Technological upgrading

China's exceptional GDP growth, 11.4 percent in 2007, is now a thing of the past, and the country must tap its technological potential if it is to maintain stable growth in the coming decades.

In the short term, despite the initial signs of economic stabilization, the Chinese economy is yet to emerge from the woods.

The country's 7.8 percent year-on-year GDP growth for 2012, the lowest since 1999, heralds a new era of slower growth, and while urbanization, the great hope for future growth of overly optimistic economists, could bolster the economy, it will not keep the Chinese economy growing as fast as it used to.

Worse, China's demographic change, which will see a smaller working-age population and surging labor, resource and environment costs, will undermine the country's competitiveness.

The economy narrowly avoided a hard landing last year, after industrial production and retail sales expanded strongly in December mainly attributable to the country's mini-stimulus measures. But the room for such measures to be continued is limited because, while they provide traction for the economy, they can also bring the risk of rising inflation.

China is probably on a normalized track of lower growth. Policymakers and the public should prepare for this new reality.

The international situation offers little help. Last week, the World Bank trimmed its forecasts for the economic growth of both developed and emerging economies this year. The problems besetting the United States and Europe mean they will no longer fully absorb China's exports, which have been one of the pillars of China's high-rate growth.

But such a change in the external environment should be seen as an opportunity for China to upgrade its economic structure through technological advancement and the chance to create new sources of growth.

The Chinese economy has fared well in the past three decades through increasing inputs of labor and capital, but although technological advancement has played a role in its success story, that role has been a minor one.

With labor and capital inputs already losing steam, China must increase its efforts to promote technological innovation to maintain its growth momentum.

(China Daily 01/22/2013 page8)