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On the ‘new mediocre' and new opportunities in current global economy

Editor: Li Kun 丨CCTV.com

07-21-2015 16:32 BJT

By Lou Jifang, PhD economics, junior economist, China welfare lottery management center, Ministry of Civil Affairs

Many developed countries and regions are still trapped in crisis and cannot extricate themselves as subprime and debt crises, stagnation, rising unemployment and high fiscal deficits have spread like a virus through their economies.

In 2014, Christine Lagarde, managing director of the International Monetary Fund used the term "new mediocre" to describe a global economy of weak recovery, slow growth, low employment and high risk.

During the seven decades since World War II, rapid global economic development benefited from substantial material support and technological innovation. By the end of the century, the material foundation based on expansive growth had been eliminated. Consumption expansion brought about by technological innovation also fell into stagnation. Economies need to correct and adjust. The concept of new mediocre is just a reflection of pessimistic speculation.

Origin of new mediocre

The global economy needs to adjust.

First, long-term economic growth is unsustainable. An economy is not a perpetual-motion machine. Economic development is confined by factors like technology and resources. People always delight in describing how various economic miracles broke the mold of technology and resources of that time. Development of the global economy is now simply experiencing new bottlenecks of technology and resources.

Second, the imbalance in world economic development limits rapid development of the world economy as a whole. Some underdeveloped areas lag behind the trend of rising global expenditure. It is inefficient to barely provide enough power for world economic growth by basing it on overdraft consumption in developed countries. Economic globalization and integration is the more logical trend.

Third, development of the global economy requires rational decision-making. One-sided pursuit of economic growth scale and pace at the expense of quality just leads to economic deformities. In the long term, the global economy needs serious surgery to recover. The present chaos is a kind of economic self-healing process. Development of the virtual economy relies on the real economy. The real economy is the fundamental driving force of economic growth and the runway for global economic recovery.

Gestation of opportunities

In twists and turns, the new mediocre global economy is brewing new opportunities.

First, the endogenous and exogenous driving force of economic growth is evolving. The world's major economies no longer rely on consumption or investment and instead seek breakthroughs in technological innovation, systemic economic reforms and global economic reconstruction.

Second, the connotation of economic development has been properly understood. Many governments have started innovations and reforms that optimize economic structure, improving efficiency of resource utilization, strengthening environmental protection and adjusting income distribution.

Third, the fundamental position of the real economy is duly respected again. Many states are competing in research and development, transformation and upgrade of manufacturing, developing new industry and agriculture and optimization of the global industrial chain.

Finally, global economic reconstruction is developing subtly. The convening of international economic cooperation conferences and emergence of new types of economic cooperation continue to strengthen international economic exchanges and promote regional economic integration. New opportunities in the global economy are developing through the combined efforts of all kinds of economies.

China option

After undergoing three decades of double-digit growth, the Chinese economy has settled down at 7.5 percent. This is not only an adaptation to the new mediocre global economy but also in line with the “new normal” situation of the Chinese economy.

Three decades of rapid growth made China the largest trading and second-largest economy in the world. This was founded on a demographic dividend, excess consumption of resources and exploitation of the environment. But the most fundamental energy derived from selection of a suitable economic system and active participation in the global economy.

With the global economy entering a new mediocre state, western ideology passes the buck back to China. Anti-dumping and countervailing attacks intensify against China. Meanwhile, domestic resources and the environment have reached capacity, and the demographic dividend is depleted. This makes China realize its development model based on resources consumption at this stage of development is no longer viable. China's most realistic option is to grasp new opportunities in global economic development and continually promote transformation and upgrading of the manufacturing sector.

On the one hand, increasing investment in the technological content of manufacturing – research and development and new technologies – will gradually promote a transformation from "Made in China" to "Created in China".

On the other hand, construction of the One Belt One Road Initiative, Asian Currency Area and Asian Infrastructure Investment Bank will continually
strengthen China’s economic cooperation and make full use of resources from neighboring countries that expand the low value-added production chain. It will accelerate the pace of Chinese manufacturing industry implementing the "going out" strategy.

Better long-term economic development of China will be achieved through adapting to the new mediocre of the global economy, grasping new opportunities for future development and slowing down China’s economic development to absorb greater efficiencies.

 

( The opinions expressed here do not necessarily reflect the opinions of Panview or CCTV.com. )

 

 

Panview offers a new window of understanding the world as well as China through the views, opinions, and analysis of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.

Panview offers an alternative angle on China and the rest of the world through the analyses and opinions of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.

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