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Deepen Reform to Make New Achievements

Submit Time:18-09-2017 | Zoom In | Zoom Out

Author:Liu Wei | Source:Guangming Daily (August 15, 2017)


At the opening ceremony of the seminar on the theme of “studying the spirit of the General Secretary’s Important Speeches for the Nineteenth National Congress of the Party” for main provincial and ministerial leading cadres, General Secretary Xi Jinping pointed out that we should firmly grasp the milestone features of our country’s development, firmly grasp the people’s aspirations for good life, put forward new thoughts, new strategies and new initiatives, continue to make overall plans for promoting the “five-in-one” overall layout and carry out coordination for promoting the “four-pronged comprehensive” strategy, succeed in completing the building of a moderately prosperous society in all respects, achieve great success in socialism with Chinese characteristics and make unremitting efforts to realize the Chinese dream of national rejuvenation. 

Attaching importance to analysis of trends and scientifically judging trends provides basis for formulating guiding principles and drawing blueprints. In terms of the economic trend, since the Eighteenth CPC National Congress, the CPC Central Committee with comrade Xi Jinping as the core has stuck to the general principle of making progress while working to keep performance stable and made the important judgment that the Chinese economy having entered the new normal in economic development is still in an important period of strategic opportunity but faces “the superimposition of three periods”, not only providing foundations for the country’s formulation of right economic policies and realization of steady economic improvement via supply-side structural reform, but also making major arrangements at the level of fundamental systems such as government-market relationship, rule of law and strengthening of Party self-conduct. In the decisive stage of completing the building of a moderately prosperous society in all respects and the critical period of development of socialism with Chinese characteristics, we should see not only achievements and opportunities, but also weak spots, shortcomings, difficulties and challenges as well as the risks brought to us by changes in trend development, so as to focus on the worst scenario, conduct the most sufficient preparation, make efforts in good directions and strive for the best result. 

Challenges Facing the New Normal in China’s Economic Development 

Reform and opening up maintained rapid growth of the Chinese economy in over 30 years. Economic development has entered the upper-middle-income stage from the poor state and now faces the period of strategic opportunity to pass the middle-income stage. In today’s world, about 70 high-income countries entered the high-income stage from the upper-middle-income stage after 12 to 13 years on average. China’s per capita GDP reached the upper-middle-income threshold defined by the World Bank in 2010. According to general experience from development history, China is expected to pass the upper-middle-income stage and enter the high-income stage around 2022. This period is just a critical period of China’s economic restructuring and a period of risks accumulated by China’s economic problems. 

First, a turning-point change has happened to the basis that rapid growth relied upon in the past; therefore, the Chinese economy is bound to enter the period of slowdown shifting from the stage of rapid growth. For example, various reforms have begun to enter deep-water zones, some problems related to mechanisms and systems have seriously restricted resource allocation efficiency, and the benefits of reform in the preceding period have been exhausted gradually; the working-age population has reached the peak, the growth rate of rural surplus labor force transfer has begun to drop drastically, and the population bonus has begun to reverse; with economic development and strengthening of market discipline, economic shortages have gradually given way to excessive production capacity and demand-side market dividends have reversed fundamentally; the proportion of the tertiary industry has exceeded that of the secondary industry, and industrialization dividends have begun to enter the diminishing zone; the cost of elements such as labor, natural resources, ecological environment and technological progress has risen dramatically, and supply-side development dividends have decreased gradually; impacted by the international financial crisis, foreign trade growth has dropped from double-digit numbers to negative ones, and economic globalization dividends have disappeared in global economic recession. 

Second, as the growth rate drops, various underlying irrational structural problems accumulated in the past more than 30 years of extensive growth are fully exposed, and the Chinese economy has entered the period of temporary pains in structural adjustment. For example, the decrease in external demand brought about by the international financial crisis directly leads to exposure of the structural problem of unbalance between external demand and internal demand; the significant drop in energy prices directly leads to collapse of energy-dependent industries and regions; consumption upgrading makes the problem of inadequate product supply quality and irrational supply structure caused by extensive development; excessive production capacity leads to serious deterioration in the performance of enterprises with no innovation capability, and zombie enterprises seriously affect the functioning of the macro-economy. 

Third, for lack of a correct understanding of the above trend and structural change, one-sided “maintenance of stable growth” causes governments at all levels to adopt “strong stimuli” and expand various investments through issuance of excessive amounts of banknotes and credit expansion so as to simply compensate for the gap brought about by the drop in external demand. As a result, various structural problems further worsen, and the phenomena of rising debt, higher risks, idling of funds and lack of growth momentum are further exacerbated. In the face of the new unbalance with dual risks, the limitations of demand management are exposed, and the pressure on cost reduction after exiting the track of fully anti-crisis policies is huge. 

Realizing Stable Performance in a Difficult Situation 

In the face of the complicated domestic and foreign economic trends, the CPC Central Committee and the State Council, despite the difficulties, not only coped with the economic pressure brought about by “the superimposition of three periods” by fully launching “supply-side structural reform”, but also unleashed long-term economic vitality through a series of system reforms. In the past five years, led by in-depth “supply-side structural reform”, the Chinese economy stuck to “stabilizing growth, adjusting structures, benefiting the people and guarding against risks” and realized steady progress through improving quality and efficiency. In terms of the aggregate growth, concurrent consideration was given to stabilizing growth and guarding against the dual risks of economic downturn and inflation; in terms of control of short-term unbalance, the dual bottom lines of stabilizing growth and guarding against risks were firmly defended; in terms of coordination between short-term and long-term growth, adequate growth and structural transition were linked; in terms of the macro-control mode, total demand management and in-depth supply-side structural reform were coordinated; in terms of combination of development and reform, liberalization of productive forces through in-depth reform and opening up fully reflected the general principle of making progress while keeping performance stable. 

Among all countries in the world, the Chinese economy has undoubtedly been an eye-catching scene since the Eighteenth CPC National Congress. Statistics show that China’s annual average economic growth rate was 7.2% from 2013 to 2016, much higher than the world economy’s average level of 2.5% in the same period and higher than the developing economies’ average level of 4.0%. China’s gross domestic product accounted for an increasingly high proportion in the world economic aggregate year after year, remaining steadily in the second place in the world, and the average level was also rising steadily. In 2016, China’s per capita gross national income exceeded USD 8,000, close to upper-middle income countries’ average level. Under the situation where the economy faced “the superimposition of three periods” and the international situation was turbulent and complicated, these achievements made did not come easily and were closely related to the in-depth implementation of reform. 

First, multi-faceted reform has been implemented steadily, and the “theme framework” of “the market’s decisive role” have been formed. Since the Eighteenth CPC National Congress, the market’s decisive role in resource allocation and improvement of the government’s role have become a consensus on resource allocation. To promote the market’s decisive role, the central government has made a lot of reforms focusing on two aspects: on the one hand, subjects of title have been clarified through reform modes such as right delegation and right confirmation to establish the basis of micro-subjects. For example, the central government has delegated rights to the market and society continuously. The State Council has cancelled the requirement for government review or delegated the power for 618 items in total in nine batches upon deliberation, sorted out 453 items of non-administrative permission and review, cancelled 320 lists of intermediary services for administrative review by the State Council’s departments in three batches, reduced the number of catalogues and lists of items subject to review before industrial and commercial registration by 85% in three batches, etc. Land system reform has been implemented steadily. Now 22 provinces have carried out pilot projects of whole-province right confirmation, registration and certificate issuance for rural contracted land, and the number will increase to 28 in 2017; nearly 300 county-level administrative zones have carried out pilot projects of “the two rights” of rural contracted land management and farmers’ residential property mortgage loans. Corporate and joint-stock reform of state-owned enterprises has fully accelerated. More than 92% of the central enterprises’ various subsidiaries have carried out corporate restructuring, and more than 90% of the enterprises under the supervision of the State-owned Assets Supervision and Administration Commission have been restructured. These initiatives have expanded the market economy’s micro-subjects with clearer ownership and rights, forming a micro-cornerstone for the market’s decisive role. On the other hand, market price signals’ role in resource allocation has been enhanced continuously through market-base price reform. For example, since the Eighteenth CPC National Congress, pricing items have been reduced by 80% for the central government and by 55% for local governments. Price reform in the seven areas of water, electricity, natural gas, grain, medical care, transport, and business charges is being implemented steadily, interest rate liberalization reform is being implemented continuously, exchange rate setting mechanisms have been further improved, and measures for opening up the domestic interbank bond market have been further improved. These forms have made price, the core indicator of the market economy, play an more important role in guiding resource allocation. These basic reforms show that the “theme framework” of the market’s decisive role have been gradually formed. 

Second, people’s livelihood has improved continuously, and reform’s results have benefited all people. Under the existing incentive mechanisms, China’s economic development model tends to “attach importance to development and give little attention to people’s livelihood”. Since the Eighteenth CPC National Congress, this deviation has been given high attention and corrected, people’s livelihood has improved continuously, reform’s results have benefited more groups, and people’s life has changed substantially in particular. From 2013 to 2016, newly added urban jobs remained above 13 million in four consecutive years, consumer prices only rose by 2.0% on average every year, and the surveyed unemployment rate was only about 5%. Rural residents’ income growth rate remained higher than urban residents, and the income gap between urban and rural residents kept narrowing. The proportion of transport, telecommunication, education, culture, entertainment, medical care and health care expenditure kept rising, and residents’ material and spiritual life was greatly enriched. Social security covered more and more urban and rural residents, and the social security system has been basically established. In particular, the achievements in “targeted poverty alleviation” have attracted worldwide attention: in the four years from 2013 to 2016, 55.64 million people were lifted out of poverty in China, the rural poverty occurrence rate dropped from 10.2% at the end of 2012 to 4.5% at the end of 2016, and the living standard of people in poor areas kept rising, stopping intergenerational transmission of poverty, eradicating the root cause of poverty for people and enhancing the wealth creation function. 

Third, structural change has undergone steady transition, and innovation and entrepreneurship have been promoted continuously and steadily. China’s future economic growth will rely on upgrading of the industrial structure and building of an innovation-oriented country. Since the Eighteenth CPC National Congress, the CPC Central Committee has attached great importance to industrial upgrading, innovation and entrepreneurship. From 2013 to 2016, the value added of the service sector grew by 8.0% annually on average. In 2016, the service sector’s proportion rose to 51.6%, and it became the largest sector. Meanwhile, the equipment manufacturing and high-tech sectors also grew much faster than traditional ones. During the steady structural change, institutional reform for innovation and entrepreneurship also achieved prominent effect. According to statistics, China has become the second largest R&D-funding country and the second largest knowledge-producing country in the world, with the whole society’s R&D expenditure accounting for 2.08% of the gross domestic product, the number of applications for patents for invention ranking first in the world and the number of existing effective patents for invention ranking third in the world. From the reform of the business system in March 2014, more than 10,000 enterprises were newly registered every day on average. In 2016, 5.528 million enterprises were newly established; at the end of 2016, 310 million people were employed in the private sector of the economy in China. New market players are growing “explosively”, the cause of “mass innovation and entrepreneurship” is facing unprecedented opportunities for development, and its initial effect has emerged. 

Fourth, enhancement of China’s say and leadership in opening up provides Chinese approaches and knowledge for the world economic and financial crisis. Since the Eighteenth CPC National Congress, the world economy has remained turbulent, and trade protectionism has been on the rise. Against this backdrop, China not only stuck to reform and opening up and further established free trade zones, but also provided Chinese paths for the world economic and financial crisis through the “Belt and Road Initiative”, etc., insisted on and promoted free trade’s development internationally and received extensive praise. Since the Eighteenth CPC National Congress, free trade zones as new windows of opening up have become new areas of economic growth. The four free trade zones in Shanghai, Guangdong, Tianjin and Fujian with 0.005% of China’s territory have attracted one tenth of the foreign capital in China and become new poles of China’s economic growth, their tax revenue, high-end manufacturing sectors, Internet and relevant services, software and IT service sectors, finance with characteristics, scientific research and technical service sectors growing much faster than the national average level. After the seven pilot free trade zones in Liaoning, Zhejiang, Henan, Hubei, Chongqing, Sichuan and Shaanxi were approved recently, the number of pilot free trade zones in China reached 11. They will become important leverages of China’s opening up and new areas of economic growth in the future. Besides, the “Belt and Road Initiative” proposed by China has been recognized worldwide. By the end of 2016, Chinese enterprises had established 56 overseas economic and trade cooperation zones preliminarily in the countries along the Belt and Road, invested a total of USD 18.5 billion, grounded a number of major projects and international production capacity cooperation projects and taken steady steps for high-speed railways and nuclear electricity to “go global”. Meanwhile, China’s say and leadership in global economic governance were enhanced continuously. At high-level international forums such as the Belt and Road Forum for International Cooperation, the APEC Beijing summit, the G20 Hangzhou Summit and the Boao Forum for Asia, China kept contributing Chinese knowledge and Chinese approaches, receiving extensive praise and recognition from various countries in the world. 

Generally speaking, since the Eighteenth CPC National Congress opened, various reform tasks have been well completed. Some have been completed basically, plans have been promulgated for some, and pilot projects have been conducted for some. The good trend of reform in full swing, multiple breakthroughs and in-depth promotion has laid a solid foundation for defusing short-term risks and promoting long-term economic growth. 

Achievements Originate from In-depth Reform in All Aspects 

The history of reform and opening up tell us that only by eliminating the trammels of outmoded ideas and proceeding from reality to look at problems practically and realistically can we truly promote healthy economic development. A series of reform initiatives adopted after the Eighteenth CPC National Congress not only stuck to China’s reform and opening up, but also further developed China’s reform and opening up. In light of the overall picture, brilliant achievements were made in economic reform in this period mainly for the following reasons: 

The Two Centenary Goals effectively rallied support and provided a powerful driving force for Chinese reform. Realizing a moderately prosperous society and the great renewal of the Chinese nation is the common wish of the Chinese people and the Communist Party of China. In light of the big picture of historical logic, China has a civilization history of 5,000 years, a moderately prosperous society of great harmony is the common vision of scholars in all ages, and common prosperity is also the core meaning of socialism. Realizing a moderately prosperous society and common prosperity is the ideal and goal pursued by the Communist Party of China as the largest ruling party in the modern world. Through nearly 40 years of reform and opening up, the Chinese economy has established the basis of realizing a moderately prosperous society. A comparison between the East and West shows that China used to be the world’s center for long in history, but the “great divergence” of the East and West happened in modern times. As the West rose, China gradually became backward and vulnerable. Pursuing the renewal of the Chinese nation is the common wish of all Chinese people and the goal assiduously sought by the Communist Party of China. After the Eighteenth CPC National Congress, the CPC Central Committee with comrade Xi Jinping as the core clearly took the Two Centenary Goals as goals of the Chinese people’s efforts, not only rallying support, but also providing a powerful driving force for the people’s hard work. 

Supply-side structural reform has become an important leverage for implementing new thoughts on development and yielded increasingly fruitful results. After economic development entered the new normal, structural imbalance was the prominent problem facing China’s economic development. In particular, the unbalanced supply-side industrial structure, distorted income distribution structure, unbalanced international payment structure, etc. urgently need to be solved. Because of this characteristic, the Chinese economy must proceed from the supply side and structural reform and strive to realize dynamic balance between supply and demand. Since the Eighteenth CPC National Congress, under the guide of supply-side structural reform, we have clarified the relationship between the government and the market continuously and tried to let the market play a decisive role in resource allocation, thus effectively solving the difficult problem of overcapacity and gradually eliminating market access barriers in the fields of education and medical care. These reform initiatives have effectively promoted industrial structure upgrading, given impetus to new areas of economic growth and thus improved the potential economic growth rate. 

Continuous improvement of basic systems is the fundamental guarantee for achievements in reform. Achievements in reform have to do with short-term economic policies of course and, more importantly, continuous improvement of basic systems. Since the Eighteenth CPC National Congress, the CPC Central Committee with comrade Xi Jinping as the core has carried out top-down design and in-depth reform of fundamental systems for economic and social development in a series of governance initiatives, ensured “private rights be granted” and “public powers be restricted” and thus cleared the obstacles to “the market’s decisive role”. On the one hand, “private rights” are effectively granted and protected. For example, rural land right confirmation was carried out to grant rights to peasants, and efforts were made to further protect ownership through formulating a civil code on the basis of various current legal guarantees. On the other hand, “public powers” are effectively restricted. After the Eighteenth CPC National Congress, the third, fourth, fifth and sixth plenary sessions of the CPC Central Committee, through the spirit of a series of documents and speeches on rule of law and strengthening of Party self-conduct and the arduously fight against corruption, put public powers under institutional checks. The all-round strengthening of Party self-conduct and rule of law provides an institutional basis for the combination of “the government’s tangible hand” and “the market’s intangible hand” in China, realizing steadfastness with regard to both. 

Solving New Difficult Problems in Development with the “Four-pronged Comprehensive” General Layout 

Since the Eighteenth CPC National Congress, the CPC Central Committee with comrade Xi Jinping as the core has not only carried out economic reform and ensured steady economic improvement under the new normal of economic development through supply-side structural reform, but also effectively modernized China’s governance system and capacity for governance through in-depth reform in all aspects and in-depth implementation of the strengthening of Party self-conduct and rule of law, realizing a fundamental change of the growth model, implementing new thoughts on development and ensuring the sustainability of long-term economic growth. Generally speaking, the long-term economic development prospects are bright, the economy is hugely resilient and has enormous potential and ample room for growth, sustained economic growth has good foundations and conditions, and the economic structure shows the trend of adjustment and improvement. 

Of course, we must also see that though the Chinese economy has been developing at a fast pace, the current domestic and foreign economic and political situations are changeable and economic growth still contains multiple risks. Viewed from a short-term perspective, the problem of asset bubbles is still obvious, local risks keep expanding and debts’ structural risks are increasingly prominent. They might corrode economic foundations and, if handled improperly, might cause risk expansion. This also shows that the basis of stable performance is not firm and should be further enhanced. Viewed from a long-term perspective, some underlying structural problems in China’s current economic development have not be solved, downward pressure on private investment’s growth still exists, the pressure on restructuring is still huge, the capacity for innovation urgently needs to be improved… Therefore, the Chinese economy might manifest coexistence of “short-term stable performance” and “long-term structural problems”. This requires us to carry out further reform and opening up, stick to the principle of seeking truth from facts, keep eliminating various barriers and obstacles in the course of reform and summarize lessons from middle-income trap countries. We should realize that the common ground of the “Latin America’s Vortex”, “East Asia’s Bubble” and “West Asia and North Africa’s Crisis” is that in the face of the new challenges brought by changing conditions after reaching the middle-income stage, they failed to propel change of the growth model with new thoughts on development, so it was difficult to effectively establish fairness and efficiency in development. As a result, society was not stable and development was not sustainable. The fundamental reason why these countries fell into the middle-income trap is lagging institutional innovation. In terms of economic systems, they failed to properly handle the relationship between the government and the market, causing occurrence of market failure and government failure at the same time; in terms of political systems, they failed to propel democracy and the rule of law and protect market players’ private rights. Government officials’ unchecked public powers led to the widespread phenomenon of “rent-seeking” in power-for-money deals as well as lack of fairness and efficiency. After the Eighteenth CPC National Congress, our Party, through the “four-pronged comprehensive” general layout, not only stuck to the goal of fully realizing a moderately prosperous society in all respects and striding over the middle income trap, but also made plans on innovation in economic, legal, political and other systems, laying a solid foundation for future sustainable development of the Chinese economy. 

To solve the difficulties in development in the new period and new stage, we must always stick to what General Secretary Xi Jinping has emphasized, understand and grasp the essential features of China’s social development in the current stage, insist on the methodology of dialectical materialism and historical materialism, give consideration to history and reality, theory and practice, domestic situation and international situation, etc. concurrently, think about the historical direction of China’s social development, proceed from overall development of the Party and country’s cause in our thinking and reach right conclusions. We should, according to the various requirements on completing the building of a moderately prosperous society in all respects put forward at the Sixteenth, Seventeenth and Eighteenth CPC National Congresses, attach importance to grasping priorities, making up deficiencies and strengthening weak links. In particular, we should fight hard to win the war for preventing and defusing great risks, alleviating poverty in a targeted manner and preventing and controlling pollution, resolutely deepen supply-side structural reform and promote sustained and healthy economic and social development so that completion of the building of a moderately prosperous society in all respects can win people’s recognition and stand the test of history. 

 (Author: President of Renmin University of China and Dean of the National Academy of Development and Strategy, Renmin University of China) 

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