The ‘New Normal

The Chinese economy has entered the “new normal，” characterized by a shift from breakneck economic expansion to moderateto-high-speed growth， continuous improvement in the economic structure and moving away from factor- and investment-driven growth to innovation-driven growth.

Chinas GDP growth slowed to 7.3 percent in the third quarter， the weakest since the global financial crisis in 2008. Thats a further slowdown from the 7.4 percent in the first quarter and 7.5 percent in the second quarter of the year.

During this years Central Economic Work Conference held December 9 to 11， Chinas top leadership said the countrys macroeconomic policies should be adapted to the new normal and the growth rate will be kept within an acceptable range next year.

In 2014， central authorities adopted several measures to put the economy on a more stable footing. To further encourage financial institutions to lend to agriculture-related sectors and small and micro businesses， the central bank carried out targeted reduction of reserve requirement ratios twice this year， in April and in June， respectively.

On November 22， the countrys central bank cut the benchmark one-year lending rate by 0.4 percentage points to 5.6 percent and the one-year deposit rate by 0.25 percentage points to 2.75 percent. The rate cut is a major boon for the real economy as it helps bring actual interest rates back to a proper level and lower the financing costs facing businesses.

Silk Road Fund

Chinese President Xi Jinping announced on November 8 that China would contribute $40 billion to set up a Silk Road infrastructure fund to break the bottleneck in Asian connectivity by building a financing platform.

The new Silk Road Fund will be used to provide investment and financing support to carry out infrastructure， resources， industrial cooperation， financial cooperation and other projects related to connectivity for countries along the “One Belt and One Road，” Xi said， referring to Chinas Silk Road Economic Belt and the 21st Century Maritime Silk Road initiatives.

The two initiatives aim at enhancing connectivity and trade ties with Central Asia and South Asia by building roads， railways， ports and airports across the two land masses.

Train Exports

After making great progress domestically， Chinese railway transportation equipment makers have made an aggressive foray into the global market in 2014.endprint

In November， transport authorities in Massachusetts awarded China CNR Corp. Ltd. a contract to supply 284 trains for the city of Bostons subway system， the first time that a Chinese railway transportation equipment maker has won a bid in the United States.

To avoid cutthroat competition among Chinese companies in overseas bidding， the two major rail car makers China CNR Corp. Ltd. and China CSR Corp. Ltd. announced in November that they would undergo a merger to compete in the global arena.

On December 15， China CSR Corp. Ltd. announced it had secured a contract worth 1.7 billion yuan （$278 million） to supply locomotives and rail cars to Argentina.

Property Market Slump

Following years of strong performance， Chinas property market has shown signs of cooling down. Prices have been dropping， sales have slowed， new construction has dropped off sharply and banks have become increasingly cautious about lending to developers and home buyers.

Chinas restrictive home purchasing policies， which had been in place since 2010 to curb the overheating property sector， was altered amid negative market sentiment. In 2014， many cities removed or loosened their home purchase bans in the sluggish property market. A total of 46 Chinese cities had imposed bans on the purchase of a third home in efforts to curb speculation in the market. Now， only five cities—Beijing， Shanghai， Guangzhou and Shenzhen in Guangdong Province and Sanya in Hainan Province—still maintain the ban.

On September 30， the Peoples Bank of China （PBC） and the China Banking Regulatory Commission （CBRC） relaxed lending rules for home buyers， allowing banks to offer a maximum 30-percent discount to firsttime home buyers， a group that has been expanded to include those who already own one property but have paid off their mortgage. In a bid to promote liquidity within the property market， the PBC and CBRC also encouraged banks and financial institutions to free up home loans by issuing mortgage-based securities.

Ballooning Internet Economy

The Internet is rebuilding the nation with powerful companies changing the way Chinese people shop， communicate with others and even manage their money.

Alibaba Group Holding Ltd.， the Chinese e-commerce behemoth that rivals Amazon and eBay， completed its initial public offering （IPO） on the New York Stock Exchange on September 19. Alibaba raised $21.8 billion through the sale， the largest listing in U.S. history. The offering price rose 10 times and investors snapped up shares of Alibabas debut， pushing the company to a valuation of more than $231 billion， bigger than Facebook or Amazon and eBay combined.endprint

The year of 2014 witnessed increasingly fierce competition among BAT， the acronym for Chinas three Internet giants—leading search engine Baidu， e-commerce group Alibaba and messaging software provider Tencent. All companies invested heavily in O2O （online to offline） services by backing up price wars and carrying out mergers and acquisitions to promising companies. The three are also waging a fierce war for market shares in Chinas emerging mobile payment industry.

Private Financial Institutions

In 2014， profound progress has been made in opening traditionally monopolistic sectors to private capital. In late July， the CBRC declared the approval of three new banks wholly funded by private firms， echoing the pilot scheme for setting up private banks announced in March this year.

The three banks are located in the Qianhai Economic Zone in south Chinas Guangdong Province； Wenzhou， east Chinas Zhejiang Province； and Tianjin， a northern port city， respectively. The CBRC approved the operation of the Qianhai-based Webank on December 12.

On August 21， China Minsheng Investment （CMI）， the largest private investment company in China， was set up to spearhead the countrys industrial upgrade. CMI pledged to use the accumulated private investment to build an industrial and financial conglomerate. CMI plans to establish nine subsidiaries to help ease the problem of overcapacity， a chronic headache for steel， photovoltaic power generation and shipbuilding industries.

Capital Market Reform

Reform on Chinas capital markets has been expedited this year. The State Council issued a guideline on May 9 promoting the development of the capital market， including an array of principles regarding the stock market， bond market， futures market， private equity market and further opening up the capital market. The guideline pledged to build a transparent， efficient， open and inclusive multi-layer capital market system by 2020.

The Shanghai-Hong Kong Stock Connect program， which allows mainland and Hong Kong investors to trade shares on each others bourses， was launched on November 17， boding well for the opening up of Chinas capital markets.

On November 28， Zhang Xiaojun， spokesman of the China Securities Regulatory Commission， said a draft plan to reform the nations stock issuance regime had been completed and would be presented to the State Council for review. Under the plan， China will switch to a registrationbased system for new share listing from the current approvalbased system.endprint

Anti-Trust Campaign

China resolved to stringently enforce its anti-monopoly law， no matter the origin of the offender. This year， China launched wave after wave of anti-trust probes in a broad range of industries covering all types of businesses—state-owned enterprises （SOEs）， private businesses and foreign-funded firms.

Chinas regulatory authorities commenced anti-monopoly probes into Qualcomm， Microsoft， Mercedes， Audi， BMW and Japanese auto part makers in a wave of high-profile cases. On September 11， the FAW-Volkswagen Sales Co. was fined 248.58 million yuan（$40.13 million）， with seven dealers of its luxury brand， Audi， fined 29.96 million yuan （$4.84 million）. The same day， Chrysler Group China Sales Ltd. was fined 31.68 million yuan （$5.11 million）， with three of its dealers being fined 2.14 million yuan （$345，500）.

On the other side of the equation， law enforcement departments have been equally tenacious in pursuing domestic firms that have violated the law. In early September， three Chinese cement companies were fined 114 million yuan （$18.5 million） in total for manipulating prices and reaching price-fixing agreements. The same month， 23 Chinese insurance firms and the Zhejiang Insurance Industry Association were fined more than 110 million yuan （$17.8 million） for anti-trust violations.

RMB Globalization

The Chinese currency， renminbi， is quickly becoming more globally used in cross-border trade clearing and settlement.

According to a report from Bank of China， the cross-border renminbi settlement has exceeded 16 trillion yuan （$2.57 trillion） since 2009， when the country first started cross-border trade settlement trials. The currency has become the seventh most popular settlement currency and the ninth most popular currency in foreign exchange trading.

On March 17， the floating band of the renminbis trading prices against the U.S. dollar in the inter-bank spot foreign exchange market was enlarged from 1 percent to 2 percent， marking a further step toward the marketization of the renminbi exchange rate formation mechanism.

This year， China has also made large strides in promoting the expansion of currency swap agreements and direct trading between the yuan and other currencies as well as the establishment of offshore yuan hubs.

On July 3， the Peoples Bank of China （PBC） signed an agreement with its South Korean counterpart， the Bank of Korea， on establishing a renminbi clearing arrangement in Seoul. To date， the PBC has authorized offshore renminbi clearing and settlement arrangements in Singapore， London， Frankfurt， Seoul， Paris and Luxembourg， as well as regions such as Taiwan， Hong Kong and Macao.endprint

On October 9， the PBC signed a currency swap agreement with the Russian central bank worth 150 billion yuan （$24.4 billion）. To date， China has signed similar agreements worth a total of 2.9 trillion yuan （$472 billion） with 26 overseas monetary authorities.

On October 14， the British Treasury carried out its debut issuance of renminbi bonds， with a total worth of 3 billion yuan （$490 million） and a maturity period of three years. On October 21， Britains first sovereign bond in Chinese renminbi was listed on the London Stock Exchange for secondary market trading. Britain became the very first Western country to issue a government bond denominated in renminbi.

On October 27， China announced direct trading between the yuan and Singapore dollar beginning October 28. To date， the renminbi has established direct trading with the U.S. dollar， the euro， the British pound， the Japanese yen， the Australian dollar， the New Zealand dollar， the Malaysian ringgit， the Russian ruble and the Singapore dollar.

Participation in Global Financial Governance

With mounting global influence， China has taken on more responsibility in the establishment of international and regional development banks.

On July 15， a decision was made to establish a New Development Bank during the Sixth Summit of BRICS countries （Brazil， Russia， India， China and South Africa） in Fortaleza， Brazil.

The bank， to be headquartered in Chinas Shanghai， aims to finance infrastructure and sustainable development projects in BRICS countries and other emerging and developing economies. The initial subscribed capital will total $50 billion， equally shared among the five founding members.

Another China-led bank， the Asian Infrastructure Investment Bank（AIIB）， is in the works. The planned AIIB， which has an initial capital of $50 billion， will be dedicated to funding infrastructure projects in Asia.

This year， preparations for the AIIB are underway. On November 25， Indonesias Finance Minister signed a Memorandum of Understanding（MOU） to establish the AIIB in Jakarta， joining the 21 countries that signed the MOU on October 24 in Beijing as the banks founding members.endprint