China’s push for new growth

China’s annual session of the National People’s Congress, the single Communist Party legislature, is closely watched around the world. Premier Li Keqiang, in a government report, announced a growth target of about 7 percent, below last year’s 7.4 percent growth that had been the lowest since 1990. Beijing, however, remained firm on sustaining economic growth above 7 percent.

Since President Xi Jinping announced a war on corruption after he took office in November 2012, reform has been prioritized over growth. It doesn’t mean the government isn’t worried about a slowdown. The International Monetary Fund has downgraded China’s growth outlook to 6.8 percent from 7.1 percent. If it proves right, China’s economy would fall below 7 percent growth for the first time in a quarter of century. All data - consumption, investment, manufacturing and exports - have been declining since three years ago. The real estate business is the slowest ever. The colossal economy has suddenly lost vitality amid the anti-corruption drive. It may go on a downward spiral if sentiment sours. As a preemptive move, China’s central bank cut the key interest rate.

Xi, in his third year in power, attaches special meaning to this year. Next year he will announce the 13th five-year blueprint that maps out economic direction and agenda for 2016-20. The next five years will be pivotal in shaping Xi’s presidency. He cannot end his 10-year tenure with reforms and combating corruption. He will have to present how the Chinese economy can run and prosper for the next five years. But the task won’t be easy. He cannot reorient the economy led by domestic demand instead of exports that have been the primary engine behind its staggering growth. Companies struggling amid the slowdown cannot sit around and wait for domestic consumption to pick up. China requires new traction. It cannot depend on external demand, as it is uncertain when the global economy will fully rebound. Beijing also cannot go on pumping in liquidity to stir investment and growth. Explosive dangers are too rampant and hazardous - the shaky financial sector, financial mess in local governments, and industrial overcapacity. Artificial inflation of real estate assets also would be too risky. Relief is found neither at home nor abroad.

It is how Xi arrived at the entirely novel and lofty idea of creating a 21st-century version of the Silk Road to boost demand at home and abroad. The so-called “One Belt, One Road Initiative” envisions a colossal path connecting Asia and Europe through one great economic belt across Central Asia and a sea route across the Indian and Arabic waters to Africa. China immediately went into action to prove that the idea is not as bizarre as it sounds, creating a Silk Road Fund and the Asian Infrastructure Investment Bank in charge of arranging financing for the mighty project. For China, it would be a wise investment for its bulging foreign reserves of over $4 trillion. The government would be providing mega-scale investment and infrastructure business opportunities for Chinese companies hungry for new revenue sources without worrying about inflating assets and triggering speculation at home. It also would be contributing to the global economy by creating new demand. The country also could incite new economic hotbeds like the eastern coastal region that have built China’s rank as the world’s biggest industrial and exports powerhouse. A dream team from the executive politburo was formed, including the economic experts vice premiers Zhang Gaoli and Wang Yang. The overland and maritime project would likely be the keystone to Beijing’s 13th five-year economic outline.

Another solution Xi has found to generate new growth is start-ups. Li mentioned the word 12 times in the government report to the congress. The state plans to promote start-ups across the country. Jack Ma, founder of e-commerce giant Alibaba, and Lei Jun, founder and CEO of smartphone maker Xiaomi, have brought fame and riches to themselves and pride to their home country. China is intent on generating more technology jewels and creating an innovation-friendly habitat.

The government’s “Internet Plus” project is designed to build the environment. The state pledged 40 billion yuan ($6.5 billion) to support Internet businesses. Beijing hopes innovation will drive and sustain the economy for the next 20 years as real estate has done over the past 20.

Xi, who spoke mostly about reform, has turned into an economic champion ahead of next year’s release of the 13th economic plan. He envisions resurrection of a modern Silk Road and transformation of the country into a hotbed for innovation. Its scale and idea is mind-boggling. We must closely follow China’s push for new growth. Korean companies also should map out strategies to ride on the new mass-scale infrastructure demand. We also must come up with ways to make use of the world’s biggest mobile Internet market.

Translation by the Korea JoongAng Daily Staff JoongAng Ilbo, March 6, Page 33

The author is a research at the Korea Institute of Finance.

by Ji Man-soo