No need for panic about China's economy

2016-02-23 14:08Xinhua Editor: Gu Liping

Despite slower growth and market volatility, China has plenty of good news to offer.

Skyscanner, a global travel search site headquartered in the United Kingdom, is a case in point to question the fears about China.

The company announced last week it saw a 67-percent jump in Chinese visitors to the site in 2015, helping boost its revenue by 28 percent to 183 million U.S. dollars.

"We have to understand China better," Shane Corstorphine, chief financial officer of Skyscanner, said in an interview with CNBC on Friday, calling increasing outbound travel from China "a major opportunity."

Concerns over China are natural, given the country's economy is in its most protracted downshift since the late 1970s, which has been accompanied by recent stock market fluctuations and a weakening currency.

However, a broader long-term perspective will help companies such as Skyscanner make more sensible strategies for China.

The sources of pressure are undeniable: soft property investment, bloated industries and slumping trade. But sound fundamentals justify a positive outlook for China's future growth.

That judgment led U.S. computer chip giant Intel to invest 5.5 billion U.S. dollars in its plant in northeast China's Dalian City last October to produce the company's most advanced memory chips.

Intel cares more about China's market demand five to 10 years from now than its GDP growth for one year, said Richard Howarth, vice president of Intel's Technology and Manufacturing Group and general manager of Intel Semiconductor (Dalian) Ltd.

For the moment, even though China recorded its slowest expansion in 25 years in 2015, employment and consumption remain resilient.

The registered unemployment rate in China's cities was 4.05 percent at the end of 2015, better than official targets. Consumption contributed 66.4 percent to economic growth, up 15.4 percentage points from 2014.

China also has enough ammunition to stop further deceleration, with the world's largest foreign exchange reserves, a huge trade surplus, room for monetary and fiscal maneuvering, and a certain degree of capital control.

Those conditions make the possibility of a crisis in China much smaller than in other economies, economist Marie Owens Thomsen of the French bank Credit Agricole wrote on the Chinese website of the South China Morning Post during the weekend.

Chinese vice finance minister Zhu Guangyao asserted on Saturday that China's economy "will surely continue to grow."

"China's fundamentals remain strong, with high resilience, ample leeway and huge potential," said Zhu at a forum. "None of those has changed."

There's a big distance between a slowdown and a crisis, and the former does not necessarily entail the latter.

To avoid misunderstanding, observers who simply base their reasoning on Western experiences need to think out of the box.

In developed economies, new investment opportunities are rare once there is excess capacity, but China is still in the process of industrial upgrading and urbanization, with strong need for investment in urban infrastructure and environmental protection, said Justin Yifu Lin, former chief economist of the World Bank.

Unlike other developing economies, which have investment opportunities but face fiscal constraints, China has plenty of resources, with lower government debt and high household savings, Lin explained.

Reform is another promising hedge against the downturn. China is cutting administrative red tape, overhauling state-owned enterprises, and removing barriers to let the market play a decisive role in resource allocation.

Those measures, along with efforts to reduce corporate burdens, improve financial efficiency and stimulate innovation, will help China increase productivity and overcome difficulties, said Xu Hongcai, an economist at the China Center for International Economic Exchanges.

"Reform remains China's biggest bonus," he said.

Thanks to streamlined bureaucracy, 12,000 companies were registered in China daily on average last year, up from 10,000 in 2014 and 6,900 before the reform.

Thriving entrepreneurship attests to market vitality, which is a key force shaping China's economic trend, said Zhang Mao, head of the State Administration for Industry and Commerce, at a press briefing on Monday.

Jin Keyu, professor of economics at the London School of Economics, saw significant opportunities for China to achieve stable growth based on efficiency and productivity gains from deepening reform, rather than merely consumption.

While acknowledging government reform will be difficult to deliver, Jin believes action will become unavoidable if economic conditions worsen.

"Good times may breed crises in the West," Jin wrote in an article on news site Project Syndicate. "In China, it is crises that bring better times."


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