Abstract: In this paper, we first examine various causes of China’s unexpected low economic growth rate since the beginning of 2012. Particularly, we propose the possibility of one tendency masking the other tendency. That is, there is a tendency of neglecting and downplaying GDP while making fewer efforts to develop economy in some regions that oppose GDP worship and irrational pursuit of and competition for GDP, which deserves our full attention. We further propose in this paper that the decline of China’s potential economic growth rate should keep a gradual process and the government should favor consumption while not overlooking investment, given that a certain amount of moderate investment will remain the key impetus to China’s economic growth over a certain period in the future.
Key words: economic trend, macro control, periodic fluctuation, stabilizing growth
JEL Classifications: E00, O11
1. China’s Current Economic Trend: Fluctuating at an Unexpected Low Level
Since the beginning of 2012, China’s economy has faced increasing pressure from a noticeably slowing economic growth rate beyond public expectation. As shown by the quarter-on-quarter GDP growth rate, the growth in the first quarter of 2012 has followed the trend of decline in the four quarters of the previous year (with a growth rate of 9.7 percent, 9.5 percent, 9.1 percent and 8.9 percent, respectively) and further reduced to 8.1 percent, which is below the general public expectation of 8.4 percent or 8.5 percent. The figure marks the minimum growth over the past 12 quarters since the recovery of China’s economy beginning in the second quarter of 2009 in the aftermath of global financial crisis. It is also among the six rare quarterly growth rates that are below 8.1 percent over the past 12 years since 2000 (see Figure 1, the other five quarterly growth rates below 8.1 percent are 7.3 percent in the fourth quarter of 2000, 7.7 percent in the second quarter of 2001, 7.8 percent in the third quarter of 2001, 7.4 percent in the fourth quarter of 2008 and 6.6 percent in the first quarter of 2009).
The month-on-month growth rate of added value of China’s large-scale industrial enterprises in 2012 has followed the trend of decline since July 2011 and further reduced to 9.3 percent in April, which is also below the general public expectation of a growth rate of 12.2 percent. The figure marks the lowest growth rate over the past 35 months since the rise of growth rate of domestic industrial added value in the aftermath of global financial crisis. It is also among the 14 rare month-on-month growth rates that are below 10 percent over the 148 months since January of 2000 (see Figure 2, the other 13 months with a growth rate below 10 percent are July, September to December of 2001 and October of 2008 to May of 2009). The month-on-month growth rate of large-scale industrial added value this May, despite a slight increase by 0.3 percentage point than that in April to 9.6 percent, is still fluctuating at a low level below 10 percent. In response to the unexpected decline of China’s economic growth since this year, we should neither overreact to the situation by proposing loose macro control policy or embracing the once popular theories of China’s economic collapse, economic crisis, the hard landing of China’s economy and the economic stagflation; nor should we overlook the status quo, which requires us to carefully examine various possible causes of the noticeable decline of economic growth rate and take various measures accordingly to avoid the sharp fluctuation of economic growth and ensure the rapid and stable economic development over a long period.
2. Cause Analysis: Paying Attention to the Possibility of One Tendency Masking the Other
The further decline of economic growth is caused by various factors. Based on the existing studies in the academic circle, we find out the following seven major factors:
First, active macro control;
Second, active transformation of economic development mode and acceleration of restructuring;
Third, a depressed overseas demand and export market, and the lasting impact of global financial crisis;
Fourth, insufficient domestic consumption and weak demand for investment;
Fifth, intensifying restriction of natural resources, environment and labor force, as well as the decline of potential economic growth rate;
Sixth, difficulty in business management, increase of various costs, shortage of capital, weak market demand and decrease of profits;
Seventh, lasting decline of economic growth rate
All of the above factors account for the decline. Here we want to suggest the possible eighth cause of one tendency masking the other. There is a tendency of overlooking and downplaying GDP while making fewer efforts to develop economy in some regions that oppose the irrational pursuit of and competition for GDP, which deserves our full attention.
The historical experience since the reform and opening-up shows that the second year of each five-year plan, which coincides with the reelection of leadership at all levels and fits what we call “the year of double impetus”, usually sees a tendency of increasingly heated economic growth. Since the reform and opening-up from the Sixth Five-Year Plan (1981-1985) to the Eleventh Five-Year Plan (2006-2010), there have been six cases of “the year of double impetus”, namely, the year of 1982, 1987, 1992, 1997, 2002 and 2007 (see Figure 3 for the GDP growth rate of each year). Of the six cases, there are three cases of heated or overheated economic growth (11.6 percent in 1987, 14.2 percent in 1992 and 14.2 percent in 2007), two cases of recovery of economic growth (the growth rate in 1982 climbed from 5.2 percent in the previous year to 9.1 percent whereas that in 2002 climbed from 8.3 percent in the previous year to 9.1 percent), and only one case of decline of economic growth (the growth rate in 1997 reduced to 9.3 percent from 10 percent in the previous year). This year happens to fit the so-called “year of double impetus”. While historical practice tells us that we should take efforts to prevent overheated economic growth, the reality is exactly the opposite for there has been a sharp decline in economic growth, which, like in the case in 1997, could be attributed to the impact of Asian Financial Crisis and weak domestic demand. But we should also pay attention to the aforementioned problem of one tendency masking the other. Why we should not overlook GDP? GDP is the added value of products and services of all permanent units in a country (or a region) over a certain period. The production of material goods and relevant producer and consumer services makes up the base for a real economy that the society relies on to ensure a stable development. However, the GDP growth rate should not be too high in a real economy. Since the founding of People’s Republic of China in 1949, our domestic economic growth has undergone a couple cases of “sharp fluctuation” whose crux is “sharp increase,” for the excessively high economic growth rate will soon cause the problem of “four highs”, that is, high energy consumption, high consumption of material goods, high pollution and high inflation rate, which will soon disturb the various balances indispensible for the normal operation of the economy and result in the subsequent “sharp decrease” of economic growth rate. However, while it is appropriate to oppose GDP worship and the irrational pursuit of and competition for GDP, we should also understand that an excessively low GDP growth rate over a certain period will on the other hand cause a series of problems. First, it will bring difficulty to residents’ income increase and daily living, given that GDP is the material base for improving people’s living standard. While making the GDP “cake” bigger does not necessarily mean that it can be divided fairly, it would be more difficult to distribute “the cake” fairly if we did not make “it” big enough. Second, an excessively low GDP growth rate will affect financial revenue, whose sharp decrease will subsequently affect economic restructuring, development of social undertakings and achievement of social security based on financial support. Third, an excessively low GDP growth rate will affect the macro environment of a business, for slow GDP growth indicates a weak market demand, which will affect production and sales of a business as well as the increase of job opportunities. Overall, an excessively high economic growth rate will deteriorate economic structure, so will an excessively low growth rate. In the former case, the trend cannot last long, nor can it in the latter case. So it is crucial to maintain a certain and moderate economic growth rate.
The “stable growth” with a moderate growth rate does not simply mean that we should loosen macro control policy and resume “rapid growth”, GDP worship or irrational pursuit of GDP, but that new and higher requirements should be put on governments at all levels under the new circumstances. To explain, “stable growth” should be combined with transforming economic growth mode, adjusting economic structure, controlling the commodity prices, promoting reform and benefiting people’s well-being to achieve scientific development. So what should be the proper economic growth rate? This involves the understanding of potential economic growth rate.
3. The Decline of Potential Economic Growth Rate Should Keep a Gradual Process
Some scholars correctly point out that China’s economy has entered a new stage characterized by the decline of potential economic growth rate after developing at a double-digit growth rate over the past thirty years since the reform and opening-up. Here involve three issues.
3.1 Whether the Decline of Potential Growth Rate Is a Sudden or a Gradual Process
Some scholars argue that China’s potential economic growth rate will noticeably reduce to a lower level from a high rate of 10 percent to a medium rate between 6 percent and 7 percent over 2013 to 2017. However, experience in the global context suggests that cases of the decline of potential economic growth rate vary in different countries with different geographical size, population size and natural resources as well as different external and internal environments.
Case One: The decline of potential growth rate is a sudden process in some countries. For example, Japan has undergone four stages in the aftermath of WWII (see Figure 4):
(1) The country saw an annual GDP growth rate of 7.2 percent over the seven years from 1953 to 1959 (in which 1952 is the base year).
(2) Its annual GDP growth rate increased to 9.7 percent over the 14 years from 1960 to 1973 (in which 1959 is the base year).
(3) Its annual GDP growth rate noticeably reduced to 4.1 percent over the 18 years from 1974 to 1991 (in which 1973 is the base year).
(4) Its annual GDP growth rate further reduced remarkably to 0.7 percent over the 20 years from 1992 to 2011 (in which 1991 is the base year).
Case Two: Some countries have seen a relatively gradual decline of potential growth rate. For example, South Korea has also undergone four stages in the aftermath of WWII (see Figure 5):
(1) The country saw an annual GDP growth rate of 3.9 percent over the nine years from 1954 to 1962 (in which 1953 is the base year).
(2) Its annual GDP growth rate increased to 9.5 percent over the 17 years from 1963 to 1979 (in which 1962 is the base year). During the period, there are five years whose GDP growth rates peaked to a range of 11 percent to 14 percent.
(3) Its annual GDP growth rate slightly reduced by 1.3 percentage points to 8.2 percent over the 18 years from 1980 to 1997 (in which 1979 is the base year). During the period, there are four years whose GDP growth rates peaked to a range of 11 percent to 12 percent. (4) Its annual GDP growth noticeably reduced to 4.2 percent over the 14 years from 1998 to 2011 (in which 1997 is the base year).
Case Three: The potential economic growth rate in some countries is likely to increase once again after a decline thanks to technological development over a certain period. For example, the U.S. saw a revival of potential economic growth rate in the 1990s thanks to the impetus of new technological revolution characterized by IT industry. The country has also undergone four stages in the aftermath of WWII (see Figure 6):
(1) It saw an annual GDP growth rate of 3.45 percent over the 21 years from 1953 to 1973 (in which 1952 is the base year).
(2) Its annual GDP growth rate reduced to 2.65 percent over the 19 years from 1974 to 1992 (in which 1973 is the base year).
(3) Its annual GDP growth rate again increased to 3.5 percent over the 8 years from 1993 to 2000 (in which 1992 is the base year).
(4) Its annual GDP growth again reduced to 1.57 percent over the 11 years from 2001 to 2011 (in which 2000 is the base year).
It is hard to calculate the precise potential economic growth rate in each period. The practical macro control also depends more on experience. In the decline of potential economic growth rate, the excessively rapid and sharp decrease of real economic growth rate is likely to cause economic and social instability. Meanwhile, the whole society (governments, enterprises and individuals) require a gradual adaptation to the decline of potential economic growth rate. So in order to avoid economic and social instability, macro control should focus on slowing the decrease of economic growth rate to a gradual process in stages, for example, by first reducing high rate (10 percent) to medium and high rate (above 8 percent and below 10 percent), then to medium rate (7 percent to 9 percent), and further reducing to medium and low rate (6 percent to 8 percent) and eventually to low rate (below 5 percent). Though real economy will not run in a way that strictly follows our subjective will, we can still try our best to make the decline of economic growth rate as gentle as possible, especially given that China is a country with a vast territory and a large population which sees a flexible domestic demand and gradual further development of industrialization and urbanization. Such conditions are favorable for achieving a smooth decline of potential economic growth rate.
3.2 The Control of Upper and Lower Limits of Potential Economic Growth Rate in Decline Should Not Necessarily Be Symmetrical Our research group has calculated the results of pro-filter potential GDP growth rates by applying HP filter method based on the GDP growth indexes over 1978 to 2009. The results show that the pro-filter potential growth rates in general fall into the range of 8 percent (lower limit) to 12 percent (upper limit) over the past 30 years since the reform and opening-up. It is necessary to reduce both upper and lower limits by 2 percentage points in the case of a decreasing potential economic growth rate. In the recent period, the macro control should reduce the upper limit of growth rate by 2 percentage points to 10 percent while keeping the lower limit temporarily at 8 percent, given that China’s previous economic growth rate is easy to exceed 10 percent. The practical experience proves that an economic growth rate above 10 percent will result in excessively rapid or overheated economic development which is not sustainable. Considering China’s existing intensifying restrictions of natural resources, energy and environment, we should first reduce the upper limit of its economic growth rate to 10 percent or below.
The practical experience over the years also suggests that an economic growth rate of 8 percent is the base line of China’s current economic development. If the growth rate is below 8 percent, it will severely impede production of a business as well as employment in urban and rural areas and thus result in a negative growth of national fiscal revenue. Two of the cases are the fourth quarter of 2008 and the first quarter of 2009, in which China’s GDP growth rates respectively reduced to 7.6 percent and 6.6 percent due to the impact of global financial crisis. The GDP growth rate in the first quarter of this year reduced to 8.1 percent, which immediately brought pressure to the whole society and further caused crisis in business management and public revenue. In the “Report on the Work of the Government” published this March, it sets the expected goal of GDP growth rate at 7.5 percent which is lower than the previous 8 percent over the years, mainly for the purpose of shifting the focus of whole society to transforming economic development mode while improving the quality and efficiency of economic growth. However, in practical macro control, it is nevertheless appropriate to set 8 percent as the lower limit of moderate growth range.
In practical macro control, when economic growth rate exceeds 10 percent, the government should implement moderate tight fiscal policy; when economic growth rate is below 8 percent, it should implement moderate loose fiscal policy; when economic growth rate fluctuates closely around 9 percent and the economy is running smoothly, the government can implement neutral fiscal policy. While China’s previous macro control often focuses on limiting the “peak” of economic growth rate to avoid “sharp increase”, it should pay more attention in the future to the “valley” of economic growth rate to avoid “sharp decrease” in the decline of potential economic growth rate. 3.3 It Is Not Necessarily the Case that Economic Growth Rate Is Decreasing Year by Year in the Decline of Potential Economic Growth Rate
In the decline of potential economic growth rate, it does not fall linearly in terms of annual economic growth rate. In other words, the growth rate does not decrease year by year and there are still fluctuations between the years. Many foreign and domestic economic institutes have predicted that China’s economic growth rate in 2012 will be lower than that in 2011 and the growth rate in 2013 will be a little higher than that in 2012. For example, International Monetary Fund (IMF) predicted that China’s economic growth rate will reduce to 8.2 percent in 2012 and increase to 8.8 percent in 2013; Asian Development Bank predicted that China’s economic growth rate will reduce to 8.5 percent in 2012 and increase to 8.7 percent in 2013; The World Bank first predicted that China’ economic growth rate will reduce to 8.4 percent in 2012 and further reduce to 8.3 percent in 2013 in its estimation released in the November of 2011. However, in its latest estimation released this April, the World Bank predicted that China’s economic growth rate will reduce to 8.2 percent in 2012 and increase to 8.6 percent in 2013.
In order to answer why China’s economic growth rate in 2013 is likely to be a little higher than that in 2012, here we briefly review the process of China’s macro control shifting the focus from “guaranteeing growth” to “stabilizing the commodity prices” and to the recent “stabilizing growth” since 2008 with the impact of the worst global financial crisis in a century. During the two and a half years period from the second half of 2008 to 2010, the macro control focused on “guaranteeing growth” in order to stop the noticeable decline of economic growth rate and promote economic stability and revival. China has adopted positive fiscal policy and moderately loose monetary policy while implementing “a package of” stimulus plans. By the second quarter of 2009, China has effectively stopped the sharp drop of economic growth and becomes the first country in the world to realize the overall economic revival characterized by a “V-shape” trajectory. Its economic growth rate in 2008 is 9.2 percent, which is only 0.4 percentage point lower than that in the previous year. In 2010, the economic growth rate increases to 10.4 percent. With the economic revival and the extraordinary increase of monetary loans, China’s commodity prices have started a new round of rise month by month since the January of 2010, breaking the growth rate of 3 percent, 4 percent and 5 percent successively. By the November of 2010, the growth rate of consumer price has risen to 5.1 percent compared with the previous month (see Figure 7). Against such background, the Central Economic Working Conference held in the December of 2010 proposed to focus more on “stabilizing the overall price” and stressed that the government is “determined to prevent irrational launch of projects at the start of the twelfth five-year plan” and “to control the head gate of mobility”. Thanks to the efforts of “stabilizing the commodity prices”, the growth rate of commodity prices declined month by month after rising to the peak of 6.5 percent in July 2011 and reduced to 4.1 percent by that December. Accordingly, the economic growth rate in 2011 reduced by 1.2 percentage points to 9.2 percent from that in the previous year. The growth rate of commodity prices in 2012 keeps declining and falls to 3 percent by May, which leaves room for preventing the excessive decline of economic growth rate and making a slight adjustment to moderately loose macro control. By this May, given a noticeable decrease in such economic indicators as the growth rates of industrial production, investment in fixed assets, as well as import and export, the government has further proposed that macro control should “focus more on stabilizing growth”. As a result, a series of relevant measures have been released to expand domestic demand, stimulate consumption, encourage investment, promote the implementation of planned projects during “the twelfth five-year plan”, make structural tax reduction, reduce deposited reserve ratio as well as deposit and loan rates. Compared with “a package of” stimulus plans during 2008 to 2010, the plans in 2012 are not as intensive as before. If there is no severe and unexpected impact on the external and internal economic environments, China is likely to see a slight increase of economic growth rate in the second half of this year whereas the growth rate of next year is expected to slightly exceed that of this year. The fluctuation of annual economic growth rate suggests that China has entered a new round of economic cycle since 2010 (the eleventh round). By the end of this year, the cycle will have lasted for three years. The economic growth rate of 2010 and 2011 is 10.4 percent and 9.2 percent respectively while that of 2012 is expected to be 8.5 percent. The new round of cycle will neither follow the ninth round characterized by “two plus seven”, that is, two years of rising growth rate plus seven years of steadily declining growth rate.; nor will it follow the tenth round characterized by “eight plus two”, that is, eight years of steadily rising growth rate plus two years of declining growth rate. The current cycle is likely to follow a new trajectory characterized by a “zigzag-shape” gradual rise and decline.
4. Impetus of Domestic Demand: Favoring Consumption While Not Overlooking Investment
Accompanied by the aforementioned tendency of overlooking GDP is the tendency of overlooking investment in fixed assets.
Some scholars suggest that China’s rapid economic growth rate since the reform and opening-up is mainly spurred by investment, a growth mode that is not sustainable and must be changed. On one hand, it is fair to say that China’s rapid economic growth “over the recent decade” is mainly spurred by investment and such growth mode needs to be changed, for statistics show that demand for investment over the recent decade (except for 2005) has been contributing more to the GDP growth than demand for consumption. On the other hand, it would distort the reality to say that China’s rapid economic growth “since the reform and opening-up” has always been stimulated by investment. A look at the statistics on the contribution of demand for consumption, investment and net export to GDP growth reveals that consumption has contributed more than investment over the first 23 years from 1979 to 2001 excepted for 1993, 1994 and 1995; only over the recent decade from 2002 to 2011 (except for 2005) does investment contribute more than consumption. Meanwhile, statistics show that only ten of the 33 years from 1979 to 2011 see a net export contribution rate of over 15 percent to GDP growth whereas there are only seven years in which net export contributes to a GDP growth rate by over two percentage points . Calculating GDP by the expenditure approach, we find out that external demand does not play a leading role in stimulating China’s economic growth since the reform and opening-up. That investment has been contributing more to GDP growth than consumption over the recent decade is mainly a result of fast growing urbanization. The impact is clearly seen in the decreasing proportion of consumption in the overall GDP calculated by the expenditure approach (consumption rate) and the increasing proportion of investment (investment rate). In Figure 8, three curves are drawn to explain China’s consumption rate, investment rate and urbanization rate during 1952 to 2011. As it illustrates, urbanization rate showed a noticeable upward tendency during 2001 to 2011 and had a strong negative correlation with consumption rate while a strong positive correlation with investment rate. There are four different views in the academic circle regarding the correlation between urbanization and consumption.
(1) Positive Correlation. It argues that the rising urbanization rate can effectively stimulate the demand for consumption (Liu Yirong, 2005). The public has reached a common view of advocating promoting consumption by means of urbanization.
(2) Zero Correlation. It argues that China’s rising urbanization rate has almost zero contribution to the increase of consumption rate (Fan Jianping, Xiang Shujian, 1999).
(3) Negative Correlation. It argues that the rising urbanization rate instead results in the decrease of consumption rate. There are also two different judgments among scholars who hold this view. One judgment argues that such negative correlation “violates the common practice” and is “abnormal” (Wang, Cheng, 2003). The other view argues that such negative correlation is absolutely “normal” (Liu, 2007) and points out China is undergoing fast growing urbanization, which will on one hand stimulate “consumption” (the impact of urbanization on absolute level of consumption), yet on the other hand cause the decrease of “consumption rate” (the impact of urbanization on relative level of consumption). It is because the rise of urbanization rate will stimulate both consumption and investment, of which the latter benefits more. As a result, the proportion of consumption in the overall GDP calculated by expenditure approach will see a relative decrease whereas that of investment will see a relative increase (Liu, 2007, Chen, 2010). The aforementioned view of “positive correlation” indeed discusses the relation between urbanization and investment rather than that between urbanization and investment rate. Yet the aforementioned view that “negative correlation” “violates the common practice” actually confuses the two different concepts of consumption and consumption rate. (4) U-shape Correlation, that is, first negative correlation and then positive correlation. The view argues that the rising urbanization rate will reduce consumption rate in the earlier period of urbanization but stimulate it in the later period. Accordingly, consumption rate has an “inverted U-shape” correlation with investment rate, that is, the rise of urbanization will stimulate investment rate in the earlier period but reduce it in the later period (Chen, 2010).
There are more complicated cases in real economy regarding the relations between urbanization rate, consumption rate and investment rate. In Figure 8, it shows that the relations can be divided into seven stages from 1953 to 2011.
(1) The eight years from 1953 to 1960 are the initial stage of urbanization since the founding of New China, in which the average annual urbanization rate increased by 0.9 percentage point whereas the average annual consumption rate reduced by 2.06 percentage points and the average annual investment rate increased by 2.11 percentage points. Urbanization rate has a high and low negative correlation with consumption rate, with a correlation coefficient of -88 percent, while it has a strong same-direction increasing positive correlation with investment rate, with a correlation coefficient as high as 93 percent (See Table 1).
(2) The four years of economic restructuring from 1961 to 1964 in the aftermath of “Great Leap Forward” are characterized by decreasing urbanization rate, increasing consumption rate and decreasing investment rate. Urbanization rate has a low and high negative correlation with consumption rate, with a correlation coefficient of -41 percent, while it has a same-direction decreasing positive correlation with investment rate, with a correlation coefficient of 51 percent.
(3) The thirteen years from 1965 to 1977 over “the Cultural Revolution” are a special period characterized by decreasing urbanization rate (numerous “Educated Youth” went to the mountains and the countryside), decreasing consumption rate and increasing investment rate. Urbanization rate has a same-direction decreasing positive correlation with consumption rate, with a correlation coefficient of 67 percent, while it has a low and high negative correlation with investment rate, with a correlation coefficient of -56 percent.
(4) The five years from 1978 to 1982 of restructuring at the beginning of the reform and opening-up are characterized by increasing urbanization rate, increasing consumption rate and decreasing investment rate. Urbanization rate has a same-direction increasing positive correlation with consumption rate, with a correlation coefficient of 90 percent, while it has a high and low negative correlation with investment rate, with a correlation coefficient of -98 percent. (5) The eleven years from 1983 to 1993 are characterized by increasing urbanization rate, decreasing consumption rate and increasing investment rate. Urbanization rate has a high and low negative correlation with consumption rate, with a correlation coefficient of -90 percent, while it has a same-direction positive correlation with investment rate, with a correlation coefficient of 55 percent.
(6) The seven years from 1994 to 2000 are a period of dealing with overheated economy during 1992 to 1993 and the impact of subsequent Asian financial crisis. It is characterized by increasing urbanization rate, increasing consumption rate and decreasing investment rate. Urbanization rate has a same-direction increasing positive correlation with consumption rate, with a correlation coefficient of 95 percent, while it has a high and low negative correlation with investment rate, with a correlation coefficient of -96 percent.
(7) The eleven years from 2001 to 2011 are a period of fast growing urbanization. With an average annual urbanization rate increasing by 1.37 percentage points, it witnesses the fastest increase of urbanization rate since the founding of New China. The average annual consumption rate has decreased by 1.28 percentage points whereas the average annual investment rate has increased by 1.26 percentage points. Urbanization rate has a high and low negative correlation with consumption rate, with a correlation coefficient of -95 percent, while it has a strong positive correlation with investment rate like the case in the early period of New China, with a correlation coefficient as high as 94 percent (see Table 1).
Taken as a whole, urbanization rate has a negative correlation with consumption rate and a positive correlation with investment rate in all of the three periods from 1953 to 2011 since the founding of New China, from 1953 to 1977 before the reform and opening-up, and from 1978 to 2011 during the reform and opening-up (see Table 1).
Over the recent decade, investment has been contributing more to China’s economic growth than consumption, which is mainly a result of fast growing urbanization with some inevitability. Yet such growth mode is unsustainable given its excessively high investment rate and excessively low consumption rate. China saw an urbanization rate of 51.3 percent in 2011 and will still undergone a long period of urbanization in its future economic development, which is the characteristic of a certain development stage. In a certain period in the future, though the urbanization rate may not rise as fast as it did in the previous ten years, the country will still be in the middle stage of urbanization. Urbanization, especially the improvement of its quality, requires a certain amount of moderate investment. Meanwhile, it requires investment to transform development mode, adjust economic structure and benefit people’s well-being. For example, (1) enterprises should promote technological innovation and improvement, replace equipments, improve product quality and increase benefits, (2) developing strategic emerging industries, (3) dealing with energy-saving and emission reduction to protect environment, (4) developing modern agriculture, (5) promoting infrastructure construction of social undertakings such as science, education, culture and public health, (6) promoting projects that benefit people’s well-being such as government subsidized housing. We should focus on improving the structure and efficiency of investment and expanding the sources of investment funds to give full play to the fundamental role of market in distributing resources and take full advantage of non-government investment. The goal of “where the money comes, where it goes” puts higher requirements for our economic working. In short, we should adhere to the principle of expanding domestic demand, especially demand for consumption and direct economic growth to rely harmoniously on consumption, investment and export. We should favor consumption while not overlooking investment, given that certain amount of moderate investment will remain a key impetus to China’s economic development over a certain period in the future. References
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