“New Normal” and Productivity of Chinese Companies

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Table of Contents

Introduction
Literature Review
Proposed Methodology
Conclusion
Bibliography
Footnotes

Introduction

The New Normal State of China’s Economy

Economic indicators reveal that China’s economy is proceeding to a “new normal” stage. After the world economic crisis of 2008, China has experienced considerable declinations in its growth rates.

China’s economy is rebalancing and this is obvious in the slowing of export growth, from an initial annual average of 29% (between 2001 and 2008) to less 10% in the past few years¹. This has reduced the significance of exports in the growth of the country, which has made the influence of net exports insignificant.

Thus, the influence of exports to economic development has reduced to 1% from 3%. Unemployment soared in 2013 and this dragged down the capacity of manufacturing industry below that of the service industry. China’s service industry was responsible for more than 50% of the country’s economic performance.

Difference between old normal and new normal

The “new normal” represents the new average Gross Domestic Product (GDP) growth China has recorded in the past years. Figure 1 below illustrates the trend of China’s GDP growth from 2004 to 2014. The figure indicates that China’s GDP growth fell below its characteristics “old normal” two-digit to a “new normal” single-digit value.

Figure 1: China’s GDP Growth from 2004 to 2015

China’s GDP Growth from 2004 to 2015

The technical difference between the “old normal” and the “new normal” is the values of GDP growth in the two eras. During the “old normal” days, China’s GDP growth was constantly in two digits, except during the global economic crisis. The reduced GDP growth is called the “new normal” because it differs from the previous paradigm.

Purpose

This paper is proposes research to analyse the effects of the “new normal” on the productivity of Chinese organizations. The paper presents a literature review of the characteristics, causes, and possible remedies to the effects of the “new normal” on China’s economy.

A quantitative design is proposed for the collection of primary data concerning the subject. The survey will be designed to collect perceptual responses from the employees of four companies operating in China’s building and construction industry.

An understanding of the effects of the “new normal” on the building and construction is important because of the position of the sectors in China’s economy. The “new normal” may have affected the level of competition across all sectors in China, especially the building and construction industry.

Literature Review

The literature review discusses the features and effects of the “new normal” on China’s economy. A review of the factors that contributed to the “new normal” and their significance is presented in this part of the proposal.

Factors the Influenced China’s economy to new normal

Three factors influenced the emergence of the “new normal” in China’s economy. The world economic recession of 2008 was the primary contributing factor to the “new normal” in China’s economy. Compared to other economies in Eastern Asia, China’s manufacturing industry would have passed its inverse U-curve around 2017.

The drastic in global demand has enhanced the change of China’s manufacturing industry.

The demographic evolution in China is another important factor influencing the “new normal” phenomenon. The change comprises two segments. A change in the age configuration of China’s population reduced the working-age proportion and has continued to drop since 2010.

The speedy economic growth between 2001 and 2008 drew 200 million people away from agriculture. Even though the countryside still holds 35% of its workforce, the migration rate has reduced considerably². The transition indicates why the economy started slowing from 2010.

The reduction in investment growth also caused the economy to slow down. China’s economic growth is majorly influenced by investment. To manage the negative effects of the global economic recession, China established a major investment effort from 2008 to 2009³.

Nevertheless, there has been a reduction in investment growth since then. Housing and infrastructure are major contributors to China’s economic growth and the decline in these industries is responsible for the lower investments.

Characteristics and Manifestations of China’s “New normal”

China’s “new normal” economy is characterised by slower and predictable economic trends and a balanced economic system. The Chinese government’s efforts to improve its economic growth have proved futile because the factors affecting its economy are market changes.

A declining workforce results in an increase in earnings, which, consequently, reduces economic development, heightens inflation, increases income distribution, quickens market changes, and rebalances the economy⁴.

Different models have been used to describe China’s economy in the last two decades. In another research, the researcher explains that the source of China’s success was its change from the physical industry-based to a proportional advantage-based growth approach⁵.

However, other researchers argue that China’s economic achievement was due to its adoption of East Asia’s classic market model⁶.

Despite their varying opinions, the economists all correctly agree to China’s intention to switch to a market system from its centrally structured system. A market system ensures that decisions are influenced by supply and demand circumstances, and the necessary resources are effectively distributed.

Structural problems are also caused by low input costs. Firstly, unexpected incentives cause exports and investments to increase GDP. Furthermore, an increase in the percentage of commercial profits in the domestic revenue upturns the rate of national saving.

Also, income disparity among families reduces, and low-income families depend more on salary while high-income earners depend on investment dividends. Since family income has a slower growth rate than GDP, the consumption percentage of GDP reduces over time.

The current evolution to China’s ‘new normal’ economy can be attributed to the factor markets fluctuations. The speedy increase in wages indicates the shortage in labour supplies (illustrated in Figure 1 below). Shadow banking businesses encourage the liberalisation of real interest rates.

The sudden change from surplus to scarce labour supply has significant effects on China’s macroeconomic sector⁷. Sudden increase in wages reduces profit margins and reverses initial redistribution of revenue from families to companies.

A reduction in these hidden subsidizations for Chinese companies regulates exportation and investment practices and rebalances the economy.

Addressing the Current Challenges

China’s government, under Xi’s leadership, has acknowledged the challenges that result from the “new normal” such as, rebalancing pressures, upgrading and overcapacity.

A comprehensive economic reform plan is currently implemented and although complex, some progress has been made so far. The reforms focus on addressing the causes of the “new normal” rather than the results.

One of the reforms’ strategies is to speed up deregulation by limiting government’s approval and allowing the resources to be distributed according to the market dynamics. For instance, notable advancement has been accomplished in this area.

Furthermore, the National Development and Reform Commission (NDRC), a strong but corrupt government commissions has started experiencing considerable level of transparency. Nevertheless, these deregulation-based reforms are rather slow and should be hastened to encourage investment.

The challenge of the “new normal” can be further managed by limiting government’s role as an investor. Government should function as a regulator, and the asset possession should be influenced by the market variables.

Similarly, it is necessary to restructure state-owned enterprises (SOEs) and promote a correctly varied economy by encouraging private investment. Deliberate efforts must be made by the government to eliminate all form of prejudice during the privatization exercise.

China will effectively improve its economy if the market-based reforms are efficiently implemented. The government must improve its effort to ensure that the economic reforms are efficiently implemented.

China is yet to realize the institutional dividends of economic reforms and the government understands the need to hasten the procedure and respond to external economic rivalry by Trans-Pacific Partnership market. Similar to previous reform efforts, China will struggle to balance economic objective and political aims.

China’s New Normal for South Asia

The influence of China’s “new normal” on South Asia is of importance. Researchers may argue that the modern China is more internationally confident and diplomatically assertive.

Nevertheless, Alastair Iain Johnston argues that China’s alleged new confidence is actually neither precisely recent nor confident when likened with its previous foreign policy approach. Nevertheless, Johnston accepts that China has increased its assertiveness in the South China Sea⁸.

China’s emergence as the second-biggest economy in the world may have incited China towards greater global and regional assertiveness however China has been selective in expressing its assertiveness and coercion. China will be diplomatically assertive in the ‘new normal’ due to its current low GDP growth rate.

Logically, China’s apparent schizophrenic attitude exposes its efforts to act as a major world power. Although China may not be irresponsible, it definitely will prove difficult for other South Asian countries to deal with⁹.

Proposed Methodology

The primary data will seek to investigate how contagious the “new normal” occurrence has been in China. Consequently, the research design will investigate the effects of the “new normal” on the Chinese building and construction companies.

Data required for the primary research will be collected through questionnaires distributed to employees of four Chinese building and construction companies namely Anhui Construction Engineering Group, CSG Holding, China Housing and Land Development, and Yanjian Group.

A G-Power analysis will be used to determine the number of questionnaires that would be sent out. The questionnaires will be distributed by e-mail and will comprise questions measured on Likert scale (where 1=strongly disagree and 5=strongly agree).

The gender distribution of the participants will be recorded to determine whether the construction industry is dominated by a specific gender.

Statistical Tests

Cronbach’s Alpha test will be used to test for reliability of the variables such as sluggish economic growth, higher competition, strict liquidity, and higher uncertainty. The reliability of the variables indicated using Cronbach’s Alpha will determine whether the variables can be used for the research.

Spearman’s Rank Correlation Coefficient (Spearman’s rho) will be used to analyse the data and variable with the highest effect on sales growth will be identified. The clarity of the results will determine whether further analyses are required.

If further analyses are required, the logistic regression analysis will be used to evaluate the influence a set of variables has on a specific dependent result¹⁰.

Anticipated Results

It is anticipated that the results of the survey will be comparable with the findings in the literature review. From the literature review, the “new normal” negatively affects China’s GDP growth. Company sales will be inversely proportional to GDP growth, higher competition, and strict liquidity.

The building and construction industry will be hit by the “new normal” forces since it is one of the largest industries in China. Therefore, it is probable that the responses of the participants will indicate that company performance has declined since the “new normal” started to occur.

Conclusion

The results of this research will likely show that the “new normal” occurrence, through different variables, will negatively affect China’s building and construction companies’ productivity growth. Competition will probably be the variable with the highest influence on the companies’ productivity in the “new normal” era.

The proposed study is theoretically important because it will synthesize diverse literature on the “new normal” subject, which will provide a clear understanding of its features how the “new Normal” occurrence has affected sales growth in China’s building and construction industry.

The proposed research will also offer experimental indication concerning the influence of the “new normal” on the lasting productivity of companies. Consequently, research findings will be applied practically to recommend where building and construction companies must focus while operating in China’s market.

Managers of building and construction companies in China should concentrate on enhancing their operational productivity by capitalizing in more sustainable production procedure.

Sustainable production will enable cost reduction. Construction projects should integrate energy that enables environmentally friendly ores, which will increase competitiveness.

Bibliography

Callahan, W. A., China: the Pessoptimist nation, Oxford University Press, Oxford, 2012.

Huang, Y. et al., ‘Debating China’s Lewis Turning Point’, China Economic Journal, vol. 3, no. 2. 2010, pp. 19-31.

Huang, Y. et al., China: Beyond the miracle—China’s next transition, Barclays, Hong Kong, 2011.

Johnston, A. I., ‘How new and assertive is china’s new assertiveness?’ International Security, vol. 37 no. 4, 2013, pp. 7-48.

Lin, J., Demystifying the Chinese economy, Cambridge University Press, London, 2011

Lin, J., The quest for prosperity: how developing economies can takeoff?, Princeton University Press, New Jersey, 2012.

Pallant, J. SPSS survival manual: a step by step guide to data analysis using SPSS for Windows (Version 12), Allen and Unwin, New South Wales, 2005.

Pettis, M., Great rebalancing: trade, conflict, and perilous road ahead for the World economy, Princeton University Press, New Jersey, 2013.

Sachs, D. J. et al., ‘Understanding China’s economic performance’, Journal of Policy Reform, vol. 4, no. 1, 2000, pp. 1–50.

Zhuang, J. V. et al., ‘Growth Beyond Low-Cost Advantages: Can the People’s Republic of China Avoid the Middle-Income Trap?’, October, Asian Development Bank & Peking University, Manila & Beijing, 2013.

Footnotes

¹ M. Pettis, Great rebalancing: trade, conflict, and perilous road ahead for the World economy, Princeton University Press, New Jersey, 2013, p. 34.

² J. Zhuang, Vandenberg, Paul & Huang, Yiping, ‘Growth beyond low-cost advantages: can the people’s republic of China avoid the middle-income trap?’, October, Asian Development Bank & Peking University, vol. 3, no. 2, pp. 2013, 18-33.

³ J. Lin, Demystifying the Chinese economy, Cambridge University Press, 2011, p. 19.

⁴ Y. Huang, et al., China: Beyond the miracle—China’s next transition, Barclays, Hong Kong, 2011, p. 41.

⁵ J. Lin, The quest for prosperity: how developing economies can takeoff? Princeton University Press, New Jersey, 2012, p. 37.

⁶ D. J. Sachs et al., ‘Understanding China’s economic performance’, Journal of Policy Reform, Vol. 4, No. 1, pp. 1–50, 2000.

⁷ Y. Huang, et al., ‘Debating China’s Lewis Turning Point’, China Economic Journal, vol. 3, no. 2, pp. 19-31, 2010

⁸ A. I., Johnston, ‘How New and Assertive is China’s New Assertiveness?’, International Security, vol. 37 no. 4, 7-48, 2013.

⁹ W. A. Callahan, China: The Pessoptimist Nation, Oxford University Press, Oxford, 2012, p. 23.

¹⁰ J. Pallant, SPSS Survival Manual:A Step by Step Guide to Data Analysis using SPSS for Windows (Version 12). Crows Nest NSW: Allen and Unwin, 2005

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