On 28 August, Commissioner Song Zhe met with head of the EU office in Hong Kong, and Consuls-General of the UK, Germany and Italy. They exchanged views on China-EU relations and issues related to Hong Kong.

When asked about how he sees the current state of the Chinese economy, Commissioner Song emphasized that multiple perspectives should be adopted to gain a clear picture of the Chinese economy at this stage.

I. From a realistic perspective, China’s economy will not suffer a hard landing. Since the 4th quarter of last year, we have seen quarter-on-quarter fall of the economic growth rate, ease of inflation pressure at a high level and lack of new economic growth areas in China’s economy. Domestic and external demands have fallen at the same time. As a result, there has been growing anxiety over China’s economy both at home and abroad. Some media have even come to the conclusion that China’s economy might suffer a hard landing. If we analyze the situation cool-headedly, however, we still see quite a number of favorable factors supporting steady economic growth and a hard landing can be avoided. First of all, as the net income of the rural population grows fast and the social safety net in the rural area is put in place, the focus of the structural upgrade in consumption is shifting from the cities and towns to the rural area and will help offset the weak urban consumption. Secondly, construction of government subsidized housing is now under full swing, which will ease pressure brought by shrinking investment in commercial housing projects due to property market regulation. Thirdly, with intensive introduction of local industrial guidelines, a new round of investment boom led by local governments is approaching. Fourthly, the Chinese Government is well-equipped with many tools to stimulate economic growth, including tax cuts and public investment expansion to keep the growth rate at a certain level. Therefore, 2012 will be a year when the China’s economic growth stabilizes amidst slowing down.

II. From a comparative perspective, we have full confidence in China’s economic growth. First, let’s conduct a horizontal comparison. Although China’s economic growth has obviously slowed down in 2012, there’s no doubt that the growth rate will turn out to reach around 8%. Given continuous weakening of the global economy, this rate is fast enough. In addition, China’s fiscal deficit and price level are within the controllable range. In comparison, IMF estimated that economic growth of the US, Europe and Japan is only 1.4%. The other four BRICS economies are all slowing down remarkably. What’s more, as the developed economies, including the US, Europe and Japan, are troubled with high debt, the emerging economies face pressure of depreciating currencies. Second, we can do a vertical comparison. China’s GDP growth reached 10.7% on average from 2003 to 2011, and for 6 years of which, the economy grew by over 10% and reached 9.2% even in 2009, when the economy was hit the hardest by the global financial crisis. The past decade was the golden age for China’s economy, which became the second largest in the world, and the per capita GDP reached over USD 5,000. From a historical point of view, the current slow down was a cyclical phase following long-term expansion and transitional pains when a traditional economic pattern is being restructured. There is no need to get too alarmed about short-term fluctuations guided by economic laws.

III. From a long-term perspective, the fundamentals of the Chinese economy remain unchanged and basic forces that propel long-term economic growth still exist. With enormous development opportunities brought by continuous industrialization, urbanization, marketization and globalization, China’s economy has great potential and is supported by a strong driving force. China’s per capita GDP is 1/9 of that of the US and per capita consumption level is trailing far behind the world’s average. China’s urbanization rate is 50%, the level of the US in 1910 and Japan in 1960. Average salary of the Chinese people is 1/6 of that of the United States, less than half of the world’s average level. On top of that, China is deliberating on a major reform focusing on further marketization and economic restructuring, which will give strong impetus to economic growth. Despite the devastating impact of the financial crisis on western economies, the momentum of economic globalization remains and China will take full advantage of both domestic and external resources and markets to gain more strength. Therefore, there is no reason for pessimism towards China’s economy. Without major global economic upheaval, the Chinese economy is expected to maintain its growth around 8% for quite a long period of time.

What is more, slow down of the economy might be a negative factor from the growth angle, but a positive factor from a restructuring angle. Developed economies, including the US and Japan, as well as South Korea and some Southeast Asian countries all experienced success in economic restructuring amidst crisis. At the moment, the upgrade from “made in China” to “created in China” has become a trend and the coastal area is going through profound structural adjustment. Stimulated by structural tax cuts, China’s private sector is becoming more dynamic. Guided by policies encouraging innovation in science and technology as well as energy conservation and emission reduction, science and technology are playing a pivotal role in boosting economic and social development and sustainability of the Chinese economy is expected to be further strengthened. It is foreseeable that after this round of adjustment, China’s economy will continue with its upward trajectory.