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EUobserver publish an article by Zhang Lirong, Minister of the Chinese Mission to the EU, entitled China's supply-side structural reforms bring new opportunities to the world
2016/03/09

On March 9th, EUobserver publish an article by Zhang Lirong, Minister of the Chinese Mission to the EU, entitled China's supply-side structural reforms bring new opportunities to the world.

After decades of rapid growth, the Chinese economy is currently shifting from high speed to medium-to-high speed growth – this is what has been coined the ‘new normal’.

Reflecting important changes to China’s economic structure, the new normal emphasises quality and efficiency in lieu of scale and speed, and innovation in lieu of investment in production factors. This is a necessary stage of China’s economic development, a process of optimisation, adjustment, transformation and promotion.

Adapting to this new reality requires tackling a number of challenges. Externally, the global economy suffers from weak growth and demand is insufficient. Internally, potential growth has dropped as demographic dividends reduced, capital gains decreased and natural resources become scarce.

This has led to a number of challenges, such as accumulated structural, institutional and qualitative problems.

The problems include the fall of economic growth and industrial prices, the decline of corporate profits, the shrinkage of revenue growth and the increase of economic risks.

Although a strong stimulus policy could increase economic growth in the short-term, it is unable to raise potential growth rate, not to mention it may also result in a huge waste of resources.

Supply-side structural reforms

Since November 2015, the Chinese government has been implementing supply-side structural reforms to improve total-factor productivity, further release reform dividends, offset downward economic pressure, better meet the needs of the masses, and promote sustained and sound economic and social development.

This is an inevitable choice, reflecting needed adjustments to the current economic situation.

The supply-side structural reforms aim to deliver five key tasks: 1) reduce overcapacity, 2) reduce inventories, 3) de-leverage, 4) lower costs and 5) shore up weak growth areas. These five tasks are interconnected and mutually reinforcing.

To tackle overcapacity, the focus is on increasing mergers and decreasing bankruptcy and liquidation. To reduce stockpiles, the starting point is to fulfil the housing demand of new urban residents. De-leveraging involves resolutely stopping systemic and regional risks. To lower costs, comprehensive measures are put in place, including systemic transaction costs and cutting tax burdens for enterprises. To shore up weak growth areas, effective supply is being enhanced through poverty alleviation, cultivating newly emerging industries, etc.

China’s supply-side structural reforms will have non-negligible impacts on Chinese society. But restructuring is inevitable to fully transform China’s development mode.

China is confident and capable in coping with such challenges and indicators continue to forecast long-term growth.

Unlocking China’s economic potential

Firstly, China’s economy is characterised by its strong inner support. China’s comprehensive industrial system has endowed the country with solid material foundations. China boasts huge potential in market demand and is consistently growing and modernising. This is matched with considerable space for regional development. China has accumulated experience in macro-economic control and is now able to cope with international and internal risks to ensure economic stability.

Secondly, economic transformation is accelerating and structural optimisation has already yielded positive results. Consumption contributed 66.4 percent to economic growth in 2015, which was more than investment. The service sector accounted for 50.5 percent of GDP, surpassing the industry sector.

Thirdly, China’s economic growth is gaining speed, and the new economic momentum is building up. New industries such as hybrid or electric cars, robots and mobile internet are booming. The "Belt and Road" initiative and international cooperation on productivity and equipment manufacturing have significantly expanded the space for economic development.

Building on these achievements, China will continue to implement supply-side structural reforms to pursue its new normal course and further unlock the country’s economic potential.

Sustainable development is a key objective for China to bypass the “middle income trap”.

China's supply-side structural reforms will also contribute to the stable recovery of the global economy in the post-crisis era. China is not a drain on the global economy, but instead a major driving force.

In 2015, China enjoyed 6.9% economic growth, remaining among the world’s best performers. China’s total imports still ranked second in the world and outward direct investment was up 10% over the previous year.

According to statistics from the International Monetary Fund (IMF), China contributes over 25 percent of global growth, a figure that surpasses the United States.

The source of this achievement is the acceleration of economic transformation and building up of new economic momentum.

As supply-side structural reforms proceed, the economic development of China can substantially contribute to driving the global economy out of its current downturn.

China and the EU

Both China and the European Union are major economies who account for one third of the global GDP.

China plays an important role for the common development and prosperity of the world and shares the same goals of pursuing structural reforms and promoting economic growth.

In 2015, China and the EU maintained the largest trading partner relationship, enlarged mutual investment, and expanded pragmatic cooperation. Synergies between the “Belt and Road” initiative and the European development strategy for a larger Eurasian market were established.

Under the framework of international cooperation, such as the IMF and G20, China and the EU pushed forward global macro policy’s communication and coordination and improved international rules and mechanisms.

There is a bright future for China and the EU working together towards the recovery of the world economy.

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