Xi's 'new normal' theory justifies bolder economic reforms

BEIJING -- Chinese President Xi Jinping's latest elaboration on the "new normal" theory has served to build consensus for bolder economic reforms, a Chinese scholar observed.

By giving a comprehensive interpretation of changes in China's economy, the president could help dispel worries over the slower growth in the world's second biggest economy, and set the tone for future policies, said Lu Feng, a Peking University professor in economics.

Xi's remarks signaled that the government is expected to stay away from massive stimulus and push forward key reforms while maintaining steady growth next year, Lu told Xinhua in an interview.

In a speech delivered at the Asia-Pacific Economic Cooperation (APEC) CEO Summit on Sunday, Xi said a "new normal" of China's economy has emerged with several notable features.

They include gear shifting from the previous high speed to a medium-to-high speed growth, improvement and upgrading of the economic structure, and innovation as a stronger economy driver than input and investment.

Along with the "new normal" come with some potential risks and new conflicts and problems, the president said, and "the intensity of our endeavor to comprehensively deepen reform will determine whether we will successfully adapt ourselves to the new normal."

Xi did not specify what risks and problems the economy faces, but Lu said they refer to the difficulties China is going through in cooling down an overheated property market, digesting excessive production capacity, de-leveraging the banking sector and defusing mounting local government debts.

"Through the 'new normal' theory, Xi stressed that the slower economic growth is actually rational, while underlining the necessity of deepening reforms, which are essential not only for achieving sustainable and long-term growth but also for eliminating current economic imbalances," Lu noted.

A key reform area is the pricing of factors of production such as capital and land, he pointed out.

However, the reforms to make interest rates, currency exchange rates and land prices more market-oriented are particularly difficult, Lu said.

China has taken incremental steps toward interest rate and exchange rate liberalization, but the rates are still not totally set by market forces. The land market is also under government control.

"Efforts must be stepped up to advance those reforms, and it may even need a final push to give impetus to them at the appropriate time," Lu said. "The market-oriented reforms are tasks that can not be avoided."

Xi has stressed the resolution of deepening reforms on many occasions, saying China's reform has entered the deep water zone where tough challenges must be met.

To comprehensively deepen reform, China needs to stimulate market vitality, broaden the path for innovation, advance opening-up at a higher standard and improve people's well-being and promote social equity and justice, Xi said when addressing the APEC CEO Summit on Sunday.

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