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Structural Adjustment Gives Rise to Positive Expectations

Jan 18-2022   



China’s GDP rose from 39% of its US counterpart ten years ago to 71% in 2020. Despite facing a complex environment and uncertainty-induced challenges, it will continue to maintain the stable and healthy growth trend and increase its overall share of and contribution to the world economy, report Prof. Yao Yang, Dean of the NSD, and his colleagues based on their latest research project on the Chinese economy.

 

The report identifies some bright spots amid China’s adjustment to economic structure. Re-balancing of the economy since around 2010 has resulted in the steady rise of consumption, which currently contributes over 60% of economic growth, as compared to the decreasing contribution of investment and net export. In other words, China relies more on internal circulation for growth than on external demand and investment. Economic adjustment has also brought changes to the industrial structure, with the rising prominence of the secondary and tertiary industries in terms of job creation and income generation. Consequently, China’s Gini Co-efficient has gone down since peaking out at 0.49 around the Financial Crisis.

 

Other aspects of economic adjustment include elimination of backward production capacity and increase in R&D investment. The former has resulted in the shrinking of manufacturing sector in northern China, which used to be troubled by high energy consumption and high pollution. Along with improvement to the environment, administrative measures to ‘de-production’ exerted considerable downward pressure on the economy for a short period of time. In addition, efforts to rein in shadow banking through de-leveraging, concurrently coupled with China-US trade frictions, saw many companies’ share prices tumble by up to 70%, though the silver lining was that it pushed private enterprises to learn to manage risks and drove some firms with low efficiency out of business.

 

China’s expanding economic scale has been accompanied by rising investment in R&D, which reached 2.4% of national GDP in 2020. According to an OECD report in 2021, China ranked second, after the US, by accounting for 23.2% of global R&D expenditure. Prof. Yao and his colleagues believe that China is on way to pull off more breakthroughs in some critical technological fields.

 

With the economic adjustment has come the rapid development of some emergent industrial regions, in which population agglomeration is enjoying the economy of scale. China has designated nine cities as national central cities, which will power the development of seven urban regions. Prof. Yao and his colleagues estimate that China will hit an urbanization rate of over 75% by 2035 and 60% of its population are likely to live in these seven regions.

 

The research team proposes some suggestions for China to extend its high-quality growth, expand economic growth potential and enhance long-term competitiveness. They range from building a sustainable social security system, increasing urbanization, improving the technological innovation system, and advancing the opening-up to a higher level while maintaining a stable international environment. With an expanding economy and rising influences, China should take on more responsibilities for the international community, says Prof. Yao, including actively offering vaccines and building mutual trust.

Structural Adjustment Gives Rise to Positive Expectations

Jan 18-2022   



China’s GDP rose from 39% of its US counterpart ten years ago to 71% in 2020. Despite facing a complex environment and uncertainty-induced challenges, it will continue to maintain the stable and healthy growth trend and increase its overall share of and contribution to the world economy, report Prof. Yao Yang, Dean of the NSD, and his colleagues based on their latest research project on the Chinese economy.

 

The report identifies some bright spots amid China’s adjustment to economic structure. Re-balancing of the economy since around 2010 has resulted in the steady rise of consumption, which currently contributes over 60% of economic growth, as compared to the decreasing contribution of investment and net export. In other words, China relies more on internal circulation for growth than on external demand and investment. Economic adjustment has also brought changes to the industrial structure, with the rising prominence of the secondary and tertiary industries in terms of job creation and income generation. Consequently, China’s Gini Co-efficient has gone down since peaking out at 0.49 around the Financial Crisis.

 

Other aspects of economic adjustment include elimination of backward production capacity and increase in R&D investment. The former has resulted in the shrinking of manufacturing sector in northern China, which used to be troubled by high energy consumption and high pollution. Along with improvement to the environment, administrative measures to ‘de-production’ exerted considerable downward pressure on the economy for a short period of time. In addition, efforts to rein in shadow banking through de-leveraging, concurrently coupled with China-US trade frictions, saw many companies’ share prices tumble by up to 70%, though the silver lining was that it pushed private enterprises to learn to manage risks and drove some firms with low efficiency out of business.

 

China’s expanding economic scale has been accompanied by rising investment in R&D, which reached 2.4% of national GDP in 2020. According to an OECD report in 2021, China ranked second, after the US, by accounting for 23.2% of global R&D expenditure. Prof. Yao and his colleagues believe that China is on way to pull off more breakthroughs in some critical technological fields.

 

With the economic adjustment has come the rapid development of some emergent industrial regions, in which population agglomeration is enjoying the economy of scale. China has designated nine cities as national central cities, which will power the development of seven urban regions. Prof. Yao and his colleagues estimate that China will hit an urbanization rate of over 75% by 2035 and 60% of its population are likely to live in these seven regions.

 

The research team proposes some suggestions for China to extend its high-quality growth, expand economic growth potential and enhance long-term competitiveness. They range from building a sustainable social security system, increasing urbanization, improving the technological innovation system, and advancing the opening-up to a higher level while maintaining a stable international environment. With an expanding economy and rising influences, China should take on more responsibilities for the international community, says Prof. Yao, including actively offering vaccines and building mutual trust.