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Lin Caiyi: We can live without an 8% GDP growth rate in the future

(People's Daily Online)    14:23, April 28, 2015
A worker of a textile mill. (Photo/Xinhuanet)

The Chinese economy is adjusting and striding forward under the new normal. The GDP growth rate during the first quarter in 2015 was 7 percent, which met the goal of steady development. At the same time, of the three pillars of the economy (investment, consumption and exports), consumption has contributed 60 percent to the GDP growth, which is an indicator of economic transition.

Since 2012, when China's GDP growth rate reached over 8 percent, more pressure has been added by economic downturn, and the GDP growth rate has becoming a more sensitive topic. The chief economist Lin Caiyi of Guotai-Junan had recently been interviewed to explain some confusion.

Whether the growth rate is 9 percent or 6 percent, Lin explains, employment is the key behind growth. Since the highest GDP growth rate of the US was only ever 4 percent, why should China's 7 percent be considered a bad thing? The reason for the great emphasis on GDP growth in the past few years was because China was at a stage of labor force population growth. However, the country has now reached a turning point in population structure — the labor force is now shrinking by over 3 million every year. Moreover, since the second half of 2012, the service industry in China has surpassed manufacturing industry, which also leads to a lower rate of GDP growth.

On the issue of deflation, Lin Caiyi comments that inflation is a much greater threat. Lin thinks that commodity price falls are a bigger cause of deflation than insufficient demand, and deflation will not have much impact on China for now. Inflation would be a much bigger problem. Since 2008, the percentage of M2 (broad money) in GDP has increased from 153 percent to 191 percent. As a highly liquid asset, the larger the percentage M2 represents in GDP, the faster the mobility in the past 10 years. But why has it not caused inflation? Because it has all gone into the real estate sector.

The pressure of deflation may lead to some frustration for future investors. Also because of the threat from deflation, people will be concerned that the economy is not prospering.

This article is edited and tranlslated from 《国泰君安林采宜:未来不再需要8%的GDP增长》, source: People's Daily Online, author: Wei Qian

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