China's New Course

Estimated reading time: 2 minutes

China’s leaders say its economy is entering a ‘new normal’ phase of slower growth that will present strategic opportunities and tough challenges. The traditional comparative advantage – cheap labour and intensive resource inputs – is weakening, so new growth drivers are needed.

A key goal for the next five years is to rebalance the economy away from investment in heavy industry towards services, with consumption making a higher contribution to GDP.

Beijing is emphasising the importance of upgrading its industrial base to a medium-high technology level. The internet will be better integrated with traditional industries to drive economic growth.

It will focus on its ‘Made in China 2025’ plan to increase manufacturing efficiency, improve the value-added of products, and strengthen China’s presence as a global manufacturing power over the next decade. It will encourage growth in sectors such as information technology, robotics, marine equipment and medical devices.

China will keep pushing for more market-oriented interest rates and moving towards a managed floating exchange rate. Newer financial issues are greater openness and enhanced macro-prudential measures to ward off systemic risks.

VAT reform will be extended to cover finance, real estate, construction and consumer services and there is also likely to be an environmental tax, a natural resources tax and a property tax.

The government will also direct state-owned capital into areas involving national security and key strategic national industries with private capital allowed to enter more sectors, including power supply, telecommunications, transport, oil and natural gas, and municipal infrastructure projects.

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