It's all a matter of long-term survival

For the cyclical slowdown we must find a short-term breakthrough in consumption, investment and exports. Consumption cannot effectively be increased in the short term because it is difficult for China's savings rate to decline rapidly. It fluctuates but has been rising since 1980, and savings have accounted for more than half of China's GDP since 2006. The figure was 51.35 percent last year. Due to the prevalence of structural risk, it takes time for living standards to improve and traditional habits of consumption to change.

Exports are influenced by changes in comparative advantage and the evolution of national brand competitiveness in the long term and by external demand and the foreign exchange rate in the short term. The slow recovery of external demand caused by a weak global economy generates pressure for short-term expansion in exports, especially after a short period of depreciation, and the renminbi reverts to appreciation. The country then has to resort to investment to relieve the pressure of the cyclical slowdown.

An investment-led short-term economic recovery is controversial, but some points are worth making. Increasing investment is the best way to promote short-term recovery. Although that will generate pressure for structural change, it can also dampen the two slowdowns, something China's economy urgently needs.

There is still room to increase investment in China. The International Monetary Fund estimates that investment accounts for 47.78 percent of total GDP in 2012, still lower than the 50.09 percent savings rate in the same period. In addition, this year's budget deficit is estimated to account for 1.3 percent of GDP, and the debt ratio of China at 22.16 percent, both substantially lower than what internationally would be regarded as a cause for concern and the average level of developed countries. Despite the risk of local government debt, China's overall financial condition is still robust.

Boosting investment serves not only short-term needs, but also the long-term needs of continued urbanization and industrialization. There is nothing contradictory about increasing investment and structural slowdown with long-term sustainable development. The key is to adopt a variety of ways to promote a short-term and long-term balance.

To mitigate risks to achieve long-term sustainable development, the following should not be forgotten.

Private capital plays an important role in boosting investment.

The structural adjustment within investment. Increasing investment in the short term should increase the long-term support of key emerging industries to promote structural transition.

The government needs to pay attention to improving people's livelihoods and welfare while boosting investment in the short term. The investment should speed up the construction of affordable housing and improve urban infrastructure.

The country should emphasize the proper coordination of fiscal, monetary and other macro-control policies while boosting investment in the short term.

Financial reform should be extended to boost short-term investment.

The country should further open up public service sectors, resources, healthcare and education to lay the foundation for the long-term development of the market economy.

In short, now that the structural slowdown and cyclical slowdown coexist, the Chinese economy needs a short-term breakout. Surviving in the short is the key to escaping death in the long term.

The author is a researcher at ICBC City Finance Research Institute in Beijing. The views do not necessarily reflect those of China Daily.