‘New normal,’ Chinese style
The economic buzzword and political catchphrase in China for this year is xin chang tai, the Chinese translation for “new normal.” President Xi Jinping declared the Chinese economy will no longer be obsessed with double-digit growth now that it has entered the xin chang tai phase at the annual Boao Forum for Asia last month in Hainan Province. He was reiterating that Beijing won’t resort to excessive stimuli because it accepts the inevitability of moderate growth after decades of double-digit growth, and instead will concentrate on restructuring for more quality growth through reform and openness. Beijing has been selling its “new normal” campaign since the economy grew last year at its slowest pace since 1990. The “new normal” economy was formally proclaimed during the annual National People’s Congress session in early March. While advocating for the new normal of slower expansion, Premier Li Keqiang reported to the Chinese legislature and people that the country was targeting 7 percent growth this year.
Xin chang tai, in other words, means the days of the familiar are gone. In economic terms for China, the country no longer should expect to expand at a double-digit pace at the expense of overcapacity, polarization and environmental damage. Instead, it needs to adapt to a slower economy, but shift to growth quality and an improved structure.
The term was imported from the American “new normal” that refers to a structural slowdown, but the Chinese have added an entirely new meaning to it.
“New normal” was first used by venture capitalist Roger McNamee in advocating for opportunities at a time of risk in the wake of the IT bubble in the United States in 2003. It later was defined as the inevitability of slower growth by Mohamed A. El-Erian, head of U.S. mutual fund giant Pacific Investment Co., after the global financial crisis in 2008. The collective deleveraging in public, corporate, and household sectors following the financial meltdown has caused three lows - growth, income and return rate - to become the “new normal.” Lawrence Summers, a professor at Harvard University and former Treasury secretary, declared stagnation, from low growth, inflation, interest rates and employment, could be the “new normal.” The term since then has become a catch-all explanation for any economic troubles.
What Summers was trying to put forward was that artificial stimuli actions were of no use against structural stagnation, a persistent state where a depressed economy is the norm. His argument was criticized by some as being too passive, defeatist and skeptical. Summers proposed expansionary fiscal policy to weather a prolonged slump, and former U.S. Federal Reserve Chairman Ben Bernanke did not agree. He shot down the theory of endless depression and the necessity of permanent expansionary fiscal support. Moreover, Summers’ reasoning might be applicable and acceptable in a mature economy like the United States, but not in developing and underdeveloped countries hungry for growth.
China’s adoption of a “new normal” path does not simply mean slower growth, as in the United States, but seeking out new growth engines through new demand and innovation. On the external front, China envisions a “One Belt, One Road” initiative and that the Asia Infrastructure Investment Bank (AIIB) will stir up new demand on an immeasurable scale. Instead of earning money selling enormous amounts of cheap products overseas, China plans to generate growth by turning itself into a center for massive development and modernization projects and a logistics hub on land and sea connecting Asia with Europe. The Chinese new normal is to grow slower, but with greater profits and certainty. Even if the country does not run at a double-digit pace, its economic scale would become more gigantic when an economy with a population of 1.3 billion people grows annually in the neighborhood of 7 percent.
What looked like a superpower game between the United States and China over the launch of the Beijing-led AIIB could be interpreted as the difference in the two countries’ views and approaches toward the unique economic challenges they call their new normality. Traditional Washington teammates, including Britain and Korea, have joined the AIIB despite the obvious show of disgruntlement by the United States because they decided China’s progressive and aggressive “new normal” better serves their interests. In fact, the United States may have to learn from the Chinese way instead of being content with a slowing-moving economy. Korea, which has been stuck in a slow-motion economy for a protracted period, should ask itself which direction of “new normality” it should choose ? the defeatist or venturous one?
JoongAng Ilbo, April 8, Page 28
*The author is an editorial writer of the JoongAng Ilbo.
by Kim Jong-soo