uring the 19th National Congress of the Communist Party of China (CPC) in October 2017, Chinese President Xi Jinping said that China’s economy is in transition from a phase of rapid growth to one of high-quality growth.
“We should work hard for better quality, higher efficiency, and more robust drivers of economic growth through reform,” he said.
High-quality growth is now the fundamental requirement to determine China’s development path, policymaking, and macroeconomic regulations in order to sustain healthy and stable economic growth.
Wang Yiming, deputy director of the Development Research Center of the StateCouncil, who is a member of the Chinese People’s Political Consultative Conference, gave an exclusive interview to NewsChina during China’s top legislative meetings, the two sessions, in Beijing in March. He shared his views on the role of high-quality growth in the Chinese economy, the background to the policy change and the challenges and solutions.
NewsChina: What does high-quality growth mean for the Chinese economy?
Wang Yiming: Since initiating the reform and opening-up policy in the late 1970s, China has maintained rapid economic growth for more than 30 years. “China speed” has impressed the world and won acclaim worldwide. However, we also noticed that the quality of China’s economic growth has a large gap with developed countries in fields like industrial products, services, industrial chains and efficiency.
In the early 1980s, the main task of the Chinese economy was to address the deficiencies in industrial products. Nowadays, that problem has been solved – but oversupply is present in many sectors. China has become the second-largest economy in the world, taking the lead in production capacity in more than 220 industrial and agricultural sectors.
Solving the problem of quality has great potential for the development of the Chinese economy. The transition to high-quality growth will make China leap from a big economy to a strong economy.
NC: China’s supply-side reforms have made some progress. In which aspects should we deepen reform in order to attain high-quality growth?
WY: China’s supply-side structural reform has played a crucial role to address over-production in the steel and coal industries, and reduce real estate inventory in many Chinese cities. The corporate leverage ratio has been declining steadily, tax reductions have taken effect and public service and infrastructural facilities have improved. At a time when the allocation of resources has continued to improve, new technology, and new industrial and business models have developed rapidly in sectors such as mobile payments, e-commerce, high-speed train networks, bike sharing and new energy automobiles, which are at a world-class level.
Nevertheless, the conditions, challenges and tasks of transitioning to the quality development phase are very different from the past, and it will be difficult to adapt to the new environment – it’s like a train changing its tracks.
NC: China’s economy is expected to grow at 6.5 percent in 2018. As China is on track to high-quality growth, will its economy slow down?
WY: Since 2011, China’s GDP growth has shrunk from a double-digit growth rate. In 2017, China’s GDP growth rate was 6.9 percent, seeing an increase of 0.2 percent year-on-year, which was the first rebound since 2011. China’s economy has reached a relative equilibrium.
From an economic perspective, growth is in line with the potential growth rate. I believe China’s 6.5 percent GDP growth target for 2018 basically matches the potential growth rate in terms of economic structure, quality and efficiency, and the economic growth rate will fluctuate within a small range of the potential growth rate.
China’s gross domestic product totaled 82.7 trillion yuan (US$13t) in 2017. Against the backdrop of its overall huge economic volume, an increase of one percent is a totally different concept in comparison with previous years. The medium and long-term trend is an economic slowdown, but the economic growth rate will be basically stable for the upcoming period.
NC: What is the biggest challenge for a transition to high-quality growth?
WY: The institutional environment is the most crucial. Reform and opening-up in the late 1970s played a decisive role in accelerating China’s economic growth, giving China a world-leading economic growth rate for the past decades. China has to change from an institutional environment that suits high-speed development to one that suits high-quality growth. In the future, the biggest challenge will be to construct an institutional environment to facilitate high-quality growth.
NC: What are the main components of the institutional environment?
WY: In the report of the 19th National Congress of the CPC, President Xi Jinping vowed to “develop an economy with more effective market mechanisms, dynamic micro-entities, and sound macro-regulation.” Effective market mechanisms are fundamental. Quality hinges on competition and competition hinges on effective market mechanisms. All practices and regulations that impede fair and orderly competition have to be rooted out. Competition is a precondition of innovation, vigor, efficiency and quality. What’s more, all monopolies in administrations, trades, market, regions and industries have to be broken.
Dynamic micro-entities play a key role. When it comes to quality, the general hinges on the specific. Fair competition to boost innovation and enhance the quality of products and services is crucial to motivating micro-entities to improve quality.
Sound macro-regulations are institutional assurance. Playing the role of the government better does not mean increasing the role of the government. The government should play an active role in areas where the market fails to work, such as protection of intellectual property rights and fair competition, maintaining market order and establishing a social safety net. Nevertheless, the government should never go too far. In my opinion, in fields where the market could positively work, the government should refrain from intervening. It does not mean that the government will leave the market alone. The government should play the role of a “referee” in order to maintain sound market order.
NC: What is the biggest difficulty in constructing an institutional environment that fits high-quality growth?
WY: The report of the 19th CPC National Congress made clear that in economic reform, China has to concentrate on improving property rights and ensuring the market-based allocation of production factors. Without a clear property rights system, there will be no transactions and no market behavior. The protection of property rights and intellectual rights is the prerequisite for market mechanisms to play a positive role.
Reform in the market-based allocation of production factors means deepening reform in the labor force and in land, capital and technology. Nowadays, China’s products and services are basically marketized, but production factors remain largely an exception. China should give full play to the market’s role in determining prices in order to ensure the free flow of factors and optimize the allocation of resources. Meanwhile, we will break administrative monopolies and preclude the development of market monopolies and improve fair and orderly competition.
NC: What are the new requirements for innovation and macroeconomic control measures in the transition to high-quality growth?
WY: Alongside the transformation in the structure of the economy, investment played an increasingly weak role in driving economic growth, but consumption played an increasingly bigger role. From 2013 to 2017, consumption contributed to 56.2 percent of China’s economic growth rate, 12.4 percent higher than the role of capital. In 2017, the proportion rose to 58.8 percent and 26.7 percent respectively.
Consumption has become the top driving force in China’s economic growth. Macroeconomic control measures should transition from a reliance on investment to consumption, which is adapted to the requirements of high-quality growth and the need for a better life for the public. The heightened status of consumers will contribute to the transformation of government functions, stimulate the government to improve the market and consumption environment and restrict the ‘visible hand,’ making the market play a decisive role in the allocation of resources.
Indirect and inductive measures are encouraged in order to establish the macroeconomic system. A system that supports policymaking, based on big data, is necessary to increase the accuracy and timeliness of macro data. In addition, consumption and statistics index systems should be established, and China’s macroeconomic measures should adapt to the change.