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China's New Normal

In: Business and Management

Submitted By dorjoo
Words 2531
Pages 11
KAIST, College of Business

Chinese Financial Market (FIN681)

Term paper

China’s New Normal Economics & Declining Growth Rate

1. Backgrounds of Chinese New Normal Economy Policy
At the opening of the annual National People’s Congress (NPC), Chinese premier Li Keqiang officially announced that the growth target for China in 2015 will be of “approximately 7 per cent”, considerably lower than in the past. The announcement came as no surprise as it had been anticipated in a speech by Mr Li in Davos in February stating that the country had “entered the stage of the new normal, shifting from high speed to medium-to-high speed”.
The new growth target set by Beijing is now lower than last year’s 7.5 per cent, and more than 2 percentage points lower than in the past two decades. The government’s ambitions therefore align with the recent slowdown experienced by the Chinese economy since the beginning of the financial crisis in 2008.
After the first two years of Xi Jinping’s term, the Chinese economy grew by 7.4 per cent ‘only’ in 2014 – the lowest rate since 1990 – low enough to convince Chinese policy makers to shift to a new policy stance, as they realize previous growth targets are no longer sustainable. The shift to a lower but more sustainable growth target came soon after the International Monetary Fund (IMF) warned last year that a series of danger signs suggested that China would probably face a hard landing in the absence of crucial reforms. More specifically, the IMF said that without change, the risk of depressed annual growth of just 2.5 per cent for a ‘protracted period’ of time was ‘medium’ to ‘likely’ before 2030.
Mr Li said that China is likely to face even more serious difficulties in the year ahead, as “downward pressures on China’s economy are building” up quickly and the country is facing “deep-seated problems in development” that can

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