that defines the new normal, and this is expected to last a long time and it cannot be reversed by any policy.

There are several causes that have led to the new normal. As the manufacturing industry is almost saturated, increasingly more labor and other resources have flowed into the service sector, which has dragged down labor efficiency as a whole.

Besides, demographic dividends are diminishing with the aging of the population, thus pushing higher the cost of labor. The aging population has also caused a downturn in deposit rates and a slowdown in the growth of investable capital.

This situation has been made worse by China's lack of innovation. When China first opened up to the world over three decades ago, it followed a mode "with both ends overseas", namely importing advanced technologies to manufacture products, and then exporting the manufactured products to the world. As the technology gap between China and the West shrinks and its protection of intellectual property rights has improved, that mode no longer applies. The pressures put on the environment have also made it impossible to continue producing in the old mode.

It should be noticed that the new normal is a global concept, too. Global growth rates remain low, trade protectionism is on the rise and different economies are taking measures in their own interests.

Even international politics is affected. The global governance mechanisms, on which the modern world relies, no longer function well; relationships among major powers are being reshaped, and the supply chains are changing.

But the new normal does not necessarily imply recession, on the contrary, it contains huge potential and there are possibilities for fast development driven by new forces. The prerequisite for exploiting that potential is a total reform of the old mode of development, which compels China to boost innovation so that it is the main driving force of future growth.

That's also the necessary measure for China to jump out of the cycle of downturn and find a new path toward prosperity.

Li Yang, vice-president of CASS