Continued downward pressure in 2015

In the first three quarters of this year, China's GDP grew by 7.4 percent, or 0.1 points short of the planned annual target of 7.5 percent. The housing market experienced an unprecedented decline in prices and sales in the country's 70 major cities, implying that the pressure on economic growth is historically high, because a chilly housing sector could have massive repercussions on the national economy.

Given the tough external economic environment and rising costs of production in the country, China has managed to maintain a relatively high growth of more than 7 percent. But because of the slowdown in the housing market, the efforts to contain industrial pollution and overcapacity, and the national strategy to change the economic growth model, the government faces tough challenges and constraints in maintaining a relatively high and sustainable growth rate.

The main challenge is how to balance high growth and economic structural change.

There are two important aspects of the structural change in the economy: the balance between the three economic sectors－manufacturing, services and agriculture－and the substitution of high value-added industrial products for low-tech, low-valued goods.

Since 2010 the share of manufacturing in China's GDP has declined by about 1 percentage point a year while that of services has increased at the same rate. Agriculture's share in GDP has maintained its 10 percent level. In addition, economic growth in the inland areas has surpassed that in the coastal belt, reducing their long-term development gaps and, hence, improving spatial income equality.

The second change in the economic structure is the slowdown of growth in some of the major polluting industries such as electricity, cement and steel. For instance, in October, steel production increased by only 2 percent and electricity by 1.9 percent, while cement production fell by 1.1 percent. This is the poorest production record for the sectors in a decade.

Despite the slowdown in economic growth, the quality of growth has vastly improved. More than 10 million jobs were created in the first three quarters of this year, fulfilling the job creation target for the entire year. Urban and rural per capita incomes have risen significantly faster than GDP growth. In particular, the growth in rural per capita income was higher than urban per capita income by almost 2 percentage points, helping to reduce the persistently high rural-urban income inequality.

The fact that electricity and energy consumption growth has been much slower than GDP growth is another indication of better growth quality, as the demand for energy and electricity per unit of newly created GDP has declined by more than 4 percent.

As 2015 is the last year of the 12th Five-Year Plan (2011-15), it is important for the government to maintain a stable and high growth rate to boost confidence in the next five-year plan. However, all the macro-economic indicators in China and its key trading partners imply a significant downward pressure on China to maintain the desirable level of annual growth (for example, 7-plus percent) without some stimulus.

In October, the central bank allowed families which are first-time mortgagees up to 30 percent discount on the interest rate. On Nov 22, the central bank cut the one-year fixed term deposit and lending interest rates by 0.25 and 0.4 percentage points.

These policies are considered minor stimulus measures to support the declining housing market and domestic investment without creating more asset bubbles. However, if such stimulus measures do not yield the expected results, more similar measures can be expected to avoid the collapse of the housing market and to achieve the country's growth targets for 2014 and 2015, and lay a solid foundation for the next five-year plan.

Possible new stimulus measures include further cuts in interest rates, reduction in the required bank reserves/deposits ratio, easing of home-buying restrictions, more State investments in high-speed railways and other infrastructure projects, and increased State support to social services, rural development, education and healthcare.

The author is professor of economics at University of Nottingham and University of Chongqing.