News Analysis: China's "hybrid car" balancing of new, old industries

Premier Li Keqiang wants China's economy to be like a hybrid car in its harnessing of both high-tech, innovative sources and old-fashioned ones.

Chairing a meeting of the State Council, China's cabinet, on Wednesday, Li returned to a theme he raised a month ago: balancing support for the new and the old growth engines. China is trying to restructure its economy, encouraging consumer spending, the service sector, entrepreneurship and industrial modernization as the country endures a slowdown in the exports, property sales and manufacturing that have served it so well for decades.

The meeting approved a plan on foreign trade, infrastructure investment and modernizing the industrial chain, stressing that exports will not be neglected in the pursuit of new growth.

Banks will be encouraged to lend to profitable import-export companies and expand specialist insurance policies for exporters, while financial authorities will increase tax rebates for exporters of certain machinery, according to the statement.

The State Council promised "active" policy support for importers of advanced equipment and technology.

Wednesday's statement also vowed to foster innovation as well as accelerate construction and upgrading of rural roads, expressways, railways and airports over the next five years.

The policies will offer the propulsion to help China's economy get over the hills, analysts said.

Besides fostering new industries, China has to transform and upgrade its traditional industries, said Zhang Zhuoyuan, an economist with the Chinese Academy of Social Sciences. Facing growing headwinds, it needs "twin engines" - both the new economy and old sector, he said.

Transition to the new economy is under way. Consumption made a bigger contribution than investment to growth in the first quarter, while services expanded 7.6 percent, now accounting for 56.9 percent of GDP.

New growth drivers are powering up, but not yet by enough to make up for the decline of the old ones. GDP growth slowed to 6.7 percent in the first quarter, the lowest rate since the dark days of the global financial crisis in early 2009.

Xu Hongcai, an economist with China Center for International Economic Exchanges, described the economy as being in transition. Growth, he said, will follow an L-shaped trajectory in the next five years, and "we are currently in the horizontal part."

China needs to make more efforts to sustain the momentum of growth, due to the sluggish world economic growth in general, Premier Li said this week while meeting with his New Zealand counterpart John Key, adding that China will use policy tools flexibly, foster new drivers to growth and upgrade the traditional ones. Endi