How Does China's Economy Enter The New Normal?

Recently, theoretical circles have discussed the new normal of China's economy. In all kinds of studies, we agree with the generalization of the "three phase superposition", that is, since 2009, China's economy has basically completed the period of 30 years of rapid growth, and has entered the stage of superposition of the three stages of growth rate shifting, structural adjustment pains and early stimulus policies. We believe that this generalization not only clearly sets out the new stage of China's economic development, but also points out the main reason for this transformation.

Further analysis shows that the core factor is obviously shifting gear and structural adjustment between the three growth shift, structural adjustment and early digestion policy effect, because the policy effect of early digestion is neither physical nor sustainable. If we combine the speed change and the analysis of structural adjustment, we can get a generalization of the structural slowdown, because the shift is a phenomenon and structural adjustment is the reason. Based on this logic, we believe that structural deceleration constitutes the main feature of the new normal of China's economy.

The prediction of future potential growth rate can corroborate the structural slowdown trend in China. The prediction results of the macroeconomic operation and Policy Simulation Laboratory of the Chinese Academy of Social Sciences show that China's potential growth rate ranges from 7.8%~8.7%, 5.7%~6.6% and 5.4%~6.3% in the three periods of 2011~2015, 2016~2020 and 2021~2030, respectively.

In any case, the new normal and the decline of economic growth constitute the main external characteristics. This phenomenon has caused many researchers to pay more attention to its negative meaning. Even more, a few researchers equate it with "economic recession" or even "hard landing".

The decline in growth rate is just an external representation of the new normal. The new normal is different from the recession and stagnation stage in the conventional economic cycle. It is a new development of economic development leaving the normal track and developing another path. In other words, the new normal is pregnant with revolutionary changes. Globally, the new normal means restructuring of the supply chain, restructuring of the economic structure, reconstruction of the governance system and reconstruction of big power relations. At home, in addition to the above global similarities, the new normal also means that the Chinese economy is "going to life again". Through this stage, the Chinese economy will fundamentally depart from the investment driven and export driven growth mode and embark on the road of pursuing quality, efficiency, ecological civilization and sustainable development, and thus cross the middle-income trap to achieve the great rejuvenation of the Chinese nation.

In other words, the new normal brings us opportunities for development again, and brings new contents to our strategic opportunities under the new conditions. We must proceed from the stage characteristics of economic development, maintain strategic determination, comprehensively adjust our ideas, mindset, strategy and policies, quickly adapt to the new normal, improve the institutional mechanism and the rule of law structure of the socialist market economy, and make the socialist market economic system more mature and more stereotyped.

　　 Investment dependence

The new normal provides a necessary environment for removing investment dependency. We can analyze the relationship between investment and economic growth rate by analyzing the contribution rate and dynamics of investment, consumption and net exports to China's economic growth, and then reveal the new normal investment dependence.

It can be seen clearly that after the surge in 2008 and the subsequent slump in 2009, the contribution rate of net exports to China's economic growth began to stabilize, and its absolute value remained within the range of less than 5%. In view of the further tightening of the international environment and the structural adjustment of the domestic export sector, the researchers agree that this situation will continue for a long time.

Excluding net exports, the contribution rate of domestic consumption and domestic investment to economic growth is roughly the same. Considering that domestic consumption is relatively stable and slow in the long run, such inferences should be established: if the growth rate of investment falls, the growth rate of GDP in China will decrease accordingly. That's what it is. China's fixed asset investment growth rate has remained at an average of around 26% for many years. However, since its slow decline in 2011, it has dropped to 18% in 2013 and 16% in the first half of 2014. With the growth rate of fixed asset investment declining, the growth rate of GDP in China has been decreasing step by step to 7%~7.5%.

The above analysis shows that: Investment The decline in growth rate is the main reason for the decline of China's economic growth rate. This means that if one of the tasks of changing our economic development mode is to change the growth pattern depending on investment, then the new normal will undoubtedly provide a macro environment for achieving this goal. This is the situation we have been striving for for many years.

　 Water squeezing

The dependence of national economic growth on investment has gradually weakened, and it also provides an effective way to remove moisture in China's economy.

Speaking of economic growth The water that people immediately think of is "false", which is the grandiose of statistical data. It is true that the economic achievements of local governments have been reported. However, the water in China's economic growth is not mainly reflected in the grandiose statistics. Because there is another factor, that is, the unavoidable "leakage" in the process of rapid economic growth in China may offset the excess of false statements, making China's economic performance even higher than that of statistical data. The basic reason is that China's economic development is always accompanied by a process called monetization, and the national output generated in this process is usually difficult to be captured in a timely, comprehensive and accurate manner by the statistical system. There are two facts that are familiar to us. First, China has conducted two national economic surveys respectively. After each census, the statistical authorities have revised the original data upwards, with a correction rate of nearly 10%. Second, as long as 20 years ago, the growth rate of China's money supply has always been higher than the actual GDP growth rate and the rate of price rise. In other words, for a long time, there has been a large scale of money supply in China, where there is no corresponding location. In practice, there are only two possible ways to lose money: or, some of the national output has not been captured in a timely, accurate and comprehensive manner, resulting in GDP underestimation; or, the level of price inflation has been underestimated. In reality, these two kinds of situations exist objectively.

The water in China's economy should be sought from the investment driven economic growth mode. As we all know, investment in the year was domestic demand, and it was directly included in the economic growth rate. In this regard, there are two questions: first, whether the annual investment has become a real productive capacity? Obviously, if the investment can not be successfully formed into productive capacity and become a "beard project" or even a "bean curd residue project", the growth rate corresponding to this investment is water. Second, assuming that investment has become productive capacity, are these productive capacity fully utilized? Obviously, if the products produced are backlog due to no corresponding demand, or because of insufficient market demand, these production capacity has not been fully effective since the day of their formation, and it has been unable to increase the income level of large numbers of people, so as to produce excess capacity and overstock of products at the same time of insufficient consumption, and the corresponding economic growth corresponding to this situation is water. Needless to say, this excess capacity has already constituted the "dead weight" of the further development of our economy.

If the growth rate of the new normal economic growth is reduced only by compressing the above water content, this slowdown is worth our welcome. Moreover, constantly squeezing the water in economic growth is the specific path to improve efficiency, improve quality and sustainable development. It is also the only way for us to move across the middle income trap to the developed economies.

　　 innovate drive

The main driving force of economic growth under the new normal will shift from the past factor scale expansion to innovation driven. From the perspective of institutional guarantee, to achieve innovation driven, we must solve two problems: first, establish the "positive incentive" (gettingincentivesright) mechanism; and two, "straighten out the price" (gettingpricesright). In other words, we must implement the "decisive role of the market in the allocation of resources" in the process of innovation driven.

"Positive incentive" means reconstruction and innovation incentive mechanism. The mechanism of our country has obvious defects, not only in the lack of full play of the incentive function of the intellectual property system, but also in the lack of a sound incentive mechanism for human capital salaries and property rights. In response to this situation, it is urgent to further improve the system of intellectual property protection, increase punishment for offenders, raise the cost of illegal activities, and form a credible deterrent force. At the same time, we should build a scientific evaluation and effective incentive mechanism for talent innovation activities, such as the implementation of Technology stock and technology right system, and vigorously promote "technology capitalization", so that technicians can gain strong innovation power.

"Straightening out the price" means guiding the price of elements into full play. Practice has repeatedly proved that under the perfect market mechanism, the relative prices of various production factors will change flexibly and guide the rational allocation of resources, and the mode of economic growth will gradually grow from extensive to intensive. But at present, China's reality is that due to the lack of marketization of factors, the price of key elements is distorted and underestimated, which directly stimulates the market bodies to use relatively less tangible elements with less power and pressure to invest in independent innovation. The key to rectify the situation is to straighten out the price signals and to form an effective pricing mechanism of elements by continuously promoting the development and improvement of factor markets, so that factor prices can "approach" the true equilibrium level of supply and demand decisions. On this basis, micro enterprises can establish rational expectations and constantly correct their main behaviors, so as to establish a mechanism for continuous innovation.

In addition to giving play to the decisive role of the market in innovation drive, we should "better play the role of the government". On the one hand, it should be admitted that in the process of innovation, some external effects can not be fully considered by the market. For example, enterprise innovation and upgrading will provide public knowledge for other enterprises, and infrastructure construction will reduce transaction costs and increase investment returns. Because these external effects can not be internalized entirely through market channels, it is necessary for the government to play its due role in industrial upgrading and technological innovation. But at the same time, it should also be emphasized that the government should not intervene excessively in the choice of industry and technology, nor should it be "in person". The recent turmoil experienced by some emerging industries represented by the photovoltaic industry is closely related to the technical direction of betting errors under the government led background and the massive duplication of investment. We believe that if we want to implement the industrial policy, in order to overcome the government failure, it is necessary to distinguish the difference between the selective industrial policy and the functional industrial policy (Lall, 1994), and to clarify the dividing line between direct intervention and indirect inducement industrial policy. The core point here is that industrial policy should be a tool for correcting market failure rather than an alternative to market arrangement. It is a positive incentive framework for guiding corporate behavior, rather than a genuine case of government participation in economic activities.