Ever since the "new normal" became a buzz phrase last year, the question of what level and type of economic activity and what growth rate best fits the "new normal" has become the subject of keen discussion in economic circles. Premier Li Keqiang offered detailed insight in regard to this subject in this year's Government Work Report delivered in early March. From this point onward, a growth rate of 7 percent will become the norm.
After more than three decades of rapid growth, China now sits as the world's second largest economy. The emphasis of the next step should not be to speed up or to expand the scale of economic development, but instead to improve its quality. Economists have proposed lowering expectations for the growth rate for this year, so as to relieve the many problems that have ensued in the pursuit of the excessively high growth rates of previous years. Conventional economic wisdom dictates, however, that the rate should also not be set too low, as an overly low projected rate will incur a series of problems affecting structural adjustment, employment, livelihood improvement, social stability and other areas.
Whether or not a rate of 7 percent is reasonable can be easily proved when it is compared to the growth rate of the fourth quarter of last year. According to statistics from the National Bureau of Statistics, in the last three months of 2014, China's economic growth rate stood at 7.3 percent, under which the Chinese economy exhibited a stable and sound momentum of growth.
The overall scale of China's economic output has exceeded $10 trillion. With such a huge base, despite a lower growth rate of 7 percent, the projected annual increase for 2015 will amount to over $800 billion, which is more than five years ago when the growth rate was 10 percent. Today, China achieving a 7-percent growth rate is tantamount to the creation of a new medium-sized economy. As far as the global economy is concerned, a 7-percent growth rate still stands as a major accomplishment among the world's major countries, given that the worldwide average GDP growth rate in 2014 was 2.6 percent.
What does the 7-percent growth rate mean for China and the rest of the world? Domestically, it means that the GDP will cease to be the only index by which the Chinese Government measures economic development. When it comes to the world stage, it means that Western countries must undergo a shift in mentality when observing the Chinese economy. China's economy is shifting to a consumption-oriented model based on domestic demand from the old export-oriented model, which had as its foundation an inexpensive labor force.
This change poses both challenges and opportunities for Western businesses. In the future, consumption will replace the "made in China" ethos, and thus Western businesses eager to boost exports will be well placed to benefit from this seismic shift. Meanwhile, while there is increasing demand for investment in hi-tech, clean energy and service-oriented industries in the Chinese market, investment in pollutant and resource-heavy industries will be discouraged.