2017 is an important year for the implementation of the "13th Five-Year Plan" and the deepening of the supply-side structural reform. At the Central Economic Work Conference held at the end of last year, the Central Committee of the CPC led by Xi Jinping made major arrangements for this year's economic work. For the purpose of in-depth study and implementation of the gist of the Central Economic Work Conference, we must grasp the general logic, implement new development ideas, follow the general principle, do the priority job well, focus on the core task, and carry out relevant policies.
Grasp the general logic that economic development has entered the new normal
This general logic is a major strategic judgment made by the CPC Central Committee through comprehensive analysis of the long cycle of world economy as well as the stage characteristics of China's development and their interactions. It represents a profound grasp of the new changes and new features of China's current economic and social development stage. It is an inevitable evolution process of development towards a higher stage with a more advanced form, more complex division of labor, and a more reasonable structure. Understanding, grasping and leading the new normal of economic development is the general logic for accomplishing economic work in the current and future periods. To grasp this general logic, we need to understand three major characteristics of China's current economic development, namely, speed change, structural optimization, and driver transition.
Speed change means a shift of economic growth from high speed to medium-to-high speed. We have achieved nearly double-digit high-speed annual economic growth on average over the past 30+ years since the reform and opening up. Amid the new normal and complex international and domestic economic situations, the change of China's economic growth from nearly double-digit growth to single-digit growth is inevitable and reasonable. Medium-to-high speed growth not only is reasonable and consistent with potential economic growth, but also helps to adjust the economic structure and transform the growth model faster. In the first three quarters of 2016, China's economy grew by 6.7%, 6.7% and 6.7% year on year and rose by 1.2%, 1.9% and 1.8% quarter on quarter, respectively, making stable and sound progress, which indicates that the changed pace of economic growth entered the new normal. 6.7% means medium-to-high speed growth in China, indicating that China's economy is running within a reasonable range, while it means high-speed growth in the world, representing the best growth major economies can achieve.
Structural optimization and driver transition complement each other. 2016 saw constant optimization of China's economic structure and accelerated transition from old drivers to new ones. From the perspective of production, constant and fast development of the service industry, gradual stabilization of the industry, and stable agricultural production played an important role in the steady growth of the economy. From the perspective of demand, investment grew steadily, consumption increased rapidly, and export growth changed from negative growth to positive growth. From the perspective of transition, new drivers and new economy took shape, and traditional drivers were transformed and upgraded. Structural optimization and driver transition provided strong support for stable economic growth. From January to November in 2016, profits of China's industrial enterprises above designated size increased by 9.4% year on year, marking the highest growth since August 2014.
At present, China's structural optimization and driver transition are at a critical stage. We need to grasp the general logic, take general steps, and promote general reforms. In accordance with the requirements for adapting to the new normal of economic development, we should adjust the economic policy framework and economic work ideas, boost economic development and structural adjustment, and strive to achieve the general objective of economic transformation and upgrading.
Implement innovative, coordinated, green, open, and shared development ideas
The firm establishment and implementation of innovative, coordinated, green, open, and shared development ideas is an important basis for accomplishing economic work. Innovation tops the five development ideas as it serves as the No. 1 driver that leads the development. Innovation is the key to grabbing the "head" that affects the economic and social development. At present, we must thoroughly implement the innovation-driven development strategy and promote scientific and technological innovation as well as innovation and entrepreneurship.
Firstly, we must vigorously promote scientific and technological innovation. In recent years, China's spending on research and development (R&D) has grown rapidly, accounting for more than 2% of the gross domestic product (GDP) and reaching the average level of countries in the Organization for Economic Co-operation and Development (OECD). Enterprises' spending on R&D accounted for nearly 80%, becoming the main contributor to technological innovation. We find that competitive enterprises with good market prospects perform better in innovation and spend more on R&D. With the help of investment and support, coupled with the efforts of scientific and technological personnel and the guidance by market demand, scientific and technological innovation can surely yield more innovative fruits.
Secondly, we should continue to boost entrepreneurship and innovation. According to the data of the State Administration for Industry and Commerce, there were 14,900 newly registered enterprises every day from January to November 2016. At present, China has more than 86 million market players, including more than 25 million enterprises, nearly 60 million individual businesses, and more than 1.7 million agricultural cooperatives. China has the most market players in the world, with highly active entrepreneurial and innovative activities as well as great micro-economic vitality and potential. This has laid a solid foundation for our innovation-driven development and serves as a main source of employment and income growth for residents. Despite slow economic growth in the past two years, new jobs are increasing substantially, proving the effectiveness of entrepreneurship and innovation. To promote entrepreneurship and innovation, we must thoroughly streamline administration and delegate more powers to lower-level governments through list management, conduct in-between and ex-post supervision at a more fair, effective and transparent manner, and implement "Internet Plus government services" and other information-based people-benefit projects, thereby creating a better market environment for market players.
Thirdly, we should focus on promoting institutional innovation. Scientific and technological innovation as well as innovation and entrepreneurship are inseparable from institutional innovation. We should speed up the pace of reform, deepen the reform of state-owned enterprises and state-owned assets, strengthen the construction of property rights protection system, steadily push forward taxation and financial reform, promote the reform of the old-age insurance system, and further open to the outside world, in view of the prominent contradictions and problems faced by economic and social development. These are reform measures in important areas and key aspects and reflect the leading role of new development ideas.
Follow the general principle of making progress while working to keep performance stable
It is an important principle for governing the country and a methodology for accomplishing economic work. It is of particular significance to implement this principle this year. Stability is the major principle and big picture, based on which progress should be made in key areas and efforts should be made appropriately.
We need to keep the economy running within a reasonable range, the lower and upper limits of which depend respectively on employment and prices. Our medium-to-high growth falls within a reasonable range. To stabilize policies, we should continue to implement a more proactive and effective fiscal policy and a prudent and neutral monetary policy. To stabilize expectations, we should stick to the basic economic system, adhere to the reform direction of socialist market economy, open wider to the outside world, stabilize the confidence of private entrepreneurs, strengthen guidance of expectations, and improve the credibility of the government. To prevent risks, we should give important priority to the prevention and control of financial risks, and we need to effectively prevent and eliminate hidden dangers although current risks are generally controllable. We should perform in-depth and meticulous work that ensures basic needs and maintain social harmony and stability by sticking to the bottom line, highlighting key areas, improving systems and guiding public opinions.
To follow the general principle of making progress while working to keep performance stable, we should stabilize the economic growth, promote the reform, adjust the economic structure, benefit the people's livelihood and guard against risks and latent dangers. As a result, we should rely on the five pillars of policies, that is, "macro policies should be stable, industrial policies targeted, micro policies flexible, reform policies practical, and social policies should ensure basic needs" by focusing on promoting the following work. (1) Continue to deepen the supply-side structural reform, with particular attention to the in-depth promotion of the five major tasks, namely, "depleting stocks, cutting production overcapacity, deleveraging, reducing costs and bolstering weak spots." (2) Deepen reforms in important areas and key aspects. (3) Release domestic demand potential, as well as potential of consumption, investment, regional coordination and urban and rural development, and strive to expand overseas demand based on the expansion of domestic demand. (4) Speed up the transition from old drivers to new ones. (5) Promote agricultural transformation and increase in farmers' income. (6) Boost the two-way opening policy of "bringing in" and "going global." (7) Strengthen energy conservation and ecological construction. (8) Attach great importance to and improve people's livelihood, and make efforts to provide all-around guarantee for people's livelihood.
Focus on the improvement in the quality and efficiency of development
Economic work should be focused on the improvement in the quality and efficiency, which serves as a guideline economic development must adhere to in the long run. Thus, we must pay attention to two important aspects.
On the one hand, we should make efforts to improve the quality and efficiency of economic growth. The growth we are pursuing is reflected in the full growth of employment, the reasonable growth of the general price level, and the synchronized growth of residents' income with economic development. It should be accompanied with constant optimization of the structure and the gradual improvement of the ecological environment. In a word, we seek quality growth. In addition, we should also focus on improving the efficiency of growth. The efficiency of growth depends on corporate profits and fiscal revenue, as well as the increase in labor productivity, total factor productivity and potential growth rate. At present, we, centering on policies that are intended to advance the in-depth structural adjustment and revitalize the real economy, should accelerate the transformation of the economic development model to achieve down-to-earth development that makes investment gainful, products marketable, enterprises profitable, employees paid, government capable of levying taxes, and environment improved.
On the other hand, we should expand the supply of high-quality products and services. From a quantitative point of view, production of the vast majority of China's agricultural products and industrial products ranks No. 1 in the world. For example, production of more than 220 kinds of our major industrial products ranks first in the world. Production of such industrial products as steel, coal and cement accounts for nearly 50% or even 60% of the world's total production, and production of computers and mobile phones also accounts for half or more of the world's total production. Although production reflects a country's comprehensive strength, the obvious phenomenon that China's production is high but its quality is not high enough leads to a prominent situation that China's economy is large in size but not strong. Thus, we should attach great importance to improving the quality of products and services. At present, we should vigorously encourage enterprises to enhance their awareness of quality, standard, brand and intellectual property rights. Enterprises should adhere to innovation, put quality first, do business according to standards, and develop themselves with brand. They should also strive to climb the high ground of intellectual property rights, carry forward the "spirit of craftsmanship," and foster more "century-old brands."
Adhere to the core task of boosting the supply-side structural reform
Boosting the supply-side structural reform is the core task of economic work in the "13th Five-Year Plan" period. The Central Economic Work Conference pointed out that the ultimate goal of the supply-side structural reform is to meet the demand by improving the quality of supply as the main direction and deepening the reform as the fundamental way. The supply-side structural reform achieved initial results in 2016. In terms of cutting production overcapacity, the task of eliminating backward production capacity was over-fulfilled ahead of schedule in two key areas of steel and coal. In terms of depleting stocks, the area of commercial housing for sale nationwide declined for nine months in a row from March to November 2016. In terms of deleveraging, as of the end of November 2016, the asset-liability ratio of industrial enterprises stood at 56.1%, down 0.6 percentage point over the same period last year. In terms of reducing costs, in the first 11 months of 2016, the cost per RMB 100 of main business income of industrial enterprises above designated size reached RMB 85.76, down RMB 0.14 over the same period last year. In terms of bolstering weak spots, taking a prominent weak spot of impoverished rural people as an example, in 2016 we accomplished the goal put forward in the Government Work Report in the beginning of the year that more than 10 million impoverished rural people will be lifted out of poverty.
This year is an important year for the deepening of the supply-side structural reform. To do this, firstly, we should further advance the five major tasks, namely, "depleting stocks, cutting production overcapacity, deleveraging, reducing costs and bolstering weak spots." As to steel and coal industries, we should strictly enforce the laws, regulations and standards related to environmental protection, energy consumption, quality and safety, promote mergers and acquisitions of enterprises, deal with enterprise debts properly, and conduct staff placement appropriately. In addition, market and legal approaches can be adopted to cut serious production overcapacity in some industries. It is necessary to use classified regulation and implement city-specific policies, with focus on the resolution of excessive real estate stocks in Tier 3 and Tier 4 cities. Under the premise of controlling the total leverage ratio, reducing an enterprise's leverage ratio should be considered as a top priority. We should support market-oriented or legal debt-to-equity swap for enterprises, strengthen enterprises' own debt leverage constraints, and regulate the government's debt financing behaviors. More efforts should be input to the reductions of tax, expenses and factor costs, and in particular, to reduce institutional transaction costs through the reform. We should work harder in terms of agriculture, water conservancy and poverty alleviation, and try to make further progress in bolstering weak spots. Secondly, we should further promote the agricultural supply-side structural reform. We should give priority to increasing the supply of green, quality agricultural products and deepening reforms or pilot reforms in rural land management and property rights system. Thirdly, we should endeavor to revitalize the real economy. We should accelerate the development of emerging industries and transform and upgrade traditional industries. We should vigorously develop service industries, especially the modern service industry, in addition to the industrial manufacturing industry. Fourthly, we should promote the steady and healthy development of the real estate market. We should study and establish a fundamental institution and a long-term mechanism, both of which are in line with China's national conditions and adapt to the law of market, in order to curb real estate bubbles and prevent market ups and downs. Considering current situations and eyeing long-term development, we should further accelerate the pace of reform, strengthen innovation-driven development, and boost the supply-side structural reform as the core task of the "13th Five-Year Plan", so as to ensure the realization of grand goal of building a moderately prosperous society in all respects by 2020.
(Author: Ning Jizhe, Deputy Director of the National Development and Reform Commission, Director of the National Bureau of Statistics)