The yin and yang of China's economic growth

During last month's National People's Congress and Chinese People's Political Consultative Conference meetings, there was quite a bit of discussion about China's slowing GDP growth forecast, which was lowered to seven per cent. Speculation about the impact of slower growth had sparked international debate about China's ability to manage what is now the "new normal" and markets are awaiting signs of what the next phase of economic development will be like.

For decades, China experienced rapid and unprecedented growth, rising in the ranks to become one of the largest trading nations in the world. When compared to the US, what is remarkable is that China's total GDP is still lower, yet government debt only accounts for 40 per cent of GDP. With the projected slowdown, China must focus on the quality of growth, rather than quantity. According to state forecasts, China's projected GDP will be 5.4 per cent by 2025, while average growth is expected to be 6.2 per cent over the next 10 years. This projected slowdown is causing many to wonder if China will fall into the middle-income trap.

In the past, rapid growth brought a plethora of problems, including: an overdependence on an investment-driven economy; hidden risks in the economic and financial systems that are being gradually exposed; pollution; rampant corruption; and, inadequate protection of intellectual property rights.

The authorities are fully aware that the current growth model is not sustainable and have started work on addressing the "new normal". President Xi Jinping is leading the drive and has emphasised the importance of quality rather than speed of growth. Local governments are pushing to encourage innovation, culture, entrepreneurship, environmental protection and government restructuring. Last year's economic data reflected that the service industry is one of the largest economic pillars in China, accounting for 48 per cent of GDP. China is now at a historic juncture, trying to transition from a fixed-asset investment-based economy to one driven by consumption, services and domestic demand.

Based on 2014 figures, China's GDP per capita was only 20 per cent of the United States', and consumption per capita only 25 per cent. China must increase productivity and promote industrial upgrades, as well as provide incentives for innovation in business. On the other hand, maintaining social stability and ensuring the balanced economic development of the different regions are also of paramount importance. This is what I call the "yin and yang" balance. If this delicate balance can be maintained, income per capita will increase and drive the growth of GDP per capita.

Increasing productivity is a combination of many factors: finding the right talent, effective corporate management, excellence in operation, and an open and transparent government management system. Beijing recognises that it plays a vital role in attracting and grooming talent. For instance, it continues to invest significant resources into education in Central and Western regions, by increasing the quality of education of domestic universities, bringing them up to the standard of world-class universities. This initiative will elevate China's manufacturing and service industries via improved labour productivity per capita, and thus competitiveness.

China recently proposed a very ambitious "one belt, one road" initiative and the creation of the Asian Infrastructure Investment Bank. This initiative will form an East-West transportation corridor linking the Pacific Ocean and the Baltic Sea. By investing in industries like energy, aviation and infrastructure, the inner and outer regions of Eurasia will be connected, bringing down the barriers to trade and bringing about financial integration. This will benefit two-thirds of the global population and deliver a winning scenario to countries along the corridor.