Quality matters, not quantity

New normal means slower economic growth, but the government can press ahead with reform for restructuring and resilience

The Chinese economy has entered a new normal as the government pays more attention to the economy's restructuring than its speed of growth.

This year's economic growth is expected to be between 7.3 percent and 7.4 percent, which is within a reasonable range.

At the same time, the global economic situation shows the following characteristics that have close connections with the Chinese economy: economic growth has slowed, the falling prices of oil and other staple commodities reflect the lack of driving force for economic growth, the economic policies of the major economies lack coordination, the global economic structure is adjusting, reform of global governance system has stalled, and the contribution of labor and capital to economic growth have declined.

Because of these, new technology has become a key economic growth point.

The Chinese economy's new normal will last for quite some time. But with the per capita gross domestic product in China near $6,800 last year, the country needs to avoid the middle-income trap. The main mission therefore is to transform the economic growth model, so that innovation replaces the large inputs of investment and labor as the main driving force boosting economic growth. This new model of growth will also save more energy and better protect the environment.

Under the new normal, Chinese economic growth will slow, but the growth will be of higher quality and resilience, and more environmentally friendly. The industries will move to the higher end of the industrial chain, with more added-value generated through innovations. The service sector will contribute a larger proportion to the economy, and private businesses will see a big improvement in their business environment and the private sector will become the main player in the market.

Small and medium-sized enterprises and emerging industries will become new growth points for the economy, and these enterprises will become not only the main employers, but also the main innovators.

The gap between the rural and the urban areas, between the coastal areas and the inland areas will gradually be reduced, with the modernization of agriculture, reallocation of industries and the development of the countryside. Public resources will be distributed more fairly across the nation.

This year, China became an exporter of capital for the first time. Exports of capital can help China balance its outbound economy and it will have a stronger capacity for participating in the reconstruction of global industrial chains, supply chains, and value chains.

In the new normal, the middle-income group will be the main consumers at home. By 2020, this group will have about 600 million people, and their overall annual consumption will be three times that of 2010. China will have a large and mature consumer market and people's increasing purchasing power will be more stable.

To harness the potential of the new normal and avoid falling into the middle income trap, the Chinese government must press ahead with reform, opening-up and innovation, and make good use of the Chinese economy's resilience, potential and space.

Reform and opening-up is a basic State policy in China, and it is crucial for China's future. Reform can create new institutional conditions for the necessary innovation, while opening-up can help China benefit from international experience.

China has basically established a socialist market economy. But market reform is far from finished. An important mission for future reform is to remove the institutional obstacles that are against the basic rule of the market economy.

To make the best use of the new normal, China must let the market play a decisive role in allocating resources, and let all economic players actively participate in the market. The government should divert its attention from prior approval to supervision and build a fair and transparent market environment.

Declining exports require China to implement new countermeasures in its outbound economic activities. China also needs to actively participate in global governance reform and promote the construction of multilateral and bilateral trade and investment systems.

Making innovation the top priority in economic development is essential if China is to overcome the middle-income trap. While technological innovation is the core, innovation also refers to business model innovation and management innovation.

The government needs to ensure the financing for innovation, protect intellectual property rights and lower the tax burdens for innovators.

The author Zeng Peiyan is president of the China Center for International Economic Exchanges and former vice-premier.