There have come forward recently observers at home and abroad seeing a bearish Chinese economy ahead. Their views may fall into five categories: (1). seeing the doomsday of China’s traditional development mode, (2). seeing the outbreak of a debt crisis, (3). seeing rigidification of the financial system, (4). seeing the vanishment of demographic dividends, and (5). seeing a stagnation of reforms.

(1) Doomsday of the traditional development mode ?

These people point out that government investment and exports have been the main engine powering the up-to-date fast-speed growth of the Chinese economy. But against the background of a global financial crisis, they predict, this mode of economic growth will come to its doomsday and the Chinese economy will inevitably see a slowdown or even downturn of its growth in the years to come. China may purposely slow down its economic growth to reshape its development mode. Who can tell, they ask, whether the effort will come out successfully or not?

(2) Outbreak of a debt crisis ?

These people are going for greater exposure to the general public the total size of China’s debts, which some say have now come to account for as much as 200 per cent of the country’s gross domestic product (GDP), a deplorable debt situation almost the same as some debt-ridden south European countries have slid into. Particularly, they point out, that the debts of local governments and State-owned enterprises have risen to excessively high levels, posing a real threat to the long-term stability of China’s economic growth.

(3) Rigidification of the financial system？

These people are pointing to China’s excessively slow pace to marketize its interest and exchange rates, a fact, they say, indicating little government confidence in the risk-control ability of banks. China’s financial system is rigidifying, they conclude, citing the wild development of shadow banking, the exacerbation of risks in the country’s financial system, the recent “cash crunch” among its financial institutions, and the long-standing barrier blocking the country’s small and medium-sized enterprises from funding. These problems will force China to launch a new round of reforms but with few results, they believe.

(4) Vanishment of demographic dividends？

A most practical problem plaguing China at present is the shortage of laborers and rise of wages, these observers point out, adding that China will sooner or later lose its advantage of low labor cost that has fueled its high-speed economic growth for decades. This process is already gaining speed, they say. In addition, worries over constant rise of environmental costs and relocation by transnational companies of their industrial operations will also dim the prospect of China’s economic growth.

(5) Stagnation of reforms？

Thanks to its reform efforts, China has miraculously maintained a high-speed economic growth for more than three decades, these people admit. But now that it has marched into an abyssal region in terms of reforms, and a delay in political system restructuring will retard its efforts in economic reforms. 

For all the above-mentioned views,, these observers have one thing in common: growing pessimism about China’s economic prospect. While these downbeat observations of the Chinese economy and its development momentum may contain some elements of truth, however, they are too partial and biased, if viewed from a broad perspective.

First of all, the debate over the growth mode of the Chinese economy has been going on for quite some time now. Whether this mode is sustainable or not will be ultimately proved by facts. China’s economic growth is now depending less and less on investment and exports, but its drive by consumption and innovation will not become so visible within a short period of time. In other words, it is difficult to come to any conclusion in two or three years. After all, the Chinese economy is expected to maintain an annual growth rate of around 7 per cent even under the macro situation of global financial crisis. Economic slowdown is an inevitable trend, since no country will be able to keep its economy in the fast track forever. What best serves the long-term interests of the Chinese people is an economy that boasts a more rational structure and develops in a better social and environmental environment, even if it grows at a slower pace.

Secondly, the debt issue is indeed a hard nut for the Chinese government to crack. China’s land-reliant finance has run into a dead end, and the financing vehicles of its local governments have run out of order. Some sound solutions are really needed right now to avert Detroit-style bankruptcy triggered by the piling up of debts. The key here is not to alleviate the burden of old debts, because the central coffer has enough resources to repay them all. What calls for attention is the efficient and proper management of financial revenues and expenditures by local governments in the future to prevent falling into new debts before repayment of old ones. Discussion of this issue is now under way, and straightforward proposals are being submitted on bond issuance by local governments. Also, GDP is no longer counted as the chief yardstick for measuring the officials’ performance. The central government has also called time and again for the liquidizing of sleeping funds, and issued a decree banning local governments from construction of new office buildings in the five years to come.

Thirdly, China has taken a substantive step to reform its financial system. On July 19, the People’s Bank of China announced its lift of control over the bottom lending rates, marking China’s first step toward interest rates liberalization and demonstrating the central bank’s resolution to advance reforms and down-to-earth policy of cracking the harder nut first. Interest rates liberalization and RMB internationalization are the key links in China’s financial system reform, whose promotion has already started and will continue to inject new vitality into the country’s real economy. The lift of lending rates, for instance, will surely drive commercial banks to lend a greater amount of their loans to privately-owned small and medium-sized enterprises, thus improving the disposition efficiency of their financial resources. Another example is the decision to create a free trade zone in Shanghai, a move that demonstrates the great courage of the new leadership to reform and innovate. It also foretells the healthy and orderly prospects of China’s financial and economic reforms.  

As for China’s demographic dividends and cost advantage, it is an objective fact that they are both waning. There is also a positive side, however, of this development. Thanks to its incessant input into education and scientific researches, China has seen a constant improvement of the quality of its labor force and continuous betterment of production efficiency. More importantly, it has advanced its economic stand in the global industrial chain from a low position to a higher end, and kept scaling new highs in terms of comprehensive competitive power. One evidence supporting this viewpoint of ours is the source of economic frictions between China and the developed world including the United States and some European countries. Instead of only on clothing, shoes and other labor-intensive commodities as in the past, trade frictions in recent years have come to cover more capital and technology-intensive ones such as photovoltaic, electromechanical, electronic and information products.

Lastly, China started to reform in 1978 with a path-breaking spirit., that is, pressing ahead by probing and experimenting, as told by Deng Xiaoping, the architect of China’s reform. This might sound like brutal courage with an empirical coloring. But the experiences China has accumulated from practicing of this method over three decades have proved its great practicability and scientific nature. If compared with the ‘shock therapy’ as practiced by the former Soviet Union, this strategy better suits Chinas’ intricate reality and needs.development, because a step-by-step approach facilitates uncovering and solution of problems and accumulation of experiences. It is true that economic restructuring is closely related to political system reform. It should also be admitted, however, that handling of government-market relationship has always been a thorny issue to all countries. As the situation stands, all discussions and disputes over reforms should start from a long-term strategic point that benefits the country and its people, rather than from unpractical illusions. No path of reform will be filled with roses. Now that China’s new leadership has vowed to press on with another round of reforms, it may be too shortsighted to doubt China’s ability to successfully carry forward the reforms.

Doubtless to say, the Chinese economy has now come to a crucial stage of transition. There allows no doubt, however, about the potential of its long-term growth. Viewed from the macro environment of the world economy, all major economies are looking for breakthroughs to kick-start a new boom, and there is still ample room for cooperation between China and other major economies. The United States is pressing ahead with its TPP and TTIP programs, hoping to create a new global pattern of investment and trade. China will be happy to see their coming out successfully. To benefit the long-term development of the world economy and its own economy, China is also enthusiastic about negotiations with the United States and some European countries over greater access to mutual investment, efforts that will result in reduction of global trade and investment barriers

In addition, it is believed that the BRIC countries will maintain their momentum of long-term development. Now that a platform of cooperation was newly created at a summit of their leaders, these countries will come to play an ever bigger role in promotion of cooperation and exchange of their experiences. China and other BRICk countries will all benefit from it.

It is my belief that China will maintain a steady economic growth while giving more down-to-earth efforts in economic restructuring to ensure a long-term sustainable development. There is no reason for being pessimistic about China’s economic prospect as shown by some of the recent discussions and debates.

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