News Analysis: Chinese economy still has potential, innovation key to future growth

Despite a slowdown of growth, economists said the Chinese economy still has great potential and future growth can come from innovation.

Growth may remain at the relatively comfortable rate of about seven percent by 2023, when China is expected to be the world's largest economy, said Liu Wei, economist and executive vice president of Peking University at a forum.

A weak property sector and shrinking exports due to sluggish external demand dragged economic growth to 7.4 percent in 2014, the weakest expansion in 24 years. Growth slowed further to 7 percent in the first quarter of the year, and recent data pointed to continued weakness in the second quarter.

The slowdown fueled market concerns about the economy, but some economists remain upbeat.

China has ample tools and policies to support the economy, such as the opening up strategies of the Belt and Road Initiative, industrial upgrading and ongoing urbanization, Liu said.

As traditional engines such as exports and investment lost steam, policymakers and economists turned their attention to innovation.

Gu Shengzu, a Beijing-based senior economist said China's "new normal" of slower growth "needs Schumpeter, not Keynes," explaining that to reboot economic growth, the country should depend on enterprise-initiated innovation, rather than government-led massive spending.

To foster innovation, the government must improve laws and regulations to ensure a fair and orderly environment for innovation, while further developing the country's capital markets, Gu said.

Despite the slowdown, policymakers have refrained from rolling out massive stimulus policies.

A wide range of measures have been unveiled, including financial support, construction of facilities and administrative assistance for startups.

Arrangements are also being made to help make financing more accessible to emerging and creative businesses. Plans in the pipeline include easing rules on IPOs and a new board at the Shanghai bourse for emerging and creative firms.

Technological and institutional innovation is key to facilitate economic restructuring, with more reforms expected to allow the market a more decisive role in allocating resources, and the promotion of rule of law, Liu said.

"China is still halfway toward urbanization and industrialization. The potential for economic expansion is huge," said Chen Siqing, president of Bank of China.

Chen expects growth of six to seven percent in five years to come. Endi