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posted on 12 March 2015

Reform Is The Only Way Out for China Economy

Written by , GEI Associate

This is a key year for China's economy. Facing lower economic growth, decline of productivity and escape of domestic capital, China has to make reasonable marco-control adjustments to stablize economic operations while nurturing innovative small businesses, achieving an "economic new normal" and accomplishing a difficult economic transition. In all, China has to walk on long, slow road to reform.

Following up on my last topic which discussed the country's manufacturing industry, although China manufacturing PMI recovers sightly in February, it is the second consecutive month that manufacturing PMI value is below 50, which means Chinese manufacturing industry is still in a period of contraction.

In fact, the PMI numbers just represent the result of China's manufacturing structural reform. Around spring festival, a lot of world well-known factories in China are in process of shutdown and relocation, which includes Microsoft Company. They plan to close down their Nokia factory in both Dongguan and Beijing, and accelerate their equipment transport to Vietnamese factory.

Moreover, according to relevant reports, other world famous enterprises which involve, among others, Panasonic, Sharp, Uniqlo, Nike, Foxconn and Samsung also project moving their factories out of China.

As a result, miniaturization and professionalization become new features of Chinese manufacturing enterprises. Jinyuan Yao, contributing researcher in the state council, states that the main problem of "made in China" is tht the manufacturing sector is both large and weak. For example, China has the world's top output of steel, while it has to import wirerope used in cranes. China has the world's highest yield of Aluminum, but still has to import when demand peaks.

Therefore, although China's economy has yet to encounter crisis and challenge, reform is imperative to strengthen China manufacturing industry. China can no longer rely on cheap and massive labor force to stimulate economic growth. The country should speed up the development of domestic enterprises, and march toward the "new normal" as defined by Xinhua that realizes

"a shift from high speed growth to a medium-to-high one, a shift from focusing on quantity and speed to quality and efficiency in growth model, a shift from stressing production expansion to improving current production, and a shift from growth being driven be conventional engines to increasingly driven by new ones".

Furthermore, China government has to keep pace with the reform. Maintaining macro-policy stability by efficient monetary, fiscal, policy regulation is indispensable to support and steady the economic transition, the shift to "new normal".

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