Premier Li Keqiang, in his report on government work, set a 7 percent GDP growth goal in 2014. A pervasive view, both at home and abroad, is that this goal, which gives consideration to both demands and probability, can be achieved because of its practical and objective features. Nevertheless, other opinions hold that this goal is somehow too high. Some even think that there will be a "hard landing" in China's economic development, which will deter global economic recovery. Viewed from new changes in economic circulation and current domestic and international environment, China's economy is expected to maintain a steady growth and the GDP growth target of 2014 will be achieved as expected.

Understanding China's current economic growth

History of the world's economic development shows that no country can maintain rapid economic growth forever. Although Japan and West Germany produced the "Japan economic miracle" and "West Germany economic miracle" in the postwar era, they could only keep this growing trend for about 20 years, after which a drastic decline occurred. Since China's reform and opening up, China has kept up an annual growth rate of nearly 10 percent for almost 30 years, called the "China economic miracle". At this stage, the costs of demographic change and labor force are increasing; traditional advantage is diminishing; more industries have reached or approached the world’s current technology frontier; a high-input, high-consumption and high-pollution developing mode severely strains resources and the environment and ecology. A 1 percent economic growth is obviously different from previous years, and to achieve this goal will be more difficult. In 2000, each percentage-point rise in GDP needed a nominal growth of 98 billion. But in 2013, this number reached 530 billion, 5.4 times the number in 2000; economic growth in 2013 amounted to 42 percent of the economy in 2000. The world economy and the international division of labor have stepped into a new period of adjustment, creating big changes in the original competitiveness and room for growth in developing countries. Therefore, a moderate decline of China’s economic growth at the present time is inevitable and follows the general law of global economic development.

Viewed from a developing trend, China's economic development has many advantages. For example, economic reform will provide energy for growth; urbanization still has huge potential; consumption upgrade is more obvious than before; China's competitive advantages are unshakable and new opportunities will appear in globalization. Since last year, under the pressure of a slowed economic growth, Chinese government created new forms of macro-economic control as well as worked to transform the economic development pattern, to restructure the economy, to improve the quality and efficiency of economic growth, to defuse tensions and dissolve risks, which will lay a more solid foundation for a continuous and stable economic development in China.

It is estimated that in the next 10 years, China will maintain economic growth of 7 percent. It is predicted that the goal of doubling the GDP since 2010 will be achieved if the annual growth rate of GDP can reach 6.7 percent during 2014-2010.

In 2013, China's GDP was 56.9 trillion yuan, or $9.18 trillion using the average exchange rate of 1:6.2. This number is more close to a trillion dollars more than the GDP in 2012, covering more than 12 percent of the global economy. Although the decline of our economic growth has stayed below 8 percent for almost two years, our economy is still a major source of the world’s economic growth and plays an important role in promoting global economic recovery, of which our share of global GDP was around 20 percent.

New engine for economic growth

Now China’s economy is at a crucial stage of rapid growth toward 7 percent. The transformation of growth is not only a change in the rate of growth, but more important, it is a transformation of engines for growth. During the past 30 years, economic growth mainly relied on the combination advantages of low-cost elements. And in the future, it will rely more on the innovative vitality of businesses and individuals and enlarge the space for innovation, which then will be an impetus to industrial transformation and upgrading; additionally, instead of transferring agricultural labor to non-agricultural, an increase of efficiency will be achieved through competition and reconstruction within the industry and through eliminating low-efficiency enterprises.

The Decision on Major Issues Concerning Comprehensively Deepening Reforms, passed at the Third Plenary Session of the 18th CPC Central Committee, aimed to lay a new institutional foundation for such transformations. We will see that our economy will run successfully under a lower growth rate, the relationship between scale and quality, speed and benefit will achieve a new balance and a "down-the-steps"of growth rate and an "up- the-steps"of growth quality can both be achieved. In the coming years, the economic structure of China will undergo significant changes. A new engine is forming.

First, growth of the service industry is accelerating. In 2013, the added value of the tertiary industry increased by 8.3 percent, 0.2 percent higher than last year and 0.5 percent higher than the secondary industry; it took up 46.1 percent of GDP, higher than the secondary industry for the first time. Among them, industries like energy efficiency, environmental protection, cultural tourism, online finance, science and technology maintained high growth rates.

Second, there is new progress in the transformation and upgrading of manufacturing. In the face of an increase in costs for labor, land and funds, manufacturing companies are exploring strategies such as "emptying the cage, removing the bird", "replacing human with machine", "land swap in fixed space" and "a market change of electricity company". The strategies can help to reduce costs and improve efficiency. Meanwhile, there is new development in their transforming and upgrading process.

Profits made by industrial enterprises above designated size increased by 12.2 percent in 2013, 6.9 percentage points higher than in 2012; companies' losses were 11.9 percent, 0.2 percentage point drop from last year; the number of new registered companies increased by 27.6 percent, and the weight of non-government in total social environment increased to 63 percent, all of which showed that the vitality of our enterprises was growing.

Third, consumption patterns are increasingly improved. We will vigorously overhaul the costs of officials visiting foreign countries, purchasing vehicles and official entertainment. And bubbles in high-end consumption are squeezed out. High-end restaurants and entertainment companies begin to target the masses. Meanwhile, new consumption areas or forms are emerging. These areas and forms include information consumption, cultural tourism and e-business. Optimization and upgrading of consumption pattern tend to lead to a healthy development state.

Fourth, export growth in high-tech and labor-intensive products are higher than the international average. In 2013, high-tech exports increased by 9.8 percent, accounting for 30 percent of the total export value. Competitive advantages of high-end manufacturing products got stronger. Exports in the seven categories of labor-intensive products- textiles, clothing, luggage, shoes, toys, furniture and plastics - increased by 20.9 percent, which showed that traditional competitive advantages were still strong.

Fifth, employment is getting better. With the shrinking of the working-age population, new-added employment pressure slows down, the proportion of service industry is rising and what's more, economic growth, its ability to receive new employers rose. In 2103, China created 1.31 million new jobs in urban areas, 440,000 more than last year. At the same time, the structure of the workforce is undergoing major transformations and education levels are rising. In 2013, the population of graduates from universities and colleges was 6.99 million, its share of new jobs in urban areas increased to 53.4 percent.

Last, the incomes of both rural and urban residents have increased steadily. In 2013, the per-capita disposable incomes of urban residents increased by 7 percent in real terms, while the rural per capita net income grew by 9.3 percent. About 1.65 million people in rural areas were raised out of poverty. The differential in the city and countryside inhabitant income was reduced to 1:3.01 and the Gini fell to 0.473. Meanwhile, individual income distribution improved.

2014 economic growth expected to meet goal

In 2014, the world's economy is still in the recovery stage after the crisis. But the overall trend tends toward stability. Although the recovery of America and Europe's economy could help stabilize emerging markets, we still need to attach great importance to the influences of America's exit from the Quantitative Easing strategy, risk and hit brought by capital flows and other underlying risk factors like inflationary pressures. Overall, the global economy growth in 2014 is predicted to be a little higher than in 2013, and there will be a mild improvement in China’s external economic situation and external demand. It is estimated that China’s export growth will reach around 8 percent in 2014.

Domestic investment and consumption growth will remain basically stable. In fixed assets investment, the supportive role of the growth industry is progressive enhancing. Investments in competitive industries in moderate concentration like textiles and home appliance industry are expected to remain stable; investments in industries like drugs, instruments, and office equipment will enjoy strong growth; led by the upgrading of consumption structure and more social spending by government, industries like culture & sports, commerce service, environmental protection, wholesale and retail are expected to maintain continuing high-speed growth. It is estimated that the fixed assets investment will increase by about 18 percent in 2014 and its contribution to our economic growth will slow down. A steady income growth of urban and rural residents, an improvement in the state and structure of employment, a reduction in the gaps between rural and urban incomes, and an optimization and upgrading of the consumption structure will lay a good foundation for a steady growth in consumer spending. It is predicted that consumption's contribution to economic growth will rise slightly.

This is the first year of China's new reform. We can further activate or release market potential and vitality and improve market expectations by fully implementing the spirit of the Third Plenary Session, breaking up monopolies, expanding market access, eliminating unreasonable restrictions, increasing the degree of market orientation in fields of fundamental industries, perfecting product and element market and correcting mismatches and misallocation of resources. At the same time, in accordance with the macro-control policy proposed in the government work report, favorable conditions for achieving our 2014 economic growth goal will be created by continuing to implement a proactive fiscal policy and a prudent monetary policy, maintaining basic stability of aggregate demand, preventing and eliminating the risk of real estate bubble and platform of investment, actually reducing the supporting and operation costs, and finally by making China’s economic transformation run smoothly and in good order.

Authors: Yu Bin, research fellow, and Ren Zeping, deputy research fellow, Development Research Center of the State Council

Source: People's Daily, March 10, 2014