Cushioning a Hard Landing

By+Ding+Ying

Before 2014， China was cautiously enthused by the high-speed economic growth of the past two decades. As its economic growth rate is expected to decrease by 0.5 percentage points compared to last year， is Chinas economy going to face a “hard landing” under the pressure？

Stephen Roach， U.S. economist and senior fellow at Yale Universitys Jackson Institute for Global Affairs and former chairman of Morgan Stanley Asia， recently sat down at a seminar to address opinions regarding the question. Roach believes that a hard landing of the Chinese economy is not fact， but fiction.

Time of transition

In 2014， Chinas annual economic growth rate dropped to 7.4 percent， the first time it has fallen below 8 percent. Meanwhile， the countrys annual gross domestic production （GDP） hit a record high of 63.65 trillion yuan （about $10 trillion）.

In September 2015， amid the waning turmoil of the stock market drop， the Chinese Academy of Social Sciences released a report forecasting that Chinas annual economic growth for 2015 will be 6.9 percent.

On October 19， Chinas National Bureau of Statistics announced that the countrys GDP grew at 6.9 percent in the first three quarters of this year.

“I am China-optimistic，” stressed Roach on November 19 at the seminar hosted by China Institute in America， a nonprofit educational and cultural institution in New York City， founded in 1926.

Roach pointed out that， considering the countrys GDP， a 6.9-percent growth rate is high enough for China， which is now the second largest economy in the world.

Although Chinas economic growth rate is indeed slowing down， there is no reason to worry about Chinas economic future. That is because the decreasing GDP growth is still part of a natural stage of the economic transition that China is undergoing， according to Roach.“Now China is transforming from a key producer into a key consumer，” he emphasized.

China faces numerous difficulties as it transitions from investment- and export-led growth toward domestic consumption goals. Roach explained that Chinas fast-growing domestic consumption will serve as the impetus that will drive the country past relative hard times.

For example， on November 11—the so-called Singles Day in China， the leading e-commerce platform Alibabas Tmall saw its daily trade volume reach a record high of 91.22 billion yuan （$14.4 billion）， which reflected Chinas robust consumption ability and potential.

According to Roachs research， the services industry will take over 65-70 percent of Chinas economy during coming 20 years. The emerging services sector has generated development in two ways： urbanization and job creation in cities.

The Yale expert pointed out that in recent years， a majority of jobs in China have been shifting toward labor-intensive and services-led growth. The urban job creation target has been 10 million per year since 2013， while actual job growth was more than 30 percent above targeted job growth in 2013-14， he noticed. Even if the economys growth decreases in 2015， the rates at which jobs are being created have accelerated in the first nine months of 2015， added Roach.

Chinas sustainable development strategy is very rational， stated the former investment bank chairman. According to the recently released Proposal on Formulating the 13th FiveYear Plan （2016-20） on National Economic and Social Development， Chinas bottom line of annual GDP growth will be 6.5 percent， which is 0.5 percentage points lower than that of the planned growth during the 12th Five-Year Plan（2011-15） period.

The future planned growth rate of 6.5 percent is also lower than Chinas current growth rate， he pointed out. This means that the Chinese Government is not obsessed with the simple growth of a figure. “The key to an understanding of China is not in the GDP， but in the mixture of the economy，” Roach said.

He greatly applauded Chinas current innovation enthusiasm， believing it will pump up Chinas production. “You cant do productivity without innovation，” highlighted Roach.

Challenges amid chances

Chinese leaders have realized that economic transformation is a difficult but urgent task. In a speech on March 16， 2007， then-Chinese Premier Wen Jiabao pointed out that the old development model was “unstable， unbalanced， uncoordinated and unsustainable.”

During Chinas 12th Five-Year Plan period， the Chinese Government had seen great progress in employment and wage growths. However， the development of creating a safety net had been left in the dust. According to Roach， “the government is now correctly giving priority to safety net building.”

According to the proposal on formulating Chinas 13th Five-Year Plan， China will pay more attention to hukou （household registration） reform， the family planning policy， endowment insurance systems， funding mechanisms based on state-owned enterprises and healthcare reform， which are expected to greatly influence economic development.

China is undergoing economic transformation from a focus on manufacturing to services and from investment and exports toward consumption， as well as innovation-based industrial upgrades. Roach believes that against the complicated background of globalization， the Chinese Government should pay more attention to realizing more effective governance， regulation and control of its giant economy.

He suggested China take up more measures to lower risks from areas like economic reform， excesses in the equity and property market， deleveraging， anti-corruption and environmental degradation.

“The anti-corruption campaign is absolutely essential for China to realize sustainable development，” he stressed.

Christine Lagarde， Managing Director of the International Monetary Fund （IMF） said on November 13， that IMF staff assessed that the yuan meets the requirements to be a “freely usable” currency. It also proposed that the Executive Board include the yuan in the Special Drawing Rights basket as a fifth currency， along with the British pound， euro， Japanese yen， and the U.S. dollar. Roach believed such a decision will have great impact on the future of the yuan， and “it is encouraging news to Chinas ongoing financial reforms.”