By Liu Ying Source: China Daily Published: 2019-2-27
The International Monetary Fund recently lowered its global economic growth outlook amid international trade conflicts. Combined with this, the economic structural adjustment in China has created new and some difficult challenges for the Chinese economy.
Despite that, President Xi Jinping emphasized at a meeting with private entrepreneurs in November last year that China should concentrate on dealing with its own businesses well, which is crucial for coping with various risks and challenges.
Last year, China's economic aggregate exceeded 90 trillion yuan ($13.45 trillion) for the first time with its GDP growing 6.6 percent and accounting for about 30 percent of global economic growth. China created 13.61 million new jobs, too, last year while maintaining international balance of payment.
Also, China's consumer price index remained basically stable in 2018. As the largest trade partner of more than 130 countries, China has ranked first in world trade for many years, and despite the trade conflicts, China's total imports and exports exceeded 30 trillion yuan, and foreign exchange reserves were more than $3 trillion. And the yuan's exchange rate has remained basically stable.
Thanks to the supply-side structural reform, China's economic structure has undergone some fundamental changes, and its economic growth pattern is no longer dependent solely on exports but relies on domestic demand.
In the four decades of reform and opening-up, export-oriented growth led China's economic development. But a country that depends too much on exports for its economic development could end up facing a financial crisis, just like Japan did in 1987 and Thailand in 1997. As a major country with a huge domestic market of more than 1.3 billion consumers, China could depend on domestic demand for its economic growth in the long run.
Thanks to its economic structural adjustment, especially the supply-side structural reform, and the transformation of its economic development model, China is gradually forming an innovation-driven economic growth pattern.
One decade ago, exports contributed about 40 percent of China's GDP growth. But today, net exports' contribution to China's economic growth is negative. In 2018, China's total retail sales of consumer goods were more than 38 trillion yuan, up 9.1 percent year-on-year and higher than the 6.6 percent GDP growth rate. And the final consumption expenditure's contribution to GDP was 76.2 percent, an increase of 18.6 percentage points year-on-year.
Given the rapid rise of the world's largest middle-income group, an ever-increasing domestic market is becoming the Chinese economy's fundamental support for long-term sustainable development. And the main driving force of the Chinese economy is gradually changing from industry to services－especially from the manufacturing industry to the service industry. For example, last year the service industry accounted for 52.2 percent of China's GDP, 11.5 percentage points higher than industry. But in developed countries, the ratio of the service industry in GDP is still higher, indicating the service industry has great development potential in China.
Also, according to the 13th Five-Year Plan (2016-20), China will continue to develop infrastructure, because infrastructure investment is a great driving force for China's economic growth.
Continuously expanding domestic demand can promote the Chinese economy's sustainable development. In the era of digital trade and artificial intelligence, China's huge consumption market is undergoing upgrading. And the enterprises meeting multiple market demands through green, high-quality products and better services will become the new normal in China.
A developed economy depends on a developed capital market. But for a long time China's direct financing has accounted for less than 20 percent of the total financing volume, compared with 80 percent in developed countries. Hopefully, the launch of the science and technology innovation board and registration-based IPO system will solve China's low direct financing ratio problem and boost high-quality development.
China is capable of dealing with any pressure because it is committed to deepening reform and opening-up, and has huge domestic demand and great potential for market growth.
The author is a researcher at the Chongyang Institute for Financial Studies, Renmin University of China.