It has been hard for China to bid farewell to high-speed growth. More than three decades of nearly double-digit growth have not only fuelled the country’s rapid rise to the world’s second-largest economy, but also tremendously improved the living standards of its 1.3 billion people.

But as single-digit growth becomes an inevitable reality, especially after GDP topped $10 trillion (£6.8 trillion) last year, it is all too natural for observers at home and abroad to wonder how China will adapt to this unfolding era of the new normal.

Will a slowing economy trigger undesirable consequences, as some advocates of “the collapse of China” have long - though wrongly - predicted? Or will the seemingly almighty manufacturing powerhouse keep humming and make it hard for other developing economies to get rich, as a recent Economist article warned?

Many projections based on simple linear extrapolations of previous growth stories have proved wide of the mark when applied to assessing the Chinese economy. That certainly does not mean caution against possible headwinds is not necessary.

Instead, as China embraces comprehensively deepened reforms to build a moderately prosperous society with slower, high-quality growth, a paradigm shift has been more than needed to the future and the potential of the Chinese economy.

An era of change

Unlike the so-called new normal of jobless recovery in many western countries after the 2008 global financial crisis, Chinese policymakers have adopted the phrase to define a crucial development stage toward the fulfillment of the country’s two centennial goals: Building a moderately well-off society by 2021 and becoming a fully developed nation by 2049.

“China’s economy shouldn’t be viewed by only its growth rate,” President Xi Jinping said at the annual Boao Forum last month. “China’s economy entering the new normal will continue to provide countries, including Asian nations, (with) more market growth, investment and co-operation opportunities.”

The president is trying to assure the world there is no need to be too concerned about the slowdown of the Chinese economy. When the country’s economic growth slowed to 7.4 per cent last year, it alarmed the international media, as it was the slowest in more than two decades. China’s quarterly GDP growth fell further to seven per cent in the first three months of this year, meeting the growth target set for 2015 in early March.

It is no wonder some observers have rushed to highlight the downward pressure on the economy. Since the global economy has yet to fully recover from the dire consequences of the 2008 global financial crisis, any precaution against a significant slowdown of the Chinese economy, an increasingly important driving force for global growth, was understandable.

But it would be wrong to regard China’s new normal simply as a buzz phrase invented by Beijing to lower expectations for its economic growth. If fast but extensive growth has been the trademark of China’s economic progress after the late 1970s, slower but sustainable development will define the unfolding age of the new normal, which Chinese policymakers have deemed as a must to deliver their promise of breaking through the so-called “middle-income trap” and realising high standards of living for most people.

With sound macroeconomic policies and continuous efforts to deepen reforms, China will neither allow the economic slowdown to go too broad and deep to disrupt its pursuit of two centennial goals, nor excessively boost growth at the expense of sustainability and quality.

Challenges and opportunities

In spite of all its remarkable achievements in development over the past decades, China has still to substantially narrow the income gap between rural and urban residents, cut overcapacity and speed up industrial restructuring, arrest environmental deterioration, and rise to the challenge of a rapidly ageing population. These challenges are all massive. But so is the potential for more balanced, inclusive and sustainable economic growth in coming decades.

First, to reduce income disparity between rural and urban areas, China will press ahead with the ongoing course of urbanisation, not only to reap the productivity gains related to the migration of rural residents to cities but also to provide long-term support for the domestic real estate market that has become too hot in recent years.

Since only about half of people now live in cities, it is fairly predictable that the trend for hundreds of millions of rural residents moving to booming Chinese cities will continue to drive inclusive growth as the government strives to expand equal access to public resources.

Second, to deal with overcapacity and accelerate the industrial upgrade, the Chinese government has vowed to make reform and innovation the most powerful driving force.

On one hand, the central government has reduced or delegated hundreds of types of administrative approvals in recent years to create more room for the market to play a bigger role in boosting innovation and quality-driven growth.

On the other hand, China announced plans to implement the “Made in China 2025” strategy and develop the “Internet Plus” plan in March, to upgrade the manufacturing powerhouse by riding the tide of internet-led innovation.

Third, never underestimate China’s sense of urgency to address environmental problems or its eagerness to explore opportunities from greener growth. The unexpected bankruptcy in 2013 of one of China’s largest solar panel makers may have warned local officials of the danger of oversupply, even for green products, but the country’s determination to compete for a leading position in clean energy and green cars has never changed.

As the world’s largest investor in low-carbon energy, with an investment of about $90 billion last year, China aims to cap CO2 emission by 2030 while increasing the use of energy without fossil fuel to one fifth of the total.

To this end, by 2020 the country plans to install 100 gigawatts of solar power - almost half the current global capacity - and 200 gigawatts of wind power, which can help keep it well ahead of other countries in total capacity added in that time.

And as both the world’s largest auto market and the largest automaker, one should not be that surprised to see China’s attempts to leap ahead of other competitors in the field of electric cars.

Last but not least is the response to the challenge of a rapidly ageing population. There is no easy answer to this demographic problem. However, as a part of what must be done, the country needs to boost consumption into a growth engine that has so far been inadequately tapped.

As more Chinese people retire in the coming decades, turning from savers into spenders, it is reasonable to expect more balanced growth powered by mass consumption.

The right tools

China’s success in transforming its growth pattern in the new normal era will benefit itself and the world. For instance, it has been estimated that China’s imports will reach $10 trillion in the next five years, while its investments in other economies will exceed $500 billion.

So the need to realise the growth potential of the Chinese economy is obvious. The tools Chinese policymakers can use to ensure slower but sustainable growth are abundant, including sizable fiscal headroom, and healthy external payments and liquidity buffers.

Yet more important may be China’s fiscal, monetary and financial system reforms, as well as other regulatory reforms that are underway. Such structural reforms will take time to gain traction, but they are crucial to the fundamental restructuring and rebalancing of the Chinese economy in the new normal era.