Foreword by Janet Yellen
Liu Jian, “Phoenix Nirvana – An objective look at China’s new normal,” April 27, 2016
On April 27th, the Los Angeles Times newspaper published, in its supplementary issue, Consul General Liu Jian's op-ed on China's economy. Below is a full version of the article:
Since its opening up in 1978, China has enjoyed nearly 30 years of rapid economic development and has ranked itself as the 2nd largest economy in the world and one of the locomotives of the global economic growth. However, one might have found that the "China speed" appeared not so impressive as before in recent years due to several constraints from both the inside and the outside. China's GDP growth dropped below 7% to 6.9% in 2015, a rare occasion drawing much concern and skepticism from the international community, among whom are my friends in Los Angeles. In our exchange of views, they not only shared with me some objective and rational takes, but raised some questions as well. Now what is the whole picture of China's economy? Let me try dispelling the doubts with statistics and facts.
Question 1: Is China's economy headed for a "hard landing"?
Although the growth rate of 6.9% is the lowest ever over the last 25 years, it still achieved the set objective of "7% more or less", which obviously out-performed the other major economies around the globe. China's present economic output has exceeded 10 trillion USD, so every percentage point of GDP growth today is equivalent to 1.5 percentage points 5 years ago or 2.5 percentage points 10 years ago. Given that, the 500-billion-USD real growth last year is higher than that of any previous year and ranked No.1 in the world. A comprehensive observation of China's economic and social development cannot exclude a group of important economic indexes other than GDP, such as those of income, employment and inflation. In 2015, China's personal per capita disposable income increased by 7.4% in real terms, overtaking the growth rate of GDP. 13.12 million new urban jobs were created all over the country, surpassing the year's target. Surveyed unemployment rate of the 31 big Chinese cities stayed around 5.1%, the lowest since 2009. The Prices remained stable as CPI rose about 1.4% for the full year, a record new low over the past 6 years. In conclusion, China's economy achieved smooth growth and people's living standards kept improving in 2015, which indicates not a single sign of a "hard landing".
Question 2: Do the fluctuations in China's stock market and foreign exchange market lead to a systematic risk?
China's stock market and foreign exchange did undergo unexpected fluctuations last year, but their aftermath has been largely exaggerated. Unlike that of the Western countries, the market value of China's stock market makes up as small a percentage of the country's GDP as merely 5%. There are altogether 90 million shareholders playing in this relatively closed arena, who are mostly retail investors, short of 10% of China's population. That's why China's stock market has a fairly limited influence on the real economy, let alone on the world economy. The depreciation of RMB (or CNY) against USD by 6% since the third quarter of 2015 resulted in large part from China's central bank taking voluntary measures to perfect the pricing mechanism of RMB central parity rates. There's no basis for continuous RMB depreciation. Thanks to the years of optimizing, transforming and upgrading the economic and industrial structure, China now enjoys stable economic fundamentals, especially a healthier development momentum with new industries, products and forms of business emerging and rising more vigorously. China's resilience against systematic risks and potential of sustainable development has been greatly reinforced. Here is an array of statistical evidence: In 2015, the contribution of consumption toward economic growth reached 66.4%, twice as much as investment; the service sector as a proportion of GDP surpassed 50% for the first time; permanent urban residents increased to account for 56.1% of the population; energy consumption per unit of GDP fell by 5.6%.
Question 3: Will China be a burden to global economic recovery?
Since the beginning of the 21st century, China's per capita contribution toward global economic growth has always been above the world's average. In this sense, the fact that China handles its own economy well itself is providing tremendous "positive energy" to the development of mankind. In the mist of a consistently weak world economy and a turbulent international market, China nonetheless maintained a medium-high rate of growth last year and scored a foreign trade volume of 3.96 trillion USD. Though the figure was 8% down from that of 2014 due to the plunge of commodity trading prices, the real quantity of the import and export increased, strengthening China's position as the largest trading power in the world. Notably, China's outward FDI rose 10% in 2015 to 127.6 billion USD, and Chinese residents made 120 million outbound trips with a total expenditure of 160 billion USD overseas, giving a remarkable boost to the recipient countries' employment and revenue. China's economic growth constitutes more than one fourth of the world's entirety, making it the mainstay of global economic recovery.
In a word, China's economy has entered a stage of new normal, whose characteristics are medium-high rate of growth, optimizing industrial structure and transforming growth dynamics. China's economy today is rather blessed with numerous opportunities than troubled with serious challenges, and its contribution toward global economic recovery will only accumulate in the days to come. My confidence stems from China's abundant human resources, solid material basis, the positive expectation of international capital, and more importantly, the policy direction of the Chinese government, which features flexibility, pragmatism and keeps pace with the times. When we look back at this particular period in the future, people may easily come to realize that China's economy is making a significant leap forward, identical to the process of Phoenix Nirvana.
The 5th Plenary Session of the 18th CPC (Communist Party of China) Central Committee, convened last October, adopted the Proposal on Formulating the 13th Five-Year Plan on China's Economic and Social Development, highlighting the five development concepts of innovation, coordination, green development, opening up and sharing. During the Two Sessions (the National People's Congress and the Chinese People's Political Consultative Conference) in March this year, Premier Li Keqiang delivered a work report on behalf of the Chinese government. By holding high the banner of reform and innovation, the report laid out the blueprint to realize the first of China's 'Two Centenary Goals', which is to finish building a moderately prosperous society in all respects by 2021. In 2016, the Chinese government will improve and keep stable its macroeconomic policies, strengthen supply-side structural reform, tap the potential of domestic demand, speed up efforts to develop modern agriculture, carry out a new round of high-quality opening up, step up environmental governance efforts, strengthen social development and improve government functions. China will also step up coordination and cooperation with all other major countries to promote innovative growth in the global economy and improve global economic and financial governance.
China regards the United States as a major partner in economic and trade cooperation and global governance. Los Angeles serves as a gateway to our exchanges and cooperation. One third of the annual bilateral trade volume between China and the US, which has exceeded 500 billion USD for the past few years, transacts through Los Angeles customs area. In 2016, 780 thousand Chinese tourists visited the City of Angels, making China the second largest international tourist source of Los Angeles. There are around 450 Chinese enterprises registered to operate in Los Angeles up to now, adding nearly 2 billion USD of investment within the last two years. I sincerely hope the people of Los Angeles from all circles view China's economy from a comprehensive and objective perspective and have faith in the bright future of China's development and China-US economic and trade cooperation. Let us seize the opportunities presented by 2016 China-US Tourism Year by exploring potential of cooperation in the areas of two-way investment, joint research and development, production capacity, climate change, cultural innovation and people-to-people exchanges etc. In doing so, we can work side-by-side to build an upgraded version of and set an example to China-US cooperation at sub-national or local level, bringing about tangible benefits to our two peoples.
China and the state of California have built deep and interdependent socioeconomic exchanges that reverberate across the globe, and these interactions make California a microcosm of the most important international relationship of the twenty-first century. In his book, journalist Matt Sheehan chronicles the real people who are making these connections.