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posted on 30 March 2015

China New Normal Brings Benefits to US Economy

Written by , GEI Associate

As is mentioned in my previous articles about China's new normal, economic reform will sacrifice short-term economic growth to pursue quality improvement in long-term economic development, which is the best way forward for Chinese economy. In the meanwhile, China's new normal also brings "positive energy" to global growth, which definitely includes the world's No.1 economy.

xi.jinping

Based on the most recent statistics from Bureau of Labor Statistics, US unemployment rate in February declined to 5.5%, which is the lowest since 2009. In addition, the total labor force continued increasing in 2015.

However, in a Senate Banking, Housing, and Urban Affairs Committee hearing in Washington, D.C., Federal Reserve Chair Janet Yellen said that although the unemployment rate seems to be rosier, U-6 rate (which is calculated including as labor force those who are discouraged or working part-time but would like full-time job) is still abnormally high. This indicates labor force participation in US has actually come down and is trending down.

At the same time, China is experiencing economic reform shifting to a new normal, which aims to replace investment and export-oriented economic growth by consumption driven growth. As a result, the interaction effect between world's No.1 and No.2 economies is gradually changing.

China new normal will change trade pattern between US and China.

Stephen Roach, former chairman of Morgan Stanley Asia, states that China's economy is moving from producer model to a consumer model and this is an enormous opportunity for the US. As we all know, during the past twenty years, with the rapid development of manufacturing industry in many developing countries, US labor market encountered seriously negative effects as a number of industries shrank gradually in US. Consequently, US has relied more on imports as time progressed.

Nevertheless, China's new normal upgrades industrial structure, encourages Chinese enterprises to expand their multinational business and invest overseas. This may coincidentally produce positive effects on development of US manufacturing industry and labor market. The trade pattern between the world's top largest economies may shift to a more balanced two-way proposition.

China new normal will increase jobs in US labor force market.

According to the recent news from Bloomberg, the new normal for China's economy looks to be shaping up as a new deal for U.S. workers, which is ultimately good news for Federal Reserve Chair Janet Yellen. Due to the adjustment of industrial structure, China may significantly cut its GDP growth rate in the coming several years.

Thereby, China's new normal may revive US manufacturing industry, thus lead more job positions in US labor market, relieve competitive pressure within the US labor force and increase the proportion and number of full-time jobs. The end effect of such a development would be a higher labor participation rate. Therefore, partially because of changes in China, the US employment rate is expected to see further continuous improvement over several years.

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