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Yao Jingyuan: Tackling Deep-seated Development Issues with New Thinking

Source: people.cn Date: 2016-08-10

Under the new economic normal, China finds itself in a period of strategic opportunities and, at the same time, faces multiple challenges. The changing environment, conditions and tasks for development call for a new development model and new thinking to tackle deep-seated problems in development.

Since embarking on reform and opening up, China has mainly relied on massive capital, resource and labor input to sustain high-speed growth. Now it is evident that such a growth model has caused severe overcapacity and falling profits in sectors such as steel, cement and coal, posing daunting challenges to economic and social sustainability. In 2015, China accounted for 14.8% of the world’s GDP but consumed 22.9% of the world’s energy. Massive resource consumption has put crippling constraints on resources and the environment, making it an imperative to tackle environmental pollution. Between 2013 and 2015, labor force dropped by over 10 million. With fast rising labor cost, demographic dividend is diminishing.

As traditional growth drivers weaken, structural problems are becoming more pronounced. Agriculture is the foundation of the national economy, but it remains weak. Though China’s grain output last year was 600 billion kilograms, a record high, China still imported more than 100 million tons of grain. The 220 million Chinese farmers exported 70 billion of agricultural products last year. The number of Dutch farmers is only one thousands of China’s. Yet they exported US$12 billion more than China. China is the largest producer of 281 out of the 440 major industrial goods listed by the United Nations. This, however, is only in quantity terms. Last year, China made 24 million cars, ranking No.1 in the world and accounting for 25% of the world’s total. The majority of the cars are brands of joint ventures, in which China could only obtain 20% of the profits. China still imports a large number of computer numerical control machine tools, integrated circuits and sophisticated chips. If China wants to ensure sustainable industrial development and enhance international competitiveness, it has to develop critical technologies and move up the value chain. In recent years, China’s tertiary industry has grown fast. Last year, it accounted for 50.5% of the economy. Compared with advanced economies, it is still a small share. Inside the tertiary industry, modern services such as culture, science and technology, education and health take a still smaller share. In advanced economies, the tertiary industry usually accounts for about 70% of the economy, and modern services account for over 70% of the tertiary industry. Modern services are still a weak link in the Chinese economy.

To tackle deep-seated problems in the economy, China has to develop new thinking and realize that innovation is key to development and the future. Innovation and science and technology must replace resources as a new driver of economic growth. Innovation is more than technological innovation and includes institutional innovation. A conducive institutional environment must be created through reform.

Uncoordinated development is a long-standing issue, which is first and foremost uncoordinated regional development. The five provinces and one municipality in the east, namely Guangdong, Fujian, Zhejiang, Jiangsu, Shandong and Shanghai account for half of the country’s economy. Though the gap between the east and the west is narrowing, lack of balance and coordination remains a prominent issue. Urban-rural divide is another important manifestation of uncoordinated social and economic development. The urban-rural divide is reflected in urban-rural income gap. Though urban-rural income gap has narrowed in recent years, it still stands at 3:1, a wide gap by international standards. The real gap is even wider as cities also outperform the countryside in terms of provision of public goods. One important reason for the wide gap is the dualistic urban-rural structure. There are still institutional barriers to integrated urban-rural development. Rural residents are still as a disadvantaged position compared with their urban counterparts in employment, compensation, social security and public services. But things are improving. And social and economic sustainability is increasing.

The goal of China’s 13th Five Year Plan is to build a society of moderate prosperity in all respects. Such a society is a green society. And Green development is the fundamental way to achieve sustainable development. A good environment is in itself a source of wealth for society. We could no longer afford to develop at the cost of the environment. China’s social development must be coordinated and green in all aspects.

Open development is what we are promoting in China. But it is different from the openness we talked about. In the past, we focused on attracting investment. Now, we emphasize the need to go global and bring in, for instance through the Belt and Road Initiative. In the future, China will encourage more of its companies and capital to go global. Open development is an important way to move up the value chain and integrate the Chinese economy deeply into the world economy.

Socialism is about common prosperity. It takes the hard work of the Chinese people to build a prosperous society. It should also be the people who benefit from social prosperity. It is important to engage all in the pursuit of common prosperity and thus achieve social harmony.

A new thinking is needed to adapt to the new economic normal and achieve all-round, coordinated and sustainable socio-economic development. New thinking will lead to new methods and open up broad space for development.

Innovative, coordinated, green, open and shared development is the enrichment of socialist theory made by the CPC Central Committee with Comrade Xi Jinping as the General Secretary. It will guide our efforts to achieve the two Centenary Goals.

(The author is former Chief Economist of the National Bureau of Statistics and a Research Fellow of COSC)