Economic restructuring essential

Domestic demand and innovation must be effectively cultivated so they become the drivers of future growth

Structural adjustment is an important trend in today's global economy, and since competition in the technological revolution has become increasingly fierce, economic transition and industrial upgrading are essential requirements for China not only to compete in the global economic stage, but to build a moderately prosperous society and step over the middle-income trap.

Since the international financial crisis in 2008, many advanced economies have already begun structural adjustments to rebuild their real economy and fight recession. For example, the United States introduced the Manufacturing Enhancement Act, and the United Kingdom has increased its investment in innovation and created nine manufacturing innovation centers. Emerging countries, such as Brazil and India, have also introduced their own manufacturing recovery plans. Therefore, it is important for China to cultivate technical innovation if it is to meet the future challenges.

China's demographic advantage is now at a turning point, and the country can no longer depend on low-cost labor and investment to realize sustainable growth. Data show the working-age population has been declining ever since 2012, and the tendency will continue until 2020, resulting in a constant increase in labor costs and increasing the pressure of an aging society.

Meanwhile, pollution has reached a level that is beyond the public's tolerance, and the country faces an ever-growing price in attaining sustainable economic growth nowadays.

While the above factors are pushing the economic transition in China, the transformation and upgrading are expected to solve some tough domestic issues, such as conserving resources, boosting consumption, and lightening the government's hand on the market.

For a long time, China has maintained its extensive growth by relying on low-cost resources and human capital to realize economic growth. In 2012, China's energy consumption was 14.5 percent more than that of the US and accounted for 20.3 percent of the global total energy consumption.

Domestic consumption needs to be cultivated so it can be a driver for economic growth in the future. The growth rate of foreign trade in China has fallen dramatically in the past few years, the rate was an accumulative 8.3 percent from January to November last year, and just 7.2 percent in 2012, compared to an annual growth rate of 20 percent on average in the preceding decade. So future economic growth needs to depend more on domestic consumption rather than foreign trade. However, in 2012, domestic consumption accounted for only 49.5 percent of GDP compared to advanced countries where it accounts for 70 to 80 percent.