China's economic fundamentals still sound despite stock market fluctuation

CANBERRA -- Despite that Chinese stock markets experienced a surprising free fall on the first trading day of the new year on Tuesday, James Laurenceson, an economist with University Technology of Syndey (UTS), believes the country's economic prospects have not deteriorated.

In a written interview with Xinhua, Laurenceson, Deputy Director of the Australia-China Relations Institute at UTS, interpreted the recent stock market fluctuations mostly as "speculations, not signalling something more fundamental".

"Manufacturing continues to struggle while the services sector remains resilient. It was the same story throughout 2015," he said.

Being optimistic about China's economic future, he estimated that China's gross domestic product (GDP) has grown by nearly seven percent in 2015, an impressive achievement given its size.

"As long as household consumption and services sector activity holds up, I see no reason why the same outcome can't be repeated in 2016," he said.

As for the ongoing economic reforms in China, Laurenceson took the clarity of reform objectives and the ambition of growth targets as highlights.

"Many leaders in other countries are reluctant to set firm growth targets for fear of not being able to achieve them. But Premier Li Keqiang hasn't shied away from stating that he expects China will grow at a rate of at least 6.5 percent out to 2020. This helps to create an expectation and culture of reform, as the status quo won't be sufficient to meet this goal."

Supply side reform has been a term frequently used by Chinese authorities when talking about economic development since the end of last year. Laurenceson said supply side reform is about improving productivity, or using existing resources more efficiently to increase output.

A lack of supply side reform is a big reason why many OECD (Organization for Economic Co-operation and Development) countries have struggled to achieve robust growth since the global financial crisis.

China has traditionally relied more on increasing inputs such as labor and environmental resources to produce more output. But recent comments by President Xi Jinping that China cannot rely on this same model of growth, coupled with more demand side stimulus, will achieve results.

"The clarity and frankness of this assessment should be applauded. The hope for the global economy is that all countries, China included, will succeed in implementing supply side reform."