Key for the world economy is the level of China growth

Here is a review of some perspectives on China’s future growth. China’s new economy is growing faster and becoming a larger part of the economy from 8% in 2014 to 12% this year and 15% in 2020. There could be structural and other economic reforms announced at a key October 18 meeting.

China has accounted for the a large portion of world economic growth. From 2011 to 2015, China’s economic growth has contributed over 25 percent to the global economy. China became the most important engine of the world economic growth, providing a main driving force for global economic recovery. If China grows at 7% and the world economy grows at about 3% then China will contribute about 40% of world growth.

The general range of likely growth scenarios is between 4-7% GDP growth per year from now to 2030.

China’s new economy will account for an estimated 12 percent of the country’s annual GDP this year, according to a research report.

“China’s development strategy of innovation and industrial integration is seeing some early success,” according to a report released at a forum jointly held by the Renmin University of China, and China Chengxin Credit Management.

The new economic sectors have been growing at a quite steady pace, said the report. In 2014, about 8 percent of Chinese GDP was contributed by new sectors.

For the country’s strategic emerging industries, such as new energy and advanced manufacturing, the report predicted that their output would account for about 10 percent of total GDP in 2017.

In the past three years, an average of more than 40,000 new market entities were registered each day, with about 70 percent active in business, the report said.

China’s new economic sectors are going through a key stage where “quantitative changes” will lead to “qualitative changes,” said Zhang Jie, a researcher with the Renmin University National Academy of Development and Strategy.

The report said that China’s economic development must rely on integration between innovation and industrial production, and work must be made to ensure that innovation progress was passed on to production.

The Chinese government expects the combined output of emerging sectors to account for 15 percent of GDP by 2020.

China recent stronger performance but structural economic reform is needed

China will still find it difficult to maintain a high level of growth rate. Policy options are also limited. The traditional one is to adopt a “strong stimulus” approach; that is, to implement loose fiscal and monetary policies to prop up investment. This may create new problems as side effects, let alone the government now seems to place a high priority on deleveraging. Another option is to carry out the much-needed structural reform to release growth potential, which we believe is the key to usher China’s economy into a new boom cycle. In retrospect, China was placed on a sustained growth trajectory three times, each following profound institutional changes. The first was the rural land reform in the early 1980s; the second was the establishment of a market-oriented economic system in the early 1990s; and the third was the state-owned enterprise reform in the late 1990s and China’s formal accession to the World Trade Organization in the beginning of the 21st century.

The most important event in China this year will come soon. The National Congress of the Communist Party is expected to convene on Oct. 18. Will it herald a new round of reform in China? Only reform can unleash China’s growth potential. The reform package should include restructuring state-owned enterprises and opening the service sector to genuinely embracing private investment. Allowing private capital to engage in health care, education, communication, etc., is essential to improving social infrastructure and encouraging consumption. Plus, China should promote urbanization and environmental protection in a more market-oriented manner, advancing the transition to a more-sustainable, inclusive growth.

What level of future China growth ? Bull and Bear scenarios

Interior provinces are far less developed than their coastal peers. Prominent bull Justin Yifu Lin, former chief economist at the World Bank and long-time advisor to top leadership in Beijing, has long cited China’s relative poverty as the biggest reason for his optimism, noting that Japan, Singapore, Taiwan, and South Korea all enjoyed decades of 7%-plus GDP growth after they had reached the rung on the income ladder that China finds itself at today.

Others are more circumspect. Over the past half-century, the typical country at China’s income level posted 4% average annual GDP growth in the 10 years that followed. That’s well below the consensus medium-term outlook for China of roughly 6%, as well as Beijing’s goal of 6.4% through 2020. Bears fret that even an “average” outcome would be optimistic, given the excesses that have built up following repeated rounds of stimulus and the disappointing pace of reform.