At the construction site of the dual road-rail Yellow River bridge in Jinan, capital of Shandong Province, workers install guide beams

China's economy grew at 7.3 percent in the third quarter of 2014, maintaining a steady pace despite a complicated external and internal economic environment. In the first nine months, the economy expanded 7.4 percent overall.

"Although there is a slight drop from the previous quarter, the 7.3-percent growth is still within a reasonable range. Given that the economy is in the midst of slowdown and ongoing structural adjustment as well as dealing with undigested stimulus policies, achieving such a result in no way represents the picking of low-hanging fruit," said Sheng Laiyun, Spokesman for the National Bureau of Statistics (NBS), at a press conference on October 21.

"Although GDP has grown at a slower pace, employment data is inspiring. From January to September, more than 10 million jobs have been created in urban areas, achieving the full-year target set for employment ahead of time," Sheng added.

"We are full of confidence about the prospects of China's economy. In the face of challenges, China will maintain its zeal to realize its economic goals this year," said Chinese Premier Li Keqiang while meeting with the heads of delegations who came to Beijing to attend the 21st Finance Ministers' Meeting of the Asia-Pacific Economic Cooperation on October 21.

Why the slowdown?

The slowdown is part of the inevitable structural adjustment, the repercussions of which have "gone beyond expectations," said Sheng. The reduction of overcapacity and the adjustment of the property market have significantly affected production, consumption and investment of related enterprises, eroding GDP growth.

Prior to the breakout of the 2008 global financial crisis, overcapacity had already appeared as a major economic problem in China. Since 2002, fixedassets investment expanded at a pace as fast as 20 percent for three years running. When production capacity was unleashed in 2005, prices of steel, cement and electrolytic aluminium began to steadily drop. According to China Iron and Steel Association statistics, while China's steel production capacity is 1 billion tons, the total demand is roughly 700-800 million tons.

Li Yang, Vice President of the Chinese Academy of Social Sciences, said excessive investment has resulted in the current level of overcapacity, while the slowdown is the result of the elimination of badly performing investment. "China should put its investment mechanisms and environment in order by shepherding excessive production capacity into sectors such as infrastructure investment, and unveil financially supportive policies to help more private enterprises realize their true potential," Li said.

While traditional advantages like low labor costs have faded into the background, new growth points have not yet been activated. After several years of explosive growth, the old pattern of resource- and labor-intensive development can no longer sustain economic growth, and an array of problems such as excess production capacity and air pollution have severely hindered economic and social progress. However, novel technologies such as new energy are incubating another round of global scientific and technical revolution.

"At the critical stage of transformation and upgrading, new elements are wrestling with old ones, which still have the upper hand. Therefore, downward pressures can't be ignored," said Sheng, who suggested remaining calm, continuing to intensify reforms, and restructuring and making incremental preemptive adjustments.

For now, the government should resist the temptation to adopt large-scale stimulus policies and concentrate on accelerating the pace of reforms and stabilizing economic growth to lay a solid foundation for future development, said Niu Li, an economist at the State Information Center, a government think tank.

A 'new normal'

Despite a slowdown in the third-quarter economic growth, "some profound changes are already taking effect," said Sheng, who perceives the "new normal" of China's economy in terms of industrial structure, demand structure, income, regional development, resource and environment cost.

According to NBS statistics, in the first three quarters the services industry contributed 46.7 percent to GDP, a 1.2-percentage-point year-onyear increase, and 2.5 percentage points higher than that of the manufacturing industry. Emerging industries such as e-commerce, logistics and express delivery have grown by leaps and bounds.

Ma Jun, chief economist of the Research Bureau of the People's Bank of China, held that the services industry, which has created more jobs than the manufacturing industry, is expanding its territory and playing an increasingly important role in China's economic development.

Since the beginning of this year, investment growth has slackened and export growth has shown a tendency to shift gears. Consumption has performed well by contributing 48.5 percent to GDP in the first three quarters, up 2.7 percentage points year on year.

"In the past, attempts at economic restructuring always focused on propelling the expansion of key and strategic industries. In the era of the 'new normal,' structural adjustment is oriented to meet the requirement of the market and people's livelihood first and foremost," said Ma, predicting that when per-capita GDP surpasses $7,000, consumer preferences will edge from manufactured goods to service products.

In the first three quarters, the growth of percapita disposable income rose by 8.2 percent, 0.8 percentage points higher than GDP growth and 0.1 percentage point higher than fiscal revenue growth. It even outpaced the growth of corporate profits.

The coordinated development of east, central and west China and the reduction of resource and environment costs reflect a more scientific pattern of development. From January to September, energy consumption per unit of GDP witnessed a decline of 4.6 percent, according to Sheng.

"From a macroeconomic perspective, efforts should be made to advance the balanced development of domestic consumption. More investment should be made to promote high-end manufacturing, modern services, ecological environmental protection, and infrastructure construction, as well as bolster social insurance and meet the [strong] housing demand," said Li Xuesong, Deputy Director of the Institute of Quantitative and Technical Economics at the Chinese Academy of Social Sciences.

State Information Center's Niu forecast that the economy will continue to expand at the same pace in the fourth quarter, and generally speaking, the full-year target of 7.5 percent or so is still on the cards.

Sheng predicted that China's economy will grow at a stable and faster pace in the fourth quarter. Ongoing industrialization and urbanization will continue to provide impetus for the economy and further development of central and west China as well as the upgrading of the consumption structure will bring about more opportunities. Moreover, the Chinese Government is promoting reforms and innovation, which will also greatly stimulate the economy.

The World Economic Outlook report released by the International Monetary Fund on October 7 predicted China's economic growth will linger at 7.4 percent in 2014 and slow down to 7.1 percent in 2015.

"The sluggish credit growth will continue to affect investment, and at the same time, the housing market will be stagnant," the report said.

UBS Securities economist Wang Tao believed the property market will maintain its downward trend in the next year because the decline is the result of supply exceeding demand.

The East Asia and Pacific Economic Update published by the World Bank on October 6 predicted China's GDP growth will level off at 7.4 percent in 2014 and drop to 7.2 percent in 2015. It said the Chinese Government has taken a series of measures to contain local government debts, crack down on shadow banking, eliminate overcapacity, and in particular to curb environmental pollution, which if left unchecked will further pull down the growth of investment and the output of the manufacturing industry.

These measures and policies will put the economy on track for more sustainable development, it said.

Major Macroeconomic Indicators in the First Three Quarters

» Consumer price index, the main gauge of inflation, rose 2.1 percent year on year.

» Producer price index, which measures inflation at the wholesale level, contracted 1.6 percent year on year.

» Foreign trade increased 3.3 percent year on year to $3.16 trillion. Exports increased 5.1 percent to $1.7 trillion while imports increased 1.3 percent to $1.47 trillion.

» Inward foreign direct investment (FDI) into the Chinese mainland stood at $87.36 billion, down 1.4 percent year on year.

» Outward FDI from the mainland stood at $74.96 billion, up 21.6 percent year on year.

» Value-added output of industrial enterprises above a designated size - with principal business revenue of more than 20 million yuan ($3.15 million) a year - grew 8.5 percent year on year.

» Fixed assets investment totaled 35.79 trillion yuan ($5.85 trillion), up 15.3 percent year on year after inflation deduction.

» Retail sales totaled 18.92 trillion yuan ($3.09 trillion), up 10.8 percent year on year after inflation deduction. » Urban residents' per-capita disposable income stood at 22,044 yuan ($3,601.08), up 6.9 percent year on year after inflation deduction.

» Rural residents' per-capita cash income stood at 8,527 yuan ($1,392.96), up 9.7 percent year on year after inflation deduction. —New yuan-denominated loans amounted to 7.68 trillion yuan ($1.25 trillion), 404.5 billion yuan ($66.08 billion) more than the same period last year.

» As of the end of September, M2, a broad measure of money supply that covers cash in circulation and all deposits, reached 120.21 trillion yuan ($19.64 trillion), up 12.9 percent year on year.

» China's fiscal revenue rose 8.1 percent year on year to 10.64 trillion yuan ($1.74 trillion). (Sources: National Bureau of Statistics, Ministry of Commerce, Ministry of Finance)