The global financial crisis of 2007-09 marked a turning point for the world economy as economists quickly realized that the recovery would lead to a “new normal” instead of a return to the pre-crisis status. China’s leaders later embraced this idea, outlining a necessary shift away from rapid growth and massive trade surpluses. In the wake of the COVID-19 pandemic, China’s growth prospects seem weaker, prompting discussion around a new normal in various aspects of its economy. A crucial matter that needs urgent attention is calibrating China’s new normal, especially with the need to set a growth target for 2024.
China’s property market has also seen significant changes, and its rebound is a topic of debate. The government has begun efforts to revitalize urban villages, providing an opportunity for the property market to grow despite uncertain times. Another area where the new normal is visible is in China’s fiscal arrangements, with a downturn in land sales leading to local governments facing difficulties in sustaining the debts of the enterprises they own.
Looking ahead, the property industry may shrink, and officials have begun to talk about the “new three” industries, which are relatively small but could drive future growth. However, transitioning from one set of industries to another can lead to labor-market uncertainty and potentially higher savings rates.
Consumer spending and saving behavior have also changed, and while many believe that the experience has left lasting scars, consumer spending is growing faster than incomes. The question is whether China’s policymakers will accept the growth forecast for the new year of about 4.5% as the new normal for the economy.
In determining its new normal, policymakers must take into account the signs of overheating or underperformance in the economy. While neither test suggests that China’s economy is growing too fast, growing too slowly poses its own dangers and could lead to a “new mediocre.”
In conclusion, China could find itself making the same mistake as many other economies that resigned themselves to a “new normal” and instead lapsed into a “new mediocre.”
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