Yang Ruilong, Professor of School of Economics, Renmin University of China: Emphasizing the Bottom-Line Management While Facing New Challenges Under

the Conditions of the “New Normal”

Thanks for the invitation, and congratulations to Xiamen University for hosting the macroeconomic conference report continuously.

“New normal” is, in fact, to describe a state of decline of potential economic growth rate. There is a little comfort though the economy turns down. On the one hand, employment deterioration is not serious. On the other hand, the service industry remains robust. But the economic indicators of the second half of 2014 suggest that there are also problems with the two following factors.

Let us begin from the service industry. The PMI of nonmanufacturing industry is more mutational than the manufacturing industry. The PMI of nonmanufacturing has reached 56.7 % in October 2008 but descended to 45.4 % in November. We should not be confused by the data of more than 50 %, for it may reverse rapidly in 2015. Furthermore, China is in the postindustrial period, and the development of the third industry is heavily dependent on manufacturing and consumption. The current indices of GDP are going all the way down, manufacturing industry is relatively receding, and per capita income growth is slowing down, so the service industry lacks foundation for rising. We can suggest that the service industry may encounter serious challenges in 2015.

Then let us talk about employment. Analyzing the employee's index, the demand for employment is shrinking, especially the nonmanufacturing industry. As the employment statistics have some problems, employment quality has not been well reflected. According to the current aperture, removing the false of employment and entrepreneurship, enterprise talent reserves, and local government repression, the quality of employment has some problems. The third industry which is the construction industry that employment heavily depends on will fall back in 2015; therefore, the employment will be unavoidably under pressure.

The uncertainty of two supporting elements presents the macroeconomic policy as a dilemma. Strengthening the stimulus will aggravate the structural distortion and increase the financial risks. But it is obvious that China excessively depends on high economy growth. The unnecessary growth speed may cause economic system crisis. In addition to the decline of potential growth rate, cyclical factors are also the reasons of economic downturn. So it is a daunting problem for the macromanagement and decision-making departments to balance growth with restructuring. In order to avoid the negative effects of excessive stimulus and economic decline cliff, we should have a bottom-line management consciousness, holding the bottom line of unemployment and risk, making prearranged plans. For instance, aiming at the excessive declines of the real estate and service industry investment, we should prepare for the hedging policy and build a social safety net to hedge the impact from the macroeconomic deterioration on the economy.

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