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Chinese State Economist Yansheng Zhang:

Economic Slowdown Nothing to Fear

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Economic Slowdown Nothing to Fear

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In this exclusive interview, the chief economist for China's National Development and Reform Commission considers the silver lining to China's ineluctable economic entropy.

Economic Slowdown Nothing to Fear

By David Huang
From CommonWealth Magazine (vol. 511 )

China's National Development and Reform Commission is the in-house think tank for the central government's State Council, sometimes referred to as the "mini-State Council." The agency has always served a key role in the preliminary research and formulation of government policy.

Earlier this year,  Yansheng Zhang was appointed secretary general of the commission's Academic Committee. An expert on international economics and finance, he has taken part in overall focus planning for the 7th and 8th Five-Year National Development Plans, and domestic economic and social development issues for the 10th, 11th and 12th Five-Year Plans.

No one is more qualified to precisely interpret China's economic situation than a National Development and Reform Commission economist, given that they are the core decision-makers on policy and not merely observers or analysts.

While the recent 18th National Congress of the Communist Party of China was in session, Zhang met with visiting academics from the United States and elsewhere to interpret the transformations currently underway in China's economy.

Shortly after the curtain fell on the 18th Party Congress, Zhang and Association for Relations Across the Taiwan Strait (ARATS) deputy director Zheng Lizhong paid a low-key visit to Taiwan. This key figure in planning China's economic policy is now set to share his precise interpretation of China's economic future at the upcoming CommonWealth Economic Forum. What follows are highlights from an interview with CommonWealth Magazine:


The significance of the 18th Party Congress for China was to verify the country's general developmental direction over the next 30 years, the most important aspect of which will be to avoid the "spare no effort, pay any price" mindset to double economic growth, to avoid a return to an orientation of relentless pursuit of gross domestic product (GDP) growth.

A Chinese slowdown is already a foregone conclusion.

Foremost among the foregone conclusions is a slowdown in GDP [growth].

China's expected future GDP growth rates will hover between seven and eight percent. This is consistent with Premier Wen Jiabao's forecast of 7.5 percent early this year, the International Monetary Fund's most recent projection of 7.8 percent and National Development and Reform Commissioner Zhang Ping's forecast of 7.5 percent. It's clear that China's economic growth for this year will fall somewhere within the expected parameters; nothing out of the ordinary! It's nothing to panic about.

The second foregone conclusion is a slowdown in external trade. Growth in China's external trade will decline from prior annual growth rates of 20 percent or more to single digits.

The global economy is bad, and this poses a problem for China's external trade. International economists are mostly worried about how big the impact of declining exports will be on GDP. That's because current mainstream macroeconomic and microeconomic theory was not conceived in an age of globalization, so it does not consider the concepts of supply chains and industrial added value.

Conventional economic calculations of the role external trade plays in GDP growth, based solely on net value after subtracting imports from exports can in no way reflect the reality of China's economy; when added-value is considered in the calculus, the impact of external trade on China's economy is not so great.

The third foregone conclusion is an economic slowdown in eastern China.

Over the past decade eastern China has seen rapid growth in the property market, construction, and heavy chemicals industry, as heavy investment has led to massive production capacity. With global leveraging and the current bubble situation, China's economic growth is primed for a correction. All that production capacity needs a correction, so a slowdown in eastern China isn't necessarily a bad thing.

I'm always asking people in China why they are so afraid of an economic slowdown; why are they always clamoring for huge economic stimulus packages? Do they really want to bring down the whole structure for the sake of maintaining the pace?

It was a tough economic situation in 2012 as China's GDP growth over the first nine months broke eight percent, further fueling fears of a Chinese economic bubble. There's one school of thought that insists that China's economic growth cannot fall below eight percent lest there be a big increase in unemployment leading to social instability and, consequently, that GDP growth must continue at high speed.

But is that really so?

Economic growth in China has slowed this year. But during the first nine months of the year, 10.24 million jobs were created in cities and towns, which was higher than average annual job creation over the past five years.

Why? The reason is simply that as economic growth has slowed, so has job growth in the manufacturing sector, but there has been a major increase in employment in the service sector and the same is true for job growth in the central and western regions of the country and in emerging industries.

China's GDP grew at a rate of 7.7 percent over the first nine months of the year, but per capita disposable income in the cities and towns (subtracting for inflation) grew at a rate of 9.8 percent over the same period, a significant two percentage points higher. Growth in per capita cash income in rural communities was 12.3 percent, besting not only GDP growth, but also growth in urban incomes. This shows that despite slower economic growth, people's livelihoods have improved and have been safeguarded.

These figures all point to one thing: During the first nine months of the year, China's overall economic output slowed dramatically but structurally, conditions improved, employment increased, people's livelihoods improved, and there was strong growth in cities and towns as well as the central and western regions of the country. All of the figures are pointing in a positive direction, so what does it really matter if economic growth slows?

The 18th Party Congress addressed the economic and political development of China over the turning point of the next three decades; whether we can negotiate that transformation successfully will be a test of all of our collective wisdom.

Translated from the Chinese by Brian Kennedy


Yansheng Zhang

Position: Secretary General, National Development and Reform Commission's Academic Committee
Expertise: International Finance, International Trade
Academic Background: MS in Economics, Huazhong University of Science and Technology; Research Fellow, World Bank Economic Development Institute
Experience: Involved in overall focus planning for the 7th and 8th Five-Year National Development Plans; directed international economics and financial research for the 10th, 11th and 12th Five-Year Plans

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