Issues Involved in Economic Restructuring to Promote Sustainable Development (Extract)

From: English Edition of Qiushi Journal Updated: 2011-09-20 10:08
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 Expanding domestic demand and adjusting economic structure to increase our ability for sustainable development

 Expansion of domestic demand is the basic principle and long-term strategic policy underlying China’s economic development as well as the primary task for economic restructuring. We need to exert ourselves to expand consumer spending and work to ensure that consumption, investment and exports drive economic growth in concert while balancing efforts to expand domestic demand with efforts to stabilize external demand and balance moves to increase investment with moves to expand consumer spending.

 1. Paying attention to both domestic and external demand, but mainly relying on domestic demand

 Since the institution of the reform and opening up policy, external demand has played an important role in promoting sustained and rapid development of the Chinese economy. In 2009, in spite of the serious impact of the global financial crisis, China’s export of goods still reached US$1.2 trillion, making China the No.1 exporter in the world. At the same time, the scale of China’s imports continued to expand. Last year, import volume of goods exceeded US$1 trillion, making China the world’s second largest importer. By using the international market and introducing foreign funds we have not only expanded China’s market space and increased employment but also brought in advanced technology, managerial expertise, quality personnel and innovation in mechanisms and renewal of ideas. External demand has occupied an indispensable position in China’s economic development.

 At the same time, we must also be clear that relying on domestic demand is the inevitable course for sustaining China’s development. International experience has shown that the economic growth of big countries mainly relies on domestic demand. In 2008, domestic demand in the United States accounted for 92% and in India 88% of total demand, whereas in the same year China’s domestic demand only accounted for 72.8% of its total demand, on the low side among the big countries. China has a big population and a large territory with plenty of room to maneuver. China is now in a period of rapid industrialization and urbanization and has great amount of space and potential for expanding domestic demand.

 Relying on expanding domestic demand is also needed to maintain the initiative for our development. We should see that external demand is often influenced by many unpredictable and unexpected factors beyond our control. It was reliance on expanding domestic demand that allowed us to successfully deal with the Asian financial crisis of 1997 and the current global financial crisis, resist external impact and achieve economic recovery.

 It should be pointed out that expanding domestic demand does not mean suppressing external demand; it only means strengthening the role of domestic demand, particularly consumer spending, on sustaining economic growth while working to stabilize and expand external demand. We are working to expand domestic demand, while continuing to open to the outside world, not seeking some kind of balance between supply and demand by ourselves. Stabilizing and expanding external demand means stabilizing and expanding external demand on the basis of improving the pattern of China’s foreign trade growth, not just expanding the volume of exports. While remaining a major foreign trade power, we should also gradually take up the role of a major investor overseas and take more advantage of both domestic and international markets and resources. Therefore, with domestic demand taking the first place, both internal and external demand jointly constitute a market space for China’s economic development. We should give overall consideration to both domestic and international situations and make overall arrangements for internal development and opening up to the outside world. We need to give full play to our comparative advantages and keep and increase China’s share in the international market. More importantly, we need to give full play to the advantage of the huge potential in domestic demand and put economic growth on a solid basis of domestic demand. These are necessary for adjustment of the economic structure. 

  On July 16, 2010, a technician at the third metal workshop of the forging branch factory is intent on deep hole processing of the half-speed rotor for a nuclear power facility. China’s Second Heavy Machinery Group Company has been adjusting its product structure under adverse conditions and strengthened efforts to make independent innovations. In just a decade the company has rapidly grown into a “vane” and a “barometer” for the world’s large castings and forgings and contributed to the effort to change China from a major equipment producer to a powerful equipment producer.  / Photo by Xinhua reporter Li Qiaoqiao

 2. Working out the connection between investment and consumption

 Expanding domestic demand includes expanding demand for investment and consumer demand. In the current stage of development, there is still a lot of room for demand for investment. In coping with the impact of the global financial crisis, the role of investment in driving economic growth has the fastest effect and plays an important role in promoting the stability and recovery of the economy. At the same time we also need to realize that excessive reliance on investment to drive economic growth would be difficult to continue in the long term. We need to put the focus on adjustment of the investment structure so that more investment funds will be directed toward ensuing and improving people’s wellbeing, shoring up weak links in economic and social development, stimulating independent innovation and promoting energy conservation and environmental protection. In addition, we need to improve policy measures for promoting private investment, encourage and guide the private sector to invest more in infrastructure development, social programs, municipal utilities and social services, and strengthen the positive role of private investment in expanding domestic demand.

 The focus of efforts to improve the investment structure should be on promoting consumer demand. The demand for consumer spending is the ultimate demand. The demand for investment and the demand for consumption are closely related. By working out the connection between investment and consumption we can not only increase investment and ensure growth but also expand consumer spending, improve the lives of the people and promote sustainable development, killing many birds with one stone. This is what we have learned from successful efforts to cope with the global financial crisis. For instance, of the 10 measures introduced by the central government in November 2008 for promoting economic growth, highest priority was given to the housing project for low-income residents. This will not only ease the difficulty of low income residents in obtaining housing but also stimulate spending on interior decorating, furniture and home appliances, and stimulate consumer spending. In addition, investment in projects to improve the wellbeing of rural residents and building rural infrastructure has created conditions for increasing purchases of home appliances and cars in the countryside and stimulated consumer spending. Still another part of investment can be directly turned into wages, which will also promote consumer spending. Over a considerable period of time, a relatively strong mutually promoting relationship between investment and exports has been gradually formed in China. The increase of export volume promotes investment and the expansion of investment in turn promotes an increase in the ability to export. In the future, we should work hard to promote this beneficial cycle between investment and consumption, keep investment in line with consumption and promote investment along with consumption. Promoting a close relationship between investment and consumer spending is not a matter of expediency. It is a long-term policy for optimizing the investment structure and expanding domestic demand.

 3. Expanding consumer demand as the focal point for expanding domestic demand 

 When we say domestic demand is inadequate we mainly mean that consumer spending is weak. Consumer spending is weak in China so there is great potential for expanding it. We need to take a combination of measures to expand consumer spending. One, we need to improve the consumer spending policies. We need to learn from our experience in implementing policies for stimulating consumer spending such as encouraging sales of home appliances in the countryside and continuously enrich and improve related policies. We can not rely on the long-term use of government subsidies alone to expand consumer spending. We still need to explore various means to do so and establish a long-term mechanism. Two, we need to improve the environment for consumer spending. We need to create sound regulatory standards for consumer spending and for the marketing and retail distribution system, and rectify and standardize market order to ensure the safety of food and medicine and at the same time improve the credit system, develop consumer credit and provide quality service to put the minds of the people at ease to encourage consumer spending and make consumer spending more convenient. Three, we need to cultivate new growth areas for consumer spending. We need to support residents in their desire to purchase their first housing or housing to improve their living conditions and increase consumer spending in cultural and sports activities, tourism, training and domestic service, and guide the upgrading of the consumer spending structure. 

 The key to expanding consumer spending is to raise people’s purchasing power and this requires adjusting the distribution structure of the national income and raising people’s income levels, especially the incomes of the low and middle income population. We need to attach greater importance to the role of employment and wages in the primary distribution of national income, attach more importance to the role of social programs and public services in the secondary distribution and make this an important breakthrough point in adjusting the distribution structure of national income.

 Employment is the foundation of the wellbeing of the people and their source of income. We need to implement a more active employment policy and make every effort to increase employment. Conditions for expanding consumer spending can be created only when the scale of employment is enlarged and the incomes of workers are increased. Social security programs constitute a “social safety net.” Accelerating development of a social security system tends to make them less worried about spending money and increases their willingness to spend. Funding needs to be increased to quickly improve the social security system to help the elderly, help pay for medical and health care and grant cost of living allowances. Social security programs and public services themselves promote consumer spending. We need to appropriately distinguish basic and non-basic needs in social security programs and services, focus on “ensuring that basic needs are met, better serving the general public and consolidating the foundation” and concentrate resources to provide basic public services and provide for the practical needs that are most pressing and the government is able to handle.

 The fundamental way to increase the people’s purchasing power is to raise the proportion of personal income in the distribution of national income and the proportion of the primary distribution of income that goes to wages and salaries and strive to balance the growth of income of urban and rural residents and the growth of wages with economic growth. This requires that we gradually expand the proportion of middle income makers in the population in an effort to develop a bell curve for income distribution. Adjusting the distribution structure of national income is a major task that affects overall reform, development and stability, and therefore needs to be carefully conducted through positive measures. Adjusting the distribution structure of national income involves an adjustment of the interest pattern of different sectors of society and therefore will require careful study and vigorous yet careful action.

 Focusing on urbanization as the strategy for expanding domestic demand and expanding the space for sustainable development 

 Urbanization is an objective trend in economic and social development. We need to expand domestic demand, and the greatest domestic demand lies in promoting urbanization and the most abundant potential for domestic demand lies in urbanization. The process of urbanization will remain in a period of rapid progress for some time to come. During this historical period we need to adjust the pattern of urban and rural areas and the regional structure and expand consumer demand and demand for investment to promote long-term steady and rapid economic development, focusing on accelerating urbanization.

 1. Promoting urbanization is a major strategy important for the overall success of modernization efforts.

 The level of urbanization is an important indicator of the level of industrialization and modernization of a country. Judging from the history of development in the world since the industrial revolution, in order to successfully modernize a country it must carry out urbanization while engaging in industrialization. Some international organizations often use indices such as per capita average GDP, proportion of industrialization, the structure of primary, secondary and tertiary industry and the proportion of urbanization to measure the development level of a country. Since the introduction of the reform and opening up policy, China’s urbanization has proceeded steadily. In 2009, the urban population accounted for 46.6% of the total population. Generally speaking, however, China’s urbanization level is significantly behind the country’s level of industrialization. It is not only far behind that of developed countries, but also below the average level of the world. Statistics indicate that the urbanization level of developed countries normally approaches or exceeds 80% and that the urbanization rates of China’s neighbors such as Malaysia and the Philippines, whose per capita average income are similar to that of China, have also reached more than 60%. The fact that the urbanization level is on the low side is hindering expansion of domestic demand, affecting efforts to upgrade the industrial structure and is an important reason for the imbalance in regional economic development. Therefore, accelerating the pace of urbanization is important for efforts to adjust the economic structure. 

 China’s urbanization has great potential for expanding domestic demand. According to a forecast prepared by a concerned government department, rapid urbanization will continue for a considerable period of time in China. By 2030, the urbanization rate will reach 65% and all types of cities and towns will add a population of more than 300 million. This will provide a strong long-term force to drive expansion of consumer demand and the demand for investment. One, urbanization can effectively expand the number of urban consumers and thereby increase consumer spending. According to statistics, in 2008, the average per capita consumer spending for rural residents in China was 3,661 yuan, the average per capita consumer spending for residents of county seats was 8,869 yuan, the average per capita consumer spending for residents of cities at the prefecture level was 10,599 yuan and the average per capita consumer spending for the residents of the 36 large and medium-sized cities of China was 14,326 yuan. This shows that consumer spending is remarkably higher for urban residents than for residents of rural areas. Two, urbanization can raise the level of consumer spending of rural residents. Rural residents are gradually becoming urban residents, which helps promote better economy of scale in agriculture and greatly helps increase rural incomes and raise their level of consumer spending. Three, urbanization can strongly boost demand for investment. An increase in the urban population can promote demand for investment in various areas including development of urban infrastructure and public service facilities and real estate development. Looking at the broader picture, in the post international financial crisis period global market demand is relatively weak and expansion of the domestic market due to urbanization is of great significance to China’s economic development. Moreover, the huge resulting demand may become an important condition for mutually beneficial cooperation between China and the major developed countries.

 During the Twelfth Five-Year Plan period, China’s urbanization rate will exceed 50%, bringing about a number of profound changes in the people’s lifestyles and the economic and social structure. During this key period we must take full advantage of the huge opportunities presented by urbanization, clearly recognize the various kinds of potential challenges and problems accompanying these changes, and take advantage of the trend, concentrate on advantages and avoid pitfalls to ensure sound progress in urbanization. We must realize that there is no precedent in the history of humankind for a big country with over a billion people to carry out urbanization and modernization. Guiding this magnificent process to ensure it is orderly is also a major test of the governing ability of our Party and the administrative ability of the government. We must first of all take into consideration the basic conditions of the country, learn from the experience of other countries and steadily proceed in this historical process in accordance with the requirements of the Scientific Outlook on Development.

 2. Promoting balanced regional development through urbanization 

 Urbanization is an important way to promote balanced regional development. It has become a universal law that in modern and contemporary history, the economic development of a country with a coastline first begins with the coastal areas and then extends to the interior along the rivers. The factors of production and population also become reasonably concentrated during the process. The course of China’s economic development has been similar. During the more than 30 years since the introduction of the reform and opening up policy, the Pearl River Delta, the Yangtze River Delta and the area around the Bohai Sea have taken the lead in opening up and developing. While developing export-oriented economies, these areas have formed clusters of cities with a high population and economic concentration, which has forcefully driven rapid development of the eastern region and become an important growth area in the national economy. However, we must also recognize that in the course of rapid development of the eastern region the gap in regional economic development has widened, with the development of the middle and western regions lagging behind. An important manifestation of this issue is that the urbanization level of the middle and western regions is also lagging behind. In 2008, the urbanization rate of the eastern region reached an average of 56%, while the central region only reached 43% and the western region 38%. Accelerating urbanization of the middle and western regions to promote their economic development is an effective way to improve the balance in regional development. 

 Therefore, while working to improve development of the city clusters in the coastal areas of the eastern region we also need to nurture and develop clusters of cities in some areas in the central and western regions where resources and environmental conditions permit by speeding up the process of transferring industries to those areas, improving the system of public services there and promoting their orderly concentration of the population. In so doing, we will promote the spread of conditions for greater economic growth and market demand from east to west and from south to north. Orderly promoting urbanization in the central and western regions is both a process of creating and expanding domestic demand and a process of promoting and stimulating balanced development among different regions.

 Urbanization efforts should be focused on the development of towns and small and medium-sized cities. We will be actively working to develop small and medium-sized cities in the central and western regions based on county seats. We are developing central towns in the eastern coastal regions with the necessary conditions into small and medium-sized cities to form a geographical distribution pattern in which newly-developed small and medium-sized cities, large cities and existing small and medium-sized cities will have an orderly division of labor and complement one another. This will lead to good economy of scale and avoid the problem of widely dispersed cities and towns that wastes land and the problem of “urban sprawl” caused by excessive expansion of very large cities. 

 The experience of other countries shows that developing clusters of cities is an important way of carrying out urbanization. Urban clusters can link small, medium-sized and large cities with towns through modern transportation network and promote their common development. Therefore, we should continue to pursue balanced development of small, medium-sized and large cities and towns and gradually make clusters of cites the main formation in urbanization.

 3. Planning for balanced urban and rural development in urbanization 

 Urbanization and the development of a new socialist countryside promote each other and should follow a master plan. Without development of agriculture and the rural areas, the prosperity and development of cities and towns would have no base and no guarantee. As a country with a big population we must mainly rely on our own resources to resolve the issue of food supply. We must always pay close attention to food safety and practice the strictest system of arable land protection and the strictest system to ensure economic use of the land to truly ensure food safety.

 At the same time, we must realize that urbanization is an important way of resolving the problems affecting agriculture, rural areas and rural residents. Only by reducing the rural population will it be possible to help the remaining rural residents prosper. As surplus labor in the rural areas and rural residents move to cities and towns, the amount of resources per rural resident will increase, thereby increasing the efficiency of agricultural production, making agriculture more commercial and increasing the income of rural residents. Reducing the size of the rural population will promote large-scale agricultural production, make agricultural products more marketable and promote development of modern agriculture. Urbanization and the greater economic strength of the cities will increase the ability of industry to support agriculture and the ability of urban areas to stimulate the development of rural areas, improve the face of the countryside and promote rural economic and social development.

 4. Gradually transforming rural residents with the necessary conditions into urban residents

 China’s urbanization rate has risen rapidly in recent years. Current statistics indicate, however, that about 150 million migrant workers from the countryside and their dependents are not enjoying the same benefits as urban residents in terms of public services even though they are full-time urban residents. 

 Therefore, an important task in urbanization is to gradually transform rural residents with the necessary conditions into urban residents. This will raise the level of urbanization in a substantive manner.

 Gradually transforming rural residents with the necessary conditions into urban residents affects the immediate interests of hundreds of millions of people as well as the lasting stability of the country. This will be a long and complicated systems engineering project requiring full consideration of the overall carrying capacity of the cities and various other factors and tailoring measures to local conditions as the process steadily proceeds. We must not turn rural residents into the poor urban residents. Therefore, we must help them improve their work skills and increase their ability to earn a secure income. In addition to resolving questions such as the settlement of migrant workers from the countryside and ensuring their right to enjoy public services, we should also take into consideration the long-term interest and the wellbeing of the children of migrant workers from the countryside by creating excellent conditions for their education and providing more technical training for migrant workers from the countryside to aid in their self-improvement and help them adapt to their new life.

 Urbanization is a huge and complicated task as well as a long-term process. We must take vigorous but cautious action in carrying out urbanization. China’s rural population is extremely large. The urban-rural structure developed over a long period of time and can not be changed overnight. It will involve a transitional period. During this process there will be quite a few major issues requiring careful study, such as how to form a rational distribution of urban areas, how to raise funds for developing cities and public services and how to ensure that the level of city planning and management is in line with urbanization. In a word, we need to tailor measures to suit local conditions, actively look for effective methods and work to develop a road of urbanization with Chinese characteristics.

 Speeding up improvement and upgrading of the industrial structure and better ensuring sustainable development 

 The most important aspect of industrial restructuring is to meet market demand. In the post global financial crisis period, market demand may be one of the rarest resources, and industrial development will eventually be tested by the market. We need to make adjustments in the industrial structure and product mix as needed to better make the supply structure adapt to changes in market demand. We need to further strengthen the position of agriculture as the foundation of the economy, nurture and expand China’s modern industrial system and promote balanced development of primary, secondary and tertiary industry.

 1. Promoting improvement and upgrading of the industrial structure to better satisfy demand in both the domestic and international markets

 China is in a period of rapid change and upgrading of the structure of consumer spending. The spending habits of residents is changing from subsistence level spending based mainly on food and clothing to spending for more non-essential items such as housing and cars based on moderate prosperity. For this reason, the industrial structure must change to adapt to this shift. First of all, there is great potential for adjustment of the agricultural structure. With the improvement in the level of consumer spending, the demand of the people for high quality, eco-friendly and safe farm produce has become more and more urgent. This requires that we further adjust the product mix and industrial structure of agriculture and accelerate the development of modern agriculture. Second, as average per capita income improves, the structure of consumer spending has been changing at an accelerated rate and changes are taking place in the demand structure for industrial products and services, which has a new feature of diversification and individualization. This requires that we satisfy changing consumer demand and demand for higher end products by adjusting and improving the supply of products and create and guide new consumer demand through the development of new products and industries. For instance, the new generation of mobile communication devices now on the market has created vast potential consumer demand for new devices such as cell phones that receive television broadcasts.

 While working to adapt to changes of the domestic market, we should also closely watch for new trends and changes in the international market. The mainstream global market is paying more attention to issues such as health, energy conservation, environmental protection, low carbon, individualization and intelligence capabilities. New technologies and creations are promoting and forming new growth spots for consumer spending. We should take the initiative to adapt to these changes, promote optimization and upgrading of the industrial structure and expand China’s overseas market share.

 Curbing haphazard investment in industries with surplus production capacity is also an important measure for promoting adjustment of the economic structure in line with market demand. We need to give full consideration to the current situation and the future capacity of the market, consider our abilities for competition, and consider the carrying capacities of the country’s resources and environment both in developing existing industries and in cultivating new industries. Otherwise, we will eventually be shut out of the market. 

 2. Striving to create China’s new competitive edge by improving the country’s ability for independent innovation, improving quality, developing brands and setting standards

 China’s traditional competitive edge in low cost products is gradually being weakened and the need to cultivate new competitive edges is extremely urgent. Improving the country’s ability for independent innovation and developing independent brands is a fundamental way to develop a competitive edge in new areas. 

 For many years we have taken advantage of our superiority in low cost products and gradually grown into a manufacturing power in the world through the import of funds and technology. However, although we are big we are not strong. This has always been our “Achilles’ heel” in development. A lot of key technical know-how, large-scale equipment assemblies, core components and important basic parts of machinery currently rely on imports. A lack of ability for independent innovation is the main factor constraining optimization and upgrading of China’s industrial structure. If we can not change this state of affairs as soon as possible it will be very hard for us to develop new areas of core competitiveness in international competition. The experience of Japan and the South Korea shows that after losing superiority in low cost products a country must improve its ability in independent innovation, create independent intellectual property rights and form new areas of strong competitiveness. Their experience is worth studying.  

 To raise our ability for independent innovation we need to follow a road of independent innovation with Chinese characteristics. We must clearly recognize that it is impossible to buy the core technologies for important industries and in important fields. We can only rely on independent innovation and especially primary innovation. In addition, we need to give play to the advantage of the huge market scale of China, continue to do a good job of importing, digesting and absorbing advanced foreign technologies and making innovations in them to develop a new road combining primary and secondary innovation. We need to speed up development of a system of technological innovation in which enterprises play the leading role, the market provides orientation, and the efforts of enterprises, universities and research institutes are integrated. We need to grasp the new opportunities that have emerged since the global financial crisis and extensively absorb the latest innovative resources and achievements of the whole world through various channels to enhance our ability for independent innovation by carrying out corporate takeovers, conducting technology cooperation, setting up overseas R&D facilities and attracting talented people in all fields, especially technicians and scientists.

 In enhancing our abilities for making independent innovations, we should focus on seizing the high vantage point in future technologies and industries and do a better job combining them with nurturing and developing strategically important emerging industries. Looking at the new trends in current scientific and technological development and industrial development in the world, emerging technologies such as the “Internet of Things,” “Cloud Computing” and “Smarter Planet” will greatly change mankind’s methods of production, life and innovation. There is huge potential for developing new industries in new energy, new materials, new medicine, energy conservation and environmental protection, and aviation and aerospace. We need to accurately assess the direction of changes of these new technologies and new industries, define a clear focus of attack, do more basic research, make breakthroughs in core technologies and aim for leapfrog development.

 3. Speeding up development of the service industry, especially modern services

 The prosperity and development of the service industry is an important indicator of modernization as well as an important part of optimizing and upgrading the industrial structure. Vigorously developing the service industry, especially the sector of the service industry related to production, is of great strategic importance to strengthening and improving market supply, expanding employment, widening consumer spending on services and reducing pressure on resources and the environment. 

 There is strong demand in the Chinese market for both services related to production and services needed in daily life. But the capacity and level of supply of the service industry are still inadequate to satisfy this demand. First, we need to pay more attention to developing the service sector related to production. Tertiary industry that serves industrial and agricultural production is lagging behind in development and is seriously hindering the expansion of domestic consumer spending and improvement of the added value of export products and adversely affecting efforts to optimize and upgrade China’s industrial structure. Development of a modern logistics system, for example, is seriously lagging behind in China. The total cost of logistics in China is equivalent to about 20% of GDP, 100% higher than the average level of developed countries. There is great potential and benefit in developing the service industry related to production, including logistics, commerce, finance, insurance and research and development. 

 There is great potential for developing services needed in daily life. With the improvement of living standards, the people’s demand for various types of services, including catering, music, books, tourism, fitness, new media and psychological consultation, is continuously increasing. Certain service industries that meet new areas of consumer spending have also begun to emerge at an accelerated rate and are playing an important role in satisfying the needs of the people in their daily lives, improving the quality of their lives, driving economic growth and creating employment opportunities. We should also recognize that as the population becomes more concentrated in urban areas, the different types of services tend to generate demand and create jobs for each other. We need to adapt to the characteristics and changes in the service industry to create a good external environment to enlarge the potential for growth of this sector of the service industry.

 The culture industry is an important part of a modern service industry and a sunrise industry. In coping with the impact of the global financial crisis it has gone against the current and enriched the cultural life of the people and contributed to structural adjustment and development. We need to continue to deepen reform of the culture system, work to develop the cultural creation industry, publication and distribution, film and TV, performance and entertainment and animation, promote strong development and prosperity of socialist culture and satisfy the growing spiritual and cultural demands of the people and increase the impact of Chinese culture in the world.

 Balancing population, resource and environmental concerns with economic and social development and resolving sustainable development problems 

 The structure of investment in factors of production is irrational, which is an important reason for the difficulty in fundamentally changing China’s extensive growth model. Promoting adjustment of the economic structure means adjusting and optimizing the investment structure as an important task that must be managed from both the demand and supply sides, strengthening energy conservation and increasing efficiency, strengthening environmental protection to develop a green economy, circular economy and low carbon technology and strategically addressing the issue of population and development to promote balance between economic and social development and population, resource and the environment issues.

 1. Gaining a more thorough understanding of the basic conditions of China

 The basic conditions of China are: large population, weak economic foundation and unbalanced development. The fact of the large population will not change in the foreseeable future. The many years of rapid development have made our economic foundation a little more solid. But the level of GDP per capita is still not high and the imbalance between urban and rural development and regional development is still serious. In addition, the constraints of resources and the environment have become more and more obvious. The relatively insufficient resources and the weak carrying capacity of the environment are daily becoming the basic conditions of our country in the new period of development. The population, resources and environmental problems of the developed countries that emerged at different stages over the course of their over 200 years of industrialization have suddenly cropped up at the present stage in China. The resource and environmental issues, in particular, have become important factors threatening sustainable economic development.

 China’s large population has always been a difficult issue in the course of sustained economic development. We have realized a historical change in human reproduction in the more than 30 years of implementing the policy of family planning. But we should realize that in the next 20 to 30 years China will see three peaks: one in the working population, one in total population and one in the population of the aged; the problems of scale, structure and distribution of the population are concentrated and interconnected, presenting a situation unprecedented in complexity. 

 China’s per capita share of resources is low, the volume of energy and resource consumption is large and energy consumption per unit of product is high. Per capita deposits of petroleum and natural gas are less than one tenth of the world’s average. Even per capita coal resources, which are relatively abundant in China, amount to less than 40% of the world’s average level. China has become the world’s second largest consumer of energy resources, but its energy efficiency ratio is not high. The energy consumption per unit of product of some major chemical enterprises is 10% to 50% higher than the world’s advanced levels. The overall recovery rate of mineral resources is 20% lower than the world’s advanced levels. These problems aggravate the shortage of energy resources. China’s current dependence on imports of petroleum, iron ore, bauxite and copper ore has all exceed 50%. We have a huge task ahead to ensure security in energy resources.

 China has achieved marked results in environmental improvement and ecological protection. But the trend of China’s overall deteriorating ecological environment has not been fundamentally changed for the better, which is seriously constraining economic and social development. This is mainly manifested by the fact that in spite of the progress that China has made in tackling atmospheric pollution, the problem of air pollution of the cities has not been effectively resolved, the problem of water pollution is worsening and the problem of serious industrial pollution is lingering. In addition, non-point source (NPS) pollution in rural areas and pollution of living areas have become more acute, with heavy metal pollution accumulated over a long time in some places seriously threatening the health of the local people. Environmental pollution has become a major issue affecting the harmony and stability of society, so we badly need to strengthen efforts to prevent and control it.

 2. Energy conservation for higher energy efficiency and ecological and environmental protection are important levers for adjustment of the economic structure. 

 Promoting adjustment of the economic structure through energy conservation and ecological and environmental protection is not only a practical and long-term need for implementing the basic state policy of saving resources and protecting the environment but also a key measure for speeding up improvement in the pattern of economic development. Greater energy conservation and increased efficiency will not only bring sizable economic effect to enterprises but will also reduce consumption of resources and pollution and bring marked social and environmental benefits. This is a practical way for enterprises to raise efficiency and an important direction of enterprises upgrading technology and equipment. Although many enterprises have introduced technically advanced equipment, their energy conservation and environmental protection indices are still too low. There is great potential for accelerating technical upgrading and updating, which are badly needed.

 The energy conservation and environmental protection industry is a strategically important emerging industry that could be developed into a large industry. China has somewhat of a foundation in new energy sources, energy conservation and environmental protection industries and technologies. New technologies, new products and new services are being developed all the time and there is a great deal of vitality in the field. Estimates indicate that, in the next five years the total output value of China’s energy conservation and environmental protection industry may reach 4 trillion yuan. For instance, the technical level of China’s high performance electric motors is already high, but the majority of these products are exported. If we were to replace all low efficiency motors, we would save 150 billion kWh each year and save 75 billion yuan due to reduction in electricity consumption as well as generating an added value of about 100 billion yuan.

 At the same time, taking into consideration the conditions of the country, we must advocate the idea of green consumer spending and appropriate consumer spending to accelerate development of a consumption pattern conducive to conservation of resources and protection of the environment in order to reduce pressure on the supply side of resources and factors of production on the demand side as well. Moreover, change in ideas about consumption and improvement of the consumption pattern are also conducive to expanding the market for energy saving and environmental protection products and promoting adjustment of the economic structure.

 3. Strategic measures to address the issue of population and development

 Population issues have always been fundamental concerns in economic and social development and they are closely bound up with adjustment of the economic structure and constitute an important factor influencing long-term development of the economy. China’s economic and social development will still face two sources of pressure from population issues. One is the pressure on employment caused by the big population. Estimates indicate that China’s total population will reach a peak in the 2030s. Within the next ten years, China’s working population will reach a peak. By the middle of this century, however, the working population will still be larger than that of the 1990s and more than the current total population of the European countries, so the pressure on employment will exist for a long time to come. Second is the pressure from aging of the population. At the beginning of this century, China’ population of people 60 and over accounted for over 10% of the total, qualifying it as an aged society by international standards. China’s aged population will continue to increase for some time and “the demographic dividend” will gradually diminish. Naturally, we must be aware that the two sources of pressure from population, if properly handled, to a certain degree may be transformed into a force to drive development. For this reason, we should give full play to the China’s abundant human resources and turn population pressure into human resources and a skilled workforce, take advantage of the opportunity to develop industries for the aged and adjust the economic structure in line with changes in the population structure.

 In order to properly handle the issue of population, we need to make general plans and address the issue as a whole. We must adhere to the basic state policy of family planning and maintain the low birth rate. This general orientation cannot be changed or we will commit a historical error. At the same time, we must not lose sight of long-term development, scientifically analyze the impact of population issues, accelerate improvement of population policy and relevant economic and social policies, balance concerns about population size, quality, structure and distribution, and create the conditions necessary for adjustment of the economic structure. This will require in-depth study of some major strategic population issues.  

 Promoting reform and innovation to improve the systems and mechanisms for adjustment of the economic structure

 In carrying out the strategic task of adjusting the economic structure and promoting improvement in the pattern of economic development, the difficult part and key both lie in adjustment of the pattern of interests and the key problem is how to make the systems and mechanisms more reasonable. This will require maintaining the orientation of reform of the socialist market economy, first of all taking into consideration the actual situation, giving full play to the energy of all quarters and energetically promoting reform and innovation.

 1. Improving the appraisal system to better comply with the Scientific Outlook on Development

 In line with the changed environment for development we need to fully understand the far-reaching significance of sound and rapid development, realize the importance of rapid development and fully understand the meaning of sound development, and work to achieve both. During the more than 30 years since the introduction of the reform and opening up policy, we have experienced sustained and rapid economic growth, and in the next few years we may realize the strategic objective of quadrupling the 2000 per capita average GDP by 2020 as long as we maintain steady and fairly rapid development. If the Chinese economy continues to develop steadily and rapidly for several decades more, by the middle of the present century we will realize the magnificent objective defined for socialist modernization and create a miracle in continued and rapid development of a large country over more than half a century. To do this we must focus on the present, not lose sight of the long-term future and maintain steady and rapid development of the economy for a long time.

 The international community is attaching more and more importance to the indices related to economic structure, resources and the environment, and human development as the basis for evaluating the level of development. In the 1980s, the United Nations Development Program (UNDP) introduced the “Human Development Index,” which takes into consideration per capita average GDP, average life expectancy and adult literacy rate to evaluate the level of development of all countries. Introduction of the GDP index as part of the course of reform of China’s traditional planned economic system represents great progress. With the continuous economic and social development in China we have deepened our understanding of development and realized we need to widen the scope of items of the evaluation system. While working for rapid growth we also need to pay more attention to the quality and efficiency of growth and pay more attention to evaluation of efforts to improve the structure, independent innovation, resource conservation, environmental protection, employment and improvement of the lives of the people to develop an appraisal system that better reflects the Scientific Outlook on Development.

 2. Increasing the drive and vitality of the market entities

 In order to promote adjustment of the economic structure we need to improve the basic socialist economic system, improve the modern market system and improve the macroeconomic regulatory system. We need to correctly balance government regulation and market forces by giving more play to the basic role of the market in allocating resources and strengthening the drive and vitality of the market entities in adjusting the economic structure. We need to work to develop a permanent mechanism for adjusting the economic structure, continue efforts to transform government functions and reduce as much as possible the use of administrative tools while increasing use of economic and legal tools.

 We need to give full play to the role of market forces in adjustment of the economic structure and carry out reform in key areas and key links. An important aspect is to improve the structure of prices and improve the mechanism for setting prices. This is the key to restraining excess demand, increasing effective supply and adjusting the structure of income distribution. Carrying out reform in the pricing of products of a resource nature is of great importance for structural adjustment, conservation of resources and environmental protection. At the beginning of last year we successfully carried out reform of the prices of refined petroleum products and related taxes and fees. By tying taxes and fees to price levels we set up the basics for a price setting mechanism for refined petroleum products that reflects supply and demand in the market and made distribution of the tax burden more equitable. One of the important lessons we learned from the reform is the need to combine reform of the price setting mechanism with the reform of taxation and fees and concentrate on establishing a new mechanism that will lead to better resource conservation and environmental protection and promote sustainable development. For some time to come, the task of reform of the pricing of resources factors will be arduous. We also need to put on our agenda reform of the compensation rate for environmental damage to make the prices of products of a resource nature respond to market supply and demand and better reflect their degree of rarity and the cost of environmental damage and thereby better promote conservation of resources and environmental protection.

 In the next step, we need to carry out focused studies to work out ideas for reforming for the step structure of prices for resources such as water, gas and electricity. We may consider maintaining the original overall price levels for consumption less than the stipulated level and consider making prices progressively higher above that level. This will not only help in resolving the issue of ensuring that the basic needs of the low-income population are met but also enable stable progress in the reform while balancing the need for equity and efficiency. In the price reform, we need to give full consideration to the degree of rarity of resources and curb unreasonable demand but also take into consideration the need for ensuring that the basic needs of the low-income population are met and the need for macroeconomic regulation, prevent huge price fluctuations and avoid adversely affecting the work and life of the people. In order to promote reform of prices, we need to make our deliberation of matters more scientific and extensively solicit the opinions of people of all walks of life through hearings to try to win the understanding and support of the people. We need also to be persistent and careful in carrying out reform of social programs such as the medical and health care system.

 3. Improving the fiscal, taxation and banking systems that help promote adjustment of the economic structure 

 Public finance and taxation have a direct regulatory function and focused regulatory function and constitute a powerful lever and important tool for promoting adjustment of the economic structure. Deepening reform of the fiscal and taxation systems and improving the public finance system that promotes scientific development is not only a pressing need for adjusting the economic structure but also an inherent need for improving the socialist market economic system.

 We need to improve the structure of budgetary expenditures, strengthen support for social programs and improve the lives of the people. In the past, more budgetary funds from all levels were used in industrial development and infrastructure development in order to ensure continued operations, which played a very important role in establishing a comprehensive industrial system and speeding up development of infrastructure. China’s development has now entered a new stage, and in order to meet the need to adjust the economic structure, more budgetary funds should be used to promote employment, the social safety net, education, medical and health care, scientific research, greater awareness of science and infrastructure development in rural areas to improve the lives of the people and expand the consumer spending. In recent years, especially when the country was dealing with the impact of the global financial crisis, the central government greatly increased spending in this area. Local governments followed suit by adjusting the structure of budgetary expenditures taking into consideration local conditions to better balance expenditures with efforts to ensure people’s wellbeing, expand domestic demand and adjust the economic structure. In the future, we should gradually establish a permanent mechanism.

 We need to improve the public finance system so that the central and local governments have financial resources proportionate to their duties and responsibilities, promote balanced urban and rural development and balanced regional development, and adjustment of the industrial structure. The gap in development between China’s urban and rural areas and among different regions is also seen in the gap in financial resources and the levels of public services. In the future, we need to further adjust the distribution of income among governments at different levels on the basis of a rational division of the administrative powers of the central and local governments and their responsibilities for expenditures in line with the requirements laid out at the Seventeenth National Party Congress concerning making basic public services available in all areas and developing the main-functional zones. We need to increase locally generated financial resources and encourage local governments to adjust their economic structure to improve their ability to provide public services while maintaining appropriate regulatory ability of the central government financial authorities to make the level of financial resources of different regions more in line so that development of the rural areas and the central and western regions can be supported. We need to improve fiscal systems at and below the provincial level and develop a mechanism that ensures basic funding for county governments, promote transfer of financial resources to lower levels of government and enhance the ability of local governments to provide basic public services.

 We need to actively yet carefully carry out reform of the tax system to develop a tax system that is beneficial to adjustment of the economic structure and strengthens the role of taxation in promoting saving of resources, environmental protection and regulating distribution of income. In reforming the tax system we need not only to consider the function of national income but also to strengthen the function of regulation to help guide adjustment of the economic structure. Carrying out reform of resource taxes is an important aspect of this effort. In addition, we need to continue to strengthen the tax policy for industries encouraged by the state to support independent innovation in enterprises and development of the service industry and emerging industries of strategic importance. In the reform of the tax system we should reduce charges, make the tax burden distributed more fairly and standardize tax collection and economic order.

 The financial industry plays a very important role in adjustment of the economic structure. We need to timely adjust credit policy and to protect some industries while inhibiting the growth of others in accordance with the state’s industrial policy and the needs of macroeconomic regulation. We need to continue to deepen reform of the financial system, improve the corporate management structure of state-owned financial enterprises, actively work to develop small and medium-sized financial institutions and promote healthy development of the capital market, especially the bond market. At the same time, we need to further reform the mechanism for determining the Renminbi exchange rate to give more play to the positive role of the exchange rate in adjustment of the economic structure while maintaining basic stability of the exchange rate at a reasonable and balanced level. We need to actively yet carefully make innovations in the financial system and continue to improve the transmission mechanism for monetary policy while making financial oversight and regulation more effective to help guard against financial risks.

 China’s per capita GDP approached US$3,700 in 2009. The experience of other countries indicates that the stage of development when per capita average annual income rises from US$ 1,000 to US$ 10,000 is a period marked by rapid change of the economic structure. Some countries successfully pass through this stage of active structural adjustment but others carry out inadequate adjustment leading to economic stagnation and social turbulence. We must gain a good understanding of the characteristics and potential challenges of this stage of development and actively carry out adjustment of the economic structure to promote further development and a new “great leap forward.” China is still in an important period of strategic opportunities for development and faces a series of unprecedented challenges. Given this situation we need to pay attention to the general trend of development by making the direction clear and strengthening our confidence. In addition, we need also to strengthen our awareness of potential dangers and make Herculean efforts to transform the pattern of economic development and adjust the economic structure, working hard with a strong sense of mission and responsibility to achieve results.

(From Qiushi in Chinese, No. 11, 2010)


Note:  Author: Member of the Standing Committee of the Political Bureau of the CPC Central Committee and Vice Premier of the State Council of the People’s Republic of China 

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