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A Window on China’s New Normal

CAMBRIDGE – Every year at this time, China’s government organizes a major conference – sponsored by the Development Research Center, the official think tank of the State Council – that brings together senior Chinese officials, CEOs from major Chinese and Western firms, and a small group of international officials and academics. The China Development Forum (CDF) occurs just after the annual National People’s Congress.

At the forum, speakers, including the finance minister and the head of the central bank, summarize the Chinese leadership’s current thinking. Officials then listen to comments and suggestions from Western business and academic participants, including a question and answer session with Premier Li Keqiang.

Although I have been attending the CDF’s meetings for more than a decade, I found this year’s conference substantially different from any in the past. The key difference was the official Chinese recognition that annual real GDP growth has declined permanently from the past three decades’ average rate of nearly 10%. The official estimate is that real GDP grew 7.4% in 2014, and that the rate will probably slow further, to 7%, this year. The Development Research Center presented detailed estimates showing that the growth rate will continue to decline, reaching about 6% by the end of the decade.

Virtually every Chinese official referred to this slowdown as their country’s “new normal.” They all seemed reconciled to slower growth, which was initially surprising, because officials previously argued that China needed rapid growth to maintain employment and avoid political unrest. They now appear to understand that the declining growth rate will not lead to unemployment, because the slowdown reflects China’s structural shift from export-oriented heavy industrial production to increased production of consumer services, which require more employment to create the same amount of value.