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Work Hard for Better Quality, Higher Efficiency and More Robust Drivers of Economic Growth

Submit Time:25-02-2018 | Zoom In | Zoom Out

Author:Liu Shijin | Source:Qiushi November 15, 2017


General Secretary Xi Jinping pointed out in the report to the 19th National Congress of the Communist Party of China: “China’s economy has been transitioning from a phase of rapid growth to a stage of high-quality development. This is a pivotal stage for transforming our growth model, improving our economic structure and fostering new drivers of growth. It is imperative that we develop a modernized economy. This is both an urgent requirement for getting us smoothly through this critical transition and a strategic goal for China’s development.” To develop a modernized economy faster, we must, as is emphasized in the report to the 19th National Congress of the Communist Party of China, put quality first and give priority to performance. We should pursue supply-side structural reform as our main task, and work hard for better quality, higher efficiency and more robust drivers of economic growth through reform. We need to raise total factor productivity and lay a solid foundation for steadily strengthening the innovation capacity and competitiveness of China’s economy and achieving the two centenary goals. 

I. Evolution of the Stage of Development Urgently Requires Implementation of Three Important Changes 

In nearly 40 years after the beginning of reform and opening up, China’s economic growth rate remained as high as nearly 10%. This historic achievement attracting worldwide attention was the result of many conditions. In this period, the overall level of China’s economic development was low, the foundation was weak, the base was small and the space for growth was large. Human society had created a lot of technologies and experience we could introduce and draw on. China had the largest population in the world, meaning huge scale and potential of demand, numerous laborers and low cost; the cost of land and other natural resources was relatively low, and ecological environment was loosely restricted; more importantly, China was stable socially and politically, established and gradually improved the socialist market economy, developed the open economy, and effectively used resources on both international and domestic markets. The mutual interaction and synergy of the above conditions gave rise to an unprecedented miracle of lasting high-speed economic growth in a populous country in human history and at the same time made such growth characterized by rapid number and scale expansion inevitably and accompanied by some contradictions and problems of unbalanced, uncoordinated and unsustainable development. 

In 2008, in the face of the impact of the international financial crisis, we adopted the stimulus policy of maintaining stable growth. The speed of growth rose again first in the world, reached the highest point in the first quarter of 2011, and then gradually became lower. After the 18th National Congress of the Communist Party of China, in the face of new developments and problems, the CPC Central Committee made the major judgment that China had entered a new normal in economic development. In light of the factors and conditions supporting China’s economic growth, many important changes have happened or are happening, e.g. the number of Chinese laborers aged between 15 and 59 began to decrease in 2012, the number of rural migrant workers in cities was decreasing, the salary level was rising as a result, and the advantage of low labor cost was weakening; end demand for real estate, etc. and demand for important industrial goods such as steel and coal reached historic peaks, growth slowed down notably, and problems such as overcapacity and excessive product inventory were outstanding; prices of land and other resources rose, housing prices soared in some cities, the pressure on ecological environment was higher, and some aspects were close to and even passed the bottom line; with the rise of China’s factor cost, expansion of the export base and change in the international market environment, rapid export growth in the past could not last, and internal demand must be relied upon more; serious unbalance between finance and the real economy, between real estate and other fields and within the real economy occurred, some fields’ leverage rates were too high, financial risk was higher, and the efficiency of economic growth was dropping. With these changes, China’s economic structure underwent a major transition, and economic growth relied upon consumption, the service industry, domestic demand, workers’ higher quality, technological progress and total factor productivity more. Correspondingly, the stage of economic development began to evolve from the past phase of rapid growth to the stage of high-quality development. 

In light of the history of industrialization and economic growth, the evolution of the stage of China’s economic development is line with laws, and there is also international experience we can draw on. Such evolution does not change the judgment that China is still in an important period of strategic opportunity for development, but the connotation of the period of opportunity has changed greatly. If we mainly put up establishments in the past, then we should mainly reach higher levels in the future. Though China’s growth has slowed down to some extent, the annual increment still has the greatest pulling effect on the global economy. While we strive for the highest speed of growth possible, the main difficulty is how to turn challenges to improving the quality and efficiency of economic growth into new opportunities of development. 

II. Key to the Changes is Raising Total Factor Productivity 

Working hard for better quality, higher efficiency and more robust drivers of economic growth is a prerequisite for the stage of high-quality development and an important aspect of the pivotal stage for transforming our growth model, improving our economic structure and fostering new drivers of growth. 

Better quality includes improvement of quality and service quality as is usually said and, more importantly, full improvement of the quality of the national economy’s all fields and levels. This is an all-round change from ideals, goals and systems to work details in specific fields. We should give priority to improving the quality of the supply system, keep up with advanced international quality standards, act to improve quality, notably enhance Chinese economy’s quality advantage and turn Chinese products and services into symbols of high quality; we should let competition determine the survival of enterprises and products, concentrate resources for high-quality enterprises and products and form a number of high-quality brand enterprises and products with lasting and stable international competitiveness gradually through full and effective market competition; we should create an environment conducive to innovation, promote flow and grouping of innovative factors, encourage various innovations intended to improve product and service quality and turn innovation into strong impetus for quality improvement; we should take green development as an important aspect of quality improvement, accelerate all-round green transition from consumption, production, circulation and investment to lifestyle and make green and low carbon important features of high-quality products and services. 

Higher efficiency means we should find out and level up various low-efficiency areas hided or ignored by the past phase of rapid growth and lay a solid foundation for efficient and competitive high-quality development. In the final analysis, market competition is comparison of input and output and comparison of high and low efficiency. We must deepen reform in fields where the problem of administrative monopoly is still prominent, mainly introduce and enhance competition in the industries of oil and natural gas, electricity, railway, telecommunication and finance, fully lower the operating cost of energy, logistics, telecommunications and financing for the real economy and make development of the real economy, especially the manufacturing industry, more attractive and competitive; we must further substantially ease market access, improve exiting mechanisms, better the social security system, allow high-efficiency factors to enter and low-efficiency factors to exit and fully enhance the economic efficiency of input and output through production factors’ rational flow and optimal combination, enterprises’ merger and restructuring and industries’ transformation and upgrading; we must make the financial sector better serve the real economy, prevent and address various economic bubbles, lower excessively high leverage rates, defuse financial risks and provide effective financial services for the real economy’s innovation, development, transformation and upgrading; we must raise the level of the open economy, combine bringing in and going out, participate in international competition and cooperation in wider scope and high levels and steadily elevate Chinese industry’s status in the global value chain. 

More robust drivers require us to adapt ourselves to the need to build a high-quality and high-efficiency modern economic system and accelerate the transition from quantitative labor dividends to qualitative ones after the laborers’ number and cost advantages gradually weaken. We must give priority to developing educational undertakings, accelerate educational modernization, fully improve educational quality from basic education and higher education to vocational education and improve the quality of workers at all levels of economic and social development; we must strengthen intellectual property protection and incentives, cultivate a large number of world-class scientists and technologists in strategically important fields, scientific and technological leaders, and young scientists and engineers as well as high-performing innovation teams, promote rational flow of various types of talents and stimulate the initiative, enthusiasm and creativity of entrepreneurs, scientists, technologists and other talents to a larger extent; we must see that taking pride in labor becomes a social norm and seeking excellence is valued as a good work ethic, respect labor and creation, build an educated, skilled and innovative workforce, improve the front-line workers’ social status, eliminate deep-seated class boundaries and expand channels and opportunities of vertical flow and success through hard work. 

After China’s economy entered the stage of high-quality development, we must rely more on total factor productivity for improvement instead of mainly relying on the quantity of factor input for growth like in the past. Among the three important changes, better quality is the mainstay, better efficiency is the main thread and more robust drivers are the basis. The key is to practically and continuously raise total factor productivity. Only after solving this critical problem can we create the new situation of development featuring notably higher quality and efficiency and notably better stability and sustainability while maintaining a certain speed of growth. 

III. We must Deepen Reform and Create Environment to Realize the Three Changes 

International experience shows that economically backward countries can realize rapid growth in the early stage of industrialization more easily, while the difficulties in development are obviously greater in their transition from the stage of middle income to that of high income. After World War II, many countries entered the course of industrialization and reached the stage of middle income, but only 13 economies entered the stage of high income. Some countries fell into the “middle income trap” and underwent slow growth and even recession. If quantitative scale expansion and great obvious change can be realized easily within a short time in the phase of rapid growth, then in the stage of high-quality development, it takes a very long time to notably reach higher levels of quality and efficiency. After a country enters the stage of high-quality development, it will encounter challenges never met in the phase of rapid growth and have to face and address many new contradictions and problems. Fundamentally speaking, we must further supply-side structural reform and create a system and policy environment suitable for high-quality development. 

First, we should solve the problem of understanding the goals of economic development. After the stage of high-quality development begins, if we try to maintain rapid growth as in the past and do not pay attention to quality and efficiency, the speed will be slow or drop after a short-term rise, causing huge economic fluctuations, and the actual speed of growth over a long period of time will be slow instead. Therefore, viewed from a long-term perspective, emphasizing quality, efficiency, stability and sustainability of development is conducive to maintaining a necessary speed of growth. We must correct the tendency of “taking GDP as the only standard” and attach more importance to employment, entrepreneurship, quality, efficiency, risk prevention, stability and sustainability in terms of the goals of development. 

Second, we should really let the market play the decisive role in resource allocation. Whether in promoting production factors’ flow and optimal allocation to break monopolies, encourage competition and let competition determine the survival of enterprises or stabilizing entrepreneurs’ expectations and mobilizing all talents’ initiative and creativity, we should really let the market play the decisive role in resource allocation. Whether the government can play its role better also depends on whether it can help the market play the decisive role in resource allocation. We must concentrate on improving the property rights system and ensuring the market-based allocation of factors of production and deepen reform in key fields such as property rights protection, state-owned enterprises and assets, land, taxation, finance and government administration. While deepening reform, we should attach importance to top-level design, clarify directions and draw bottom lines. Meanwhile, we should attach importance to exploration of reform by local governments, communities and enterprises, make reform less uncertain through trial and error and find out reform measures in line with both long-term directions and actual conditions. 

Third, we should attach more importance to building innovation environment. Successful innovation depends on many conditions. A fundamental condition is that we should form an environment and conditions conducive to innovation, including intellectual property protection and incentives, stable expectations of entrepreneurs, scientists and other entities involved in innovation, free flow and optimal combination of various innovative factors, innovation in effective services for financial products in different stages, supporting conditions for industry and innovative support for infrastructure. Domestic and overseas experience shows that successful innovation mainly originates from regional innovation centers and innovative cities because these areas have better innovation environment than other areas. We must reform the management system for science and technology faster, further open the innovative factor market, form regional competition mechanisms to improve innovation environment and make more regional innovation centers and innovative cities stand out. 

Fourth, we should form systems and mechanisms for promotion of green development. The new ideas of ecological civilization and green development are striking root in the hearts of the people, and the key is how to turn the ideas into action and really implement the strategic idea that lucid waters and lush mountains are invaluable assets put forward by General Secretary Xi Jinping. Green development is a new model of development. We should reduce and address pollution and, more importantly, add and create new momentum of consumption upgrading, economic growth and innovation’s development. To promote green development, we should pay attention to research on and practical exploration of ecological capital accounting and gradually change green development from public products provided by the government and public welfare activities conducted by social groups and individuals to daily economic activities that more enterprises and individuals participate in; we should step up efforts to establish a legal and policy framework that promotes green production and consumption and promote a sound economic structure that facilitates green, low-carbon and circular development; we should form a market-based system for green technology innovation, develop green finance and active explore effective ways to lift underdeveloped regions out of poverty through three development. 

Fifth, we should use resources on both international and domestic markets better. China is still a developing country. Compared with developed countries, we are still in the period of catching up, so we should not be complacent and self-conceited and need to keep studying developed countries’ advanced technologies and experience and integrate into the global work division system at a higher level. This is the reason why China still needs to introduce foreign capital when capital is no longer insufficient overall. On the other hand, we should actively and prudently go out, align ourselves with high-quality factors such as technologies, management, supply chains, marketing channels, brands and talents at the middle and high ends of the value chain, fully enhance the international competitiveness of China’s industries and enterprises and form an open economic system with more width and depth.

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