A hi-tech enterprise based in Yinchuan, northwest China's Ningxia Hui Autonomous Region displays products made by robots on July 10, 2015 (XINHUA)

After falling below 7 percent in the third quarter of 2015, economic growth in the world's largest developing country stumbled once more to 6.8 percent in the fourth quarter, dragging annual expansion in 2015 down to 6.9 percent, the slowest pace within 25 years.

"Economic growth is still within a reasonable range in 2015, with its structure further optimized, transformation and upgrading accelerated, new growth drivers strengthened and people's livelihoods improved," said Wang Baoan, Commissioner of the National Bureau of Statistics (NBS). Wang also recognized that China still faces troublesome challenges such as a complicated external environment, ongoing domestic structural reform and so on.

Yao Jingyuan, a research fellow at the Counselors' Office of the State Council, argued that the 6.9-percent growth is a hard-earned achievement, as opposed to the 2.4-percent growth recorded by the global economy, of which, 25 percent was contributed by China.

"It's still in line with the official target of around 7 percent for the year," said Yao, stressing that what really matters is to ensure that the economic fundamentals, structural changes, transformation of growth patterns and growth quality are all positive. Yao claimed that significant progress had been made on those fronts last year.

Highlights

A structural change to the economy's growth engine is underway, as indicated by the value-added output of the service industry, which accounted for 50.5 percent of the total. The figure marked a year-on-year increase of 2.4 percentage points, and was 10 percentage points higher than that of the manufacturing industry, according to statistics from the NBS.

"In the future, economic growth will be more dependent on the service industry," said Pan Jiancheng, Deputy Director of the China Economic Monitoring & Analysis Center. Pan suggested that the trend should be properly encouraged, and that beneficial interactions should be established between the service and manufacturing industries.

For one thing, the expansion of the service industry is a prerequisite for economic structural upgrading. For another, it's in line with the law of economic growth--the proportion of the service industry always rises remarkably throughout mid- and post-industrialization, according to Wang.

Consumption contributed 66.4 percent to economic growth, 15.4 percentage points higher than that in 2014, reflecting strong support from the domestic market for the country's economy.

Meanwhile, per-capita disposable income surged 7.4 percent in real terms, outpacing GDP growth, with that of rural and urban residents going up by 7.5 percent and 6.6 percent, respectively.

Since China's economy is still within reasonable range, employment figures turned out to be satisfactory while the cost of labor has been rising steadily. People witnessed a rapid increase of property incomes and the minimum wage standards in many regions were elevated, which worked in tandem to give a leg up to the growth of resident income, said Zhu Baoliang, Director of the Forecast Department of the State Information Center.

Aside from that, the rapidly expanding service industry absorbed a larger workforce, but at the same time, the working-age population is dwindling, which combined to stabilize employment, said Zhu.

In addition, China's Gini coefficient, an index measuring the gap between the rich and poor stood at 0.462 in 2015, according to the NBS. A coefficient of "zero" represents perfect equality--conversely, scoring a "one" depicts complete inequality. That marked the seventh year in a row of drops.

The consecutive decrease indicated that reform measures targeted at optimizing income distribution have taken effect, said Li Shi, President of the China Institute for Income Distribution at Beijing Normal University, adding that the narrowed gap is also partly attributed to the current economic slowdown.

As the labor shortage continues to decrease, and wages for ordinary workers keep going up, the income gap will be further narrowed in the future, Zhu noted.

Industrial enterprises' value-added output was up 6.1 percent in 2015, a slower pace than the 8.3 percent registered in 2014, according to the NBS. "Slowing industrial growth will undoubtedly affect China's economy. However, such a phenomenon is quite normal against the context of structural adjustments and the implementation of the innovation-driven strategy," said Wang. For example, the dramatic slowdown of high energy consuming industries is a requisite to the solution of resource and environmental problems. An economic slowdown would also make green development viable, and precipitate the upgrading of the industrial structure.

In stark contrast to that, the value-added output of the hi-tech industry soared 10.2 percent, 4.1 percentage points faster than the growth of total industrial value-added output, accounting for 11.8 percent of the total.

It was a reflection of the robust development of emerging industries, new industrial patterns, and business models, signifying the gushing vitality of the market, claimed Wang. For instance, online sales of physical commodities surged 31.6 percent last year, far exceeding the overall growth of retail sales of consumer goods.

Beyond that, energy consumption per unit of GDP was reduced by 5.6 percent, justifying the nation's efforts and input in promoting green and sustainable development and breaking the bottleneck of resources and environment.

Heading for stable growth

In part because China's economy is embroiled in a complicated and constantly changing situation, there is a possibility of its slowing down even further amidst the supply-side structural reform. Even so, the chances are that stable growth will be maintained in 2016, said Wang.

Cai Zhizhou, a professor from the School of Economics at the Peking University, argued that the quality of economic growth is improving, and the economic structure is being adjusted. Though the situation is tough, existing problems are gradually being ironed out, and the economy is likely to maintain a steady pace of growth.

As China's economy keeps expanding, population dividend wanes, and structural reform is pressed on, it comes as no surprise to shift from a high gear to a slower gear, stated Zeng Gang, Director of Institute of Finance and Banking at the Chinese Academy of Social Sciences.

Exports and imports totaled 24.58 trillion yuan ($3.74 trillion) in 2015, down 7 percent year-on-year, casting a gloomy light on the economy's external factors. Nonetheless, China's export model is still upgrading, and the nation's growth potential lies primarily in its domestic consumption, said Cai.

Micro-control policies and reform measures that have been adopted will continue to play a role in stabilizing growth, said Zhang Liqun, a research fellow from the Development Research Center of the State Council, pointing out that robust consumption, a recovering housing market and possible rebound of investment spurred by the reform on investment and financing system will facilitate stable growth in days to come.

Structural reform

What does supply-side structural reform actually entail, and how will it bolster the Chinese economy? Strategically, the economy should continue growing at a proper pace and with adequate momentum while simultaneously ensuring stability. Tactically, the efforts undertaken by the government need to be divided in five ways: cutting excessive industrial capacity, lowering financing cost for companies, destocking housing inventories, financial de-leveraging and improving weak links to increase effective supply.

To complete the five tasks, efforts need to be made in linking the supply side with the demand side, accurately identify, predict and eliminate risks, innovate and improve policy instruments available, said Zeng Peiyan, Chairman of China Center for International Economic Exchanges.

A regulation mode balancing effective supply with effective demand should be established to get rid of structural surplus as well as the shortage of high-quality products with value-added. The cost of labor, capital, land, energy and logistics should all be lowered to provide momentum, and an environment conducive to supply-side structural reform. Also, investment in infrastructure should be diverted to human capital, innovative research and development, said Zeng Peiyan.

To promote the quality and efficiency of economic growth, the supply-side reform should be pushed forward to boost innovation and total factor productivity, shift dependence from factor input to scientific and technological progress and improvement of labor quality. Additionally, demand-side reform such as household registration reform should be advanced to expand domestic consumption and encourage spending, said Zhuang Jian, senior economist from Asian Development Bank (China).

Economist Liu Shijin believes that a core problem faced by supply-side structural reform is to smooth the flow, reorganization and optimization of economic factors. Therefore, the misallocation of those factors' resources should be corrected to enhance the quality and efficiency of the whole supply system.

"Given that overcapacity in the iron and coal industries is the most severe and many state-owned enterprises are involved, the next step should be further deepening state-owned enterprise reform," said Liu.

Effects of Pro-Growth Measures

According to NBS Commissioner Wang Baoan, the measures adopted by China's new leadership to stabilize economic growth have produced five main results:

These measures have coordinated the stabilizing of growth with economic restructuring. The market has been allowed to play a decisive role in resource allocation. In addition, innovative macro-control measures such as targeted controls over economic sectors in need of adjustment have been adopted.

The measures have promoted innovation as a major growth driver. The fostering of mass entrepreneurship and innovation has also contributed much to the stability of employment, as well as helped to optimize the industrial structure and promote the development of new economy. In 2015, roughly 12,000 companies got registered every day on average.

The measures have facilitated coordinated regional development. In terms of investment growth, western regions outpaced eastern regions by 3 percentage points in 2015. Income growth of rural residents in 2015 was 0.9 percentage points higher than that of urban residents, implying that the income gap between the two is bridging.

The measures are conducive to carrying forward reform and opening up. The Belt and Road Initiative has achieved a lot in advancing that goal. Chinese enterprises saw their investments throughout the 49 nations along the Belt and Road rise by 18.2 percent in 2015.

People's livelihoods have also been improved. For instance, great progress has been made in transforming shantytowns, with 36 million affordable apartments built during the 12th Five-Year Plan (2011-15) period.

(Compiled by Beijing Review )

2015 Macroeconomic Indicators

Value-added output of industrial enterprises above a designated size--principal business revenue of more than 20 million yuan ($3.04 million) a year--grew 6.1 percent.

Fixed assets investment totaled 55.16 trillion yuan ($8.38 trillion), up 12 percent.* Investment in the property sector reached 9.6 trillion yuan ($1.46 trillion), up 2.8 percent.*

Retail sales of consumer goods totaled 30.09 trillion yuan ($4.57 trillion), up 10.6 percent.* Online retail sales amounted to 3.88 trillion yuan ($589.76 billion), up 33.3 percent.

Foreign trade decreased 7 percent to 24.58 trillion yuan ($3.74 trillion). Exports decreased 1.8 percent to 14.14 trillion yuan ($2.15 trillion), while imports dropped 13.2 percent to 10.45 trillion yuan ($1.59 trillion).

Non-financial foreign direct investment stood at 781.35 billion yuan ($126.27 billion), up 6.4 percent.

China's non-financial outward direct investment amounted to 735.08 billion yuan ($118.02 billion), up 14.7 percent.

The consumer price index (CPI), a main gauge of inflation, rose 1.4 percent. The producer price index (PPI), which measures inflation at the wholesale level, contracted 5.2 percent.

The per-capita disposable income of urban residents stood at 31,195 yuan ($4,742), up 6.6 percent.* The per-capita cash income of rural residents stood at 11,422 yuan ($1,736), up 7.5 percent.*

New yuan-denominated loans amounted to 11.72 trillion yuan ($1.78 trillion), 1.81 trillion yuan ($275.12 billion) more than the same period last year.

As of the end of December 2015, the M2, a broad measure of money supply that covers cash in circulation and all deposits, reached 139.23 trillion yuan ($21.16 trillion), up 13.3 percent.

Total social financing, a measure of funds raised by entities in the real economy and a broad measure of liquidity in the economy in general, totaled 15.41 trillion yuan ($2.34 trillion).

Note: All growth rates are on a year-on-year basis.

* The growth rate has been adjusted for inflation.

(Source: National Bureau of Statistics and Ministry of Commerce)

Copyedited by Bryan Michael Galvan

Comments to dengyaqing@bjreview.com