China economy has potential to sustain fast growth

BEIJING -- It is still possible for China to maintain fast economic growth despite a growth rate that has decelerated for the past 13 consecutive quarters, according to an opinion piece reprinted in the China Securities Journal on Monday.

The opinion piece, penned by Justin Yifu Lin, former senior vice president and chief economist of the World Bank, proposes that emerging markets have been impacted by shrinking demand from high-income economies since the global financial crisis erupted in 2008.

However, China's huge deposit and foreign exchange reserves will provide the world's second-largest economy with great potential for realizing industrial upgrading and infrastructure improvements that could sustain fast economic growth, according to Lin's analysis that first appeared on the Project Syndicate website on August 5.

China's gross domestic product (GDP) growth slowed to 7.6 percent in the January-June period of 2013, the weakest first-half performance in three years, but it was in line with market expectations and above the government's full-year target of 7.5 percent, data from the National Bureau of Statistics (NBS) show.

"It is not necessary to be too pessimistic; the bottom line in the government's two previous five-year plans was 7 percent. We should prepare for a fairly long, difficult period, as that is the cost of reform," said Yu Yongding, an economist with the Chinese Academy of Social Sciences, a government think tank.

China's full-year annual growth rate eased to 7.8 percent last year, its weakest since 1999, due to volatile external markets and the government's domestic tightening to tame property prices and inflation.

In his commentary, Lin wrote that some developing countries have faced even harsher economic conditions. Brazil's GDP growth rate dove from 7.5 percent in 2010 to 0.9 percent in 2012, while India's dropped from 10.5 percent to 3.2 percent during the same period.

He attributed China's recent sag in economic development to "external and cyclical factors."

"Facing an external shock, the Chinese government should and can maintain a 7.5 percent growth rate by taking counter-cyclical and proactive fiscal-policy measures, while maintaining a prudent monetary policy," he wrote.

Lin expressed his belief that ongoing technological innovation and industrial upgrading will give China a boost in achieving an annual GDP growth rate of 8 percent in years to come, because it is less costly for developing countries to engage in research and development (R&D) through learning or importing advanced innovation experiences than by investing in "costly and risky indigenous research and development."

Lin forecast that China's average GDP growth rate will stand at 8 percent in the 2008-2028 period, provided the country sticks to deepening market-oriented reform to solve structural problems.