China's economy in flux

Updated: 2015-11-12 12:08

By Paul Welitzkin in New York(China Daily USA)

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Experts weigh in as country shifts away from focus on manufacturing to consumer, services

China is attempting to transition from an investment-driven, manufacturing-dominated economy to one more focused on consumption and services while maintaining growth of 6.5 percent a year. Recent economic statistics from the mainland show that achieving that economic evolution is unfolding although at an uneven pace.

Industrial output rose 5.6 percent in October from a year earlier to match March's reading, which was the weakest since 2008. Fixed-asset investment increased 10.2 percent in the first 10 months at the slowest pace since 2000, but retail sales jumped 11 percent in October.

Derek Scissors, a resident scholar on China at the American Enterprise Institute in Washington, said many observers confuse a transition from manufacturing to services and a transition from investment to consumption.

"The transition from manufacturing to services appears to be happening," Scissors said. "The transition from investment to consumption does not. Those who see progress here are ignoring indicators such as the size of fixed investment versus retail sales. But if you ignore those indicators, the history of Chinese economic development changes a great deal."

"The transition to a more consumer-focused economy will boost aggregate demand and, hence, economic growth in the short run. But technological growth is the major source for long-term economic growth," noted Jianjun Miao, economics professor at Boston University.

Of concern to many is slower-than-expected growth in China. While some predicted a slowdown from the double-digit expansion of a few years ago, there may be some unease with what is perceived as a lack of momentum in the Chinese economy, particularly given the stimulus put into the system by the People's Bank of China over the last few months.

"Economic growth is determined by technology growth and input growth. Lack of technological innovation is one major reason for slow growth in the long run. In the short run, economic growth is determined by aggregate demand and aggregate supply," added Miao. "The shrinking of aggregate demand for consumption, investment and net exports is the major reason for slow growth of China in the short run."

China's economy in flux

Sung Won Sohn, a professor of economics at California State University Channel Islands in Camarillo, California, said most observers focus on manufacturing. "Now, the service sector, such as e-commerce, has grown so rapidly that it is very important. Unfortunately, it is hard to measure the growth of the service economy," he said.

When the US Federal Reserve did not raise interest rates in September, it cited concerns about China's economy, including a correction in the country's stock market over the summer. The question now is has the economic situation in China calmed enough for the Fed to remove it from its list of concerns ahead of its December meeting?

"From what is said publicly, it doesn't seem the Fed knows very much about the Chinese economy. The Fed may have decided that a rate hike while the RMB (yuan) was perceived to be unstable would cause undue stress to global financial markets. Now the RMB is more stable, so that factor is removed," said Scissors.

Miao said China's economy has been calmed because the stock market has entered a bull market from a bear and the RMB has stabilized. "However, there is still risk ahead as China's industrial output growth in October has reached the lowest rate since 2000.

paulwelitzkin@chinadailyusa.com

(China Daily USA 11/12/2015 page2)

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