Liu Ge: China’s economy proves resilient amid rebalancing


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Liu Ge: China’s economy proves resilient amid rebalancing


By Liu Ge    Source: Global Times    Published: 2018-12-26

Newly released data from China's National Bureau of Statistics revealed the producer price index (PPI) for November rose 2.7 percent from last year, yet was 0.6 percentage points lower than October's PPI.

In addition, the data showed that the consumer price index (CPI), reflecting consumption side inflation, being lower than previously expected, standing at a 2.2 percent year-on-year in November, which was 0.3 percentage points lower than October.

Research institutes have widely believed that PPI and CPI will continue to fall in the future, but from the perspective of household cost-of-living standards, stable CPI can be a good thing.

However, if the price for producers and consumers remains flat for too long, it could be an indicator of an approaching sluggish economy, which is then likely to generate widespread concern over an economic downturn.

Recently, small and medium-sized enterprises have been running into trouble funding their daily operations. During this economic transformation phase, businesses have reduced excess supply.

The economic cycle has created its own inertia and as a result the transformation effects have exceeded people's expectations. This has left people concerned about the economy, because most people are not prepared for the length of time the transformation may take, nor for the difficulties involved.

Looking back in history, US' 60-year period beginning at the close of the American Civil War in the 1860s and running through to the Great Depression in 1930s, was a period where industrialization passed through the "mid-cycle."

Subsequently, it took the US another 10 years to enter into its post-industrialization era, demonstrated by the consumer economy. After a period of 30-years of rapid economic development post World War II, the US economy went through a period of "stagnation" in the late 1970s. It was also during this time when the US economy transitioned from the post-industrialization era to the information era, which lasted a further decade.

The Chinese economy is unique because the transformation from mid-stage industrialization to post-industrialization, occurred at the same time as the transformation from post-industrialization to informatization.

As an industrialization late-comer, China's economic systems along with the knowledge and tools available to China helped speed up and smooth the transformation into the information era. However, despite the smooth transition, the general rule of transformation in the industrialization process still exists.

Chinese economic data in the middle of the transformation is experiencing a rapid switch between old growth engine models and new ones, which may appear stable and easy on the surface. In this process, it may occasionally happen that old growth models have been removed from the marketplace while new growth engines have not developed fast enough. So, expectations on what the "new normal" is regarding economic growth, should not be confined within a narrow scope. Otherwise, once the reality falls out of people's expectations, the market is likely to overreact due to excessive worries.

In this period of economic transformation, the Chinese economy is still resilient and able to survive. Overall economic risks are controllable, and employment has remained stable.

Some periodical fluctuations may exceed people's expectations, but this demonstrates how resilient the Chinese economy truly is.

The author is a senior fellow with the Chongyang Institute for Financial Studies at the Renmin University of China.