Cai Fang: Breaking the “Impossible Triangle” From the Supply Side
Created On : 2017-10-18    Views : 260

Source: Xinhua Daily 

If we rank worldwide economies by per capita GDP, we can see a rule that the economic growth is higher in low-income economies and decreases progressively in middle and high-income economies. So, it’s normal that China, which presently enjoys a higher level of income, sees a slower economic growth than it did in the past, when the income was lower. It’s noteworthy that according to the grouping criteria by the World Bank, China reports an economic growth that’s notably higher than the average level of all the countries in the same stage of development, no matter when it was located at the low-income stage before 2000, the lower-middle-income stage between 2000 and 2010, or the upper-middle-income stage at present. So, we can only see the focus of China’s economic policies by understanding the new normal from the supply side, instead of pursuing periodic short-term rebound from the demand side.

We are not unrealistically optimistic. Undoubtedly, China’s economy has its own problem. However, the problem is not about the speed of growth, but about the connotation of growth, i.e. the issue of unbalanced, uncoordinated and unsustainable development. The slower economic growth, which meets the change in the stages of economic development, doesn’t worsen the problem, but helps address the problem. In fact, while the economic growth declines, China’s economy moves to a more balanced, coordinated and sustainable path at a faster pace. 

Economic growth is more balanced. Among the “troika” that boosts demand, consumer demand is making increasingly greater contribution to economic growth. While tertiary industry develops faster, secondary industry and primary industry develop in a more balanced manner. Besides, as some new growth points for regional economy take shape, some less developed central and western provinces are catching up and more balanced development is seen across China.

The new powers for economic growth come into shape at a faster pace. Economic growth amid the new normal certainly is a destructive process, that is, new powers emerge while traditional powers are weakening. For example, some domestic think tanks select some industries from perspectives like the content of human capital, technology intensiveness, industrial directions, and growth potential, making them representative of the new economy and building a “new economy index”, which is found to be inconsistent with the traditional PMI. Even if PMI shows a downward trend, the new economy index still keeps upward. Take another example, scholars of Harvard University measure the export diversity and complexity of economies with the “economic complexity index”, and China’s ranking has improved from the 48th in 1995 and 39th in 2005 to the 19th in 2014.

The sharing of economic development improves significantly. Driven by both the government’s redistribution policy and the change of development stages, income distribution is moving towards a direction that’s good to laborers and low-income groups. Resident income increase is faster than GDP growth, and the increase in farmers’ income is faster than that of urban residents.

Scott, an analyst with Moody's, said, China can’t fulfill all the three goals, i.e. reform, growth, and financial stability, at the same time, and must give up one of them at least in a certain period of time. He separates the three goals and defines mutually independent and contrary attributes for them, because he follows the popular perspective and method for observation and fails to identify the nature of the problem facing China’s economy. Once we observe, analyze, and seek for the path from the supply side, we will find reform, growth and stability are not in opposition to each other. On the contrary, just as a triangle, the most stable mechanical structure, we can fulfill the goal of maintaining medium and high economic growth, prevent against financial risk, and realize economic and financial stability, if we start from the supply side, correctly choose the directions and priorities for the structural reform, and properly and precisely advance the reform.


(The author is the Vice President of CASS and member of the Academic Committee of Shanghai Academy)