Journal Article

The Logic of Long-term Growth of China: From New Normal to Supply-side Reform

Heng, Quan, Ling, Li

2017

Overview

Unlike most scholars, who believe that \"new normal\" means a decline on China's economic growth rate, we argue that the interpretation of the \"new normal\" has more comprehensive meanings. China had experienced a reduction of about 2% in its annual growth rate in the seven-year period before 2007 compared to the same period after 2007, which signalled a slight slowdown but not a severe recession. In the long run, the economic fluctuation is still in the normal range accounting for the scale effect of China as a major economy. Furthermore, expanding Internet penetration becomes a new catalyst for growth. But on the other hand, economic distortions are concealed during the high growth period which have surfaced to constrain growth, among which the distortion of the relative factor prices could be used to explain the slowdown of the economic growth. The problem of dual track of the factor prices stemming from the institutional settings should be paid more attention on. The changing of the relative factor prices is the core variable to optimize resources allocation when a country develops from a lower level to a higher level. The way to reduce these distortions including resources misallocation is the reform of the supply-side in the \"new normal\".

• Publisher: Institute of China Studies, University of Malaya
• Subject: Business cycles / Consumption / Development economics / Distortion / Economic conditions / Economic crisis / Economic development / Economic factors / Economic fluctuations / Economic growth / Economic models / Economic slowdowns / Emerging markets / GDP / Global economy / Gross Domestic Product / Growth rate / Hypotheses / International organizations / Internet / Meaning / Penetration / Prices / Recessions / Reforms / Resource allocation / Social sciences / Supply-side economics / Trends / Xi Jinping