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The Chinese Economy's New Normal: The Way Forward
- Author Seungshin Lee
- Date2015-05-15
The Chinese economy’s new normal can be defined by several features. The first is changes in the pace of economic growth. China’s economy was growing swiftly at an annual average just below 10 percent; the speed has dropped, now down to about 7 percent. The second feature is the shifting economic structure. The role of investment, which had been driving China’s growth, has slightly diminished in the past few years, leading consumption to make a larger contribution. The industrial structure is likewise undergoing changes, as in 2013, for the first time ever, the service sector trumped manufacturing in its share in GDP. The last feature is shifts in China’s growth engine. If before the economy ran on factors like capital and labor, economic growth is now led by productivity. This implies that China’s abundant resources and population bonus, formerly the drivers of economic growth, are now losing power and giving way to the necessity for innovation and reform across the country. The above features are evidence that China, a G2 economy, is moving ahead with restructuring measures. Will China be able to sustain its structural reform? As we consider the several economic risk factors China is riddled with, improving the economic regime through structural reform is a necessity, not an option, if the country is to seek sustainable and stable economic growth.
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