3% to 4% Growth Suffices Job Creation in China: Economists

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BEIJING，June 11 (TMTPOST) Tsinghua University researchers led by David Daokui Li have asserted that China needs economic growth of 3% to 4% in 2020 in order to steady employment in a report released recently.

Without new stimulus measures, the Chinese economy is forecast to grow 1.9% this year based on the estimates of 2.4%, 4.3% and 6.2% in Q2, Q3 and Q4 of 2020. The world’s second largest economy contracted 6.8% due to the country-wide coronavirus shutdowns, according to the report.

Based on the correlation between GDP growth and job creation in the past two years, one percentage point growth will translate into 2 million to 2.2 million new jobs, according to the report. Accordingly 10 million new jobs normally require about 4.5% growth.

“With income subsidies for low-income people to guarantee basic life standards, funds for SMEs hit by the coronavirus pandemic, flexible employment policy and more graduate admissions into higher education institutions, additional RMB3 trillion (about US$423.8 billion) is needed to boost economic growth to 3% to 4%,” said the report.

With a higher goal of doubling GDP and per capita income by 2020 on the basis of its 2010 figures, economic growth of 5.63% and thus RMB4.5 trillion (about US$550.9 billion) in economic stimulus are required.

The report argued that China is still one step away from the milestone of the middle-income country and in the middle and advanced stage of industrialization, the middle stage of urbanization, the critical stage of the industrial upgrade and the advanced stage of digitalization.

“Whether to successfully release the potential market demand in the four concurrent stages is vital to stable growth of the Chinese economy,” said the report.

Li, a professor at Tsinghua University and former adviser to the People’s Bank of China, China’s central bank, said on Tuesday in a webinar that the government should step up stimulus efforts to ensure sufficient job creation.

Last month, the central government announced fiscal stimulus measures to increase infrastructure construction to shore up economic growth, driving up its fiscal deficit target to 3.6% of GDP, the highest level in a decade.

Li said the central government’s stimulus was not as much as he had expected in the Tsinghua study, adding that China needed to focus more on consumption rather than infrastructure investments. The report suggested that China should consider the option of boosting automotive and property sales.

“According to our estimates, if auto sales could be as high as the 2017 levels, it would contribute 0.8 percentage point in GDP growth, which would completely offset the negative impact of the restaurants, hotels and transportation sector on economic growth in the first half of 2020, ” said the report.

Challenges Faced by Private Enterprises

The overcapacity problems in coal, steel and other manufacturing sub-sectors have been preliminarily solved since the supply-side structural reform was kicked off in 2015, said the report.

“In our view, the next key issue in industrial upgrade lies in the transformation of private enterprises in the overly competitive sectors,” said the report.

The researchers took the elevator manufacturing industry as an example. Chinese brands accounted for about 30% of the elevator markets, with top 10 brands having a combined 15% market share and over 600 small and medium-sized elevator producers carving up the remaining15%.

By contrast, about 10 big companies often contest for the similar sub-sector markets in developed economies. The transition from the currently overly competitive markets to the concentrated markets is very painful for private entrepreneurs, said the report.

“The transition process can also be painful for banks. If properly handed, the transition would bring about great opportunities. Otherwise, it would be a big burden for the manufacturing sector and the banking industry,” said the report.