The Systems That Guarantee the Sustainable Development of the Chinese Economy

From: English Edition of Qiushi Journal Updated: 2013-02-18 18:07
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The Chinese economy has sustained 34 years of rapid growth. The fundamental reason why, in a large country with a population of 1.3 billion people, we have been able to realize the rapid growth of our economy over such a long period of time is because we have established a system of socialism with Chinese characteristics, and put in place a well-developed framework of theories, institutions and systems for promoting scientific development. In this framework, our economic systems exert the role of a supporting foundation. 


A piece of the cake for everybody. The Report to the Eighteenth National Congress of the CPC stated that China must make efforts to adjust its pattern of national income distribution and narrow the income gap so that all people may benefit more equitably from the fruits of development and move steadily towards common prosperity. / Xinhua (Drawing by Jiang Yuexin)

I. A basic economic system whereby public ownership plays the dominant role and diverse forms of ownership develop side by side provides a strong foundation for sustainable development 

Following the launch of the reform and opening up drive, the CPC Central Committee passed the historic judgment that China is still in the primary stage of socialism, and will remain so for a long time to come. On this basis, it has shown an unwavering commitment to consolidating and developing the public sector of the economy, and an unwavering commitment to encouraging, supporting, and guiding the development of the non-public sector of the economy, working hard to create a sound policy environment in which market entities operating under various forms of ownership are able to compete on equal terms. The non-public sector of the economy, which comprises primarily of private enterprises and the self-employed, has maintained rapid growth momentum. Non-state-operated business already accounts for three-fifths of the capital in the Chinese economy, creating added value equivalent to two-thirds of the GDP, and providing jobs for more than 80% of the working population in towns and cities. The non-public sector is coming to represent an increasingly large share of the overall economy, and the role that it plays is becoming increasingly important. 

At the same time, China has established and implemented a modern corporate system in state-owned enterprises, achieving a major breakthrough in the way that public ownership is realized. The public listing of certain state-owned enterprises on stock exchanges in China and overseas has given rise to a form of mixed ownership based on the joint-stock system, and this has led to fundamental changes in the way that these enterprises are managed and operated. In recent years, state capital has gradually been converged towards industries that are essential to national economic security, where it is playing a primary role in maintaining economic stability, safeguarding equal opportunities for all, and promoting industrial upgrading. 

Collectives, foreign-funded enterprises, and the joint-stock system have witnessed rapid development, and mixed joint-stock ownership in particular has become the fastest growing form of ownership in the economy. As a modern means of ownership, the joint-stock system is likely to become the main form of ownership for enterprises in the future. This is because it facilitates the trading and reorganization of ownership and is more adapted to restructuring and the optimized allocation of factors of production. The emergence of joint-stock cooperative ownership during the course of reform, on the other hand, has allowed workers to combine not just capital but also labor. Being suited to the development of productive forces in China at the current time, this mode represents a meaningful exploration into the realization of collective ownership in the economy.   

II. An income distribution system that allows for distribution according to both labor and factors of production guarantees momentum behind China’s sustainable development  

The main shortcoming of the traditional planned economy system was its emphasis on equalitarianism in the distribution of income. In the early stages of China’s reform drive, Deng Xiaoping asserted that some people and regions should be allowed to get rich first through honest labor and lawful business practices. These words, ordinarily put yet profoundly wise, set in motion the reform of the income distribution system in China, which has since led to the gradual formation of a distribution system which is predominantly built around distribution according to labor, but which also allows for distribution according to various factors of production such as capital, technology, and management. This system has encouraged millions upon millions of people to work hard and prosper, culminating in a strong impetus that has driven forward the development of the Chinese economy.   

Distribution according to labor, which means the more you work, the more you earn, is a fundamental principle of the socialist system of distribution. We have stuck to this principle throughout the course of reform, and made constant improvements to our system of distribution. Through the introduction of reforms to contract business operations and tax state-owned enterprises instead of taking their profits, we put an end to the practice whereby state-owned enterprises were fed by the state, and in its place established a system whereby hard work is rewarded and laziness is punished. At present, the same rules that apply to companies under various forms of ownership with regard to taxation apply to state-owned companies. Having been given the power to allocate wages, companies are able to set standards of pay in line with the levels of contribution that employees make, thereby rationally setting apart the pay of managers, technicians, and laborers. This has ensured that the system of distribution according to labor can be genuinely implemented. At the same time, in a bid to narrow the income gap, the national government has made frequent increases to the minimum wage, while many companies have experimented with the establishment of collective wage negotiation mechanisms for their employees.    

A major change to the original income distribution system has been to recognize capital as a factor in the distribution process so that more people may enjoy earnings from their property. As incomes grow, it is inevitable that people will want to invest part of their personal savings in order to gain higher returns. To encourage people to start their own businesses or go self-employed is, in essence, to permit the acquisition of gains on private capital through investment and business activities. In the primary stage of socialism, this is not only a necessary approach to encourage the various sectors of society to actively manage their wealth and thereby stimulate economic development, but is also an effective means of allowing people to become wealthy in the shortest time possible.  

With the advancement of science and technology and the upgrading of industries, the contribution that technology makes to economic development is becoming increasingly large. To recognize technology as a factor of distribution is to acknowledge the market worth of technology, but it is also an objective requirement for accelerating scientific and technological progress. As the product of an intricate process of labor, technology can be regarded as the sum of numerous simple tasks. Following the launch of the reform and opening up drive, we established a system for the protection of intellectual property rights. Since then, China’s technology markets have grown at a rapid pace, with the value of transactions for 2012 being as high as 476.4 billion yuan already. Only when technological advances are given the rewards that they deserve can there be compensation for the efforts that went into the accomplishment of those advances, and only then can there be a virtuous cycle of technological innovation. 

Management is a form of skilled labor. Recognizing the role of management in distribution is needed in order to raise the standard of operations and management in companies and foster a contingent of able entrepreneurs. The practice in some joint-stock companies of tying the pay of managers to the performance of the company has proven very effective in motivating managers to take responsibility for the long-term development of the company. Despite this, however, the wage gap between managers and the average worker must be kept within reasonable boundaries, so as to ensure that all employees can be motivated. 

Our efforts to constantly improve our income distribution system through the course of reform represent a specific embodiment of the socialist principle of material benefit. However, it should be acknowledged that following the dismantling of the egalitarian system, our biggest problem has now become addressing an excessive income gap. A new problem that we urgently need to address through the reform of the income distribution system is the question of how those who are already well-off can help those who are yet to become wealthy, so as to ultimately bring about common prosperity for all. Therefore, we must persevere with the reform of the income distribution system.   

III. A mechanism for market competition in which the strong survive and the weak are eliminated serves as a source of vigor for sustainable development by constantly inspiring creativity     

The core task in establishing a socialist market economy is the development of a mechanism for market competition whereby the strong survive and the weak are eliminated so that the market can play a basic role in the allocation of resources. In order to resolve the biggest problem that Chinese society currently faces—the fact that the ever-growing material and cultural needs of the people cannot be met by our backward social production—we must turn to mechanisms for market competition. In recent years, through persistent efforts to implement reform and make changes, we have gradually put in place a sound mechanism for market competition. This mechanism comprises of entities for market competition, a market system, a range of measures for macro-control, and a framework of laws, which together have become the four pillars of the market economy. 

Various types of company have become entities of market competition, exercising independent accounting and taking responsibility for their own profits and losses. These companies make independent business decisions in line with the demands of market competition. Under the pressure of competition, companies seek to achieve technological advances and raise their standards of management in order to ensure their own survival and development. As of the present, companies have already become the principal investors in R&D in China, being responsible for 70% of the total investment made in the research and development of new technology. With this, a wave of new R&D advances is beginning to emerge.    

Market competition mechanisms have also encouraged people to start their own businesses. With the successive introduction of policies encouraging the public to start up their own businesses, there has been an influx of newly established companies in the market. Though some of these companies have been eliminated during the course of competition, the overall number of businesses is still increasing at a rapid pace. Moreover, entrepreneurial activities have brought about massive economic and social benefits through the creation of jobs.    

A uniform market system geared towards fairness, competition, and order has provided the foundation for the formation of competition mechanisms. Following years of efforts, China has succeeded in establishing a basic market system. However, this system is in need of improvement. In particular, we are yet to bring all factors of production into the market system. At present, we need to accelerate the development of our legal system, rely primarily on legal means to regulate markets, and fully exert the role that competition mechanisms play in bringing out the creativeness and entrepreneurial passion of society as a whole.    

IV. A constantly improved set of provisions for macro-control acts as a balancing mechanism for the realization of sustainable development 

China’s sustained, rapid economic growth since the launch of the reform and opening up drive can also be attributed to a balancing mechanism. This is a set of macro-control provisions incorporating planning, public finance, taxation, and banking that has been gradually established during the implementation of the socialist market economy. Through our responses to the Asian financial crisis of the 1990s and the more recent international financial crisis, and in our efforts to curb inflation and boost domestic demand, we have made constant enhancements to the layout of China’s macro-control system and to our capacity for regulation. In this process, we have gained the following valuable experiences:   

First, we must approach macro-control in line with actual conditions and maintain a commitment to constant innovation. China’s rapid economic growth and the changes that are being made to its economic system mean that the economic situation is changing all the time. For this reason, new problems that call for macro-control could potentially emerge at any time, and we must adopt new ways of thinking and acting in order to resolve these problems. We must persist in solving problems as they come, and at all costs refrain from the rigid application of old practices and old methods. 

Second, we must accurately judge situations and be adept at using macro-control to turn challenges into opportunities. As China’s economy becomes increasingly intertwined with the global economy, international economic fluctuations are bound to have an impact on the domestic economy. During our response to the Asian financial crisis, when we faced the serious predicament of shrinking external demand, we focused our efforts on boosting domestic demand through increased investment in infrastructure, a strategy which not only allowed us to sustain the rapid growth of our economy, but also laid down a foundation for future development. Following the turn of the century, China experienced a decade of rapid growth and low inflation, its best ever period of development.  

Third, we must bring China’s political advantages into full play to achieve cohesion in macro-control. The key to successful macro-control is a unified approach and coordinated action. The policies of the central government will be much more effective when the various departments and levels of government coordinate their actions and when the government, companies, and residents unite in a single effort. If this can be done, there is no difficulty that cannot be overcome.  

V. An open economy that can draw from the achievements of human civilization and make full use of international resources is an important guarantee for sustainable development 

Opening up to the outside world constitutes one of China’s fundamental national policies. Driving forward reform and development through opening up is an important experience that we have gained. China’s opening up has taken place in stages—from the establishment of special economic zones in the early stages of reform to the opening up of coastal and border cities and later to the opening up of inland cities. The report to the Seventeenth National Congress of the CPC went a step further by introducing the goal of turning China’s economy into an open economy and integrating the strategies of “bringing in” and “going global,” thereby leading China into a new phase of opening up. 

The implementation of the opening up policy has allowed us to introduce large amounts of capital, technology, and managerial expertise from overseas. This has served to raise the technological and managerial capacities of our companies, which in turn has allowed us to close the gap between China and developed countries and considerably accelerate our economic development. China’s international trade has grown rapidly over the past 30 years, with the country quickly emerging as the world’s largest commodity exporter. In addition, China’s capacity for international trade has increased considerably, while its overall economic strength is no longer in the same league as it was previously.    

Opening up to the outside world has expanded our horizons, allowing us to draw lessons from the economic development of all countries. We are willing to learn earnestly from all countries, regardless of whether they are big or small, developed or developing, provided that there is something that we can learn. We also invite foreign experts to visit China and deliver talks in their fields of expertise, following which we creatively integrate this knowledge into our reform schemes and developmental policies on the basis of actual conditions in China. This approach allows us to genuinely found socialism with Chinese characteristics on the basis of what we have learned from all advances in human civilization. 

At present, a new task that we are facing in the effort to establish an open economy is the question of how we can better utilize our foreign reserves by replacing a certain portion of currency reserves with physical assets. On the one hand, we must pursue a strategy of overseas investment in order to secure the energy resources that we need to support our long-term economic development; on the other hand, by pursuing a strategy of international mergers and acquisitions, we need to make use of the technological resources and distribution networks of foreign companies in order to increase the capacity of Chinese companies in innovation and international operation. In addition, we need to set up processing trade and contracting operations overseas in order to actively create demand for exports and thereby support the development of the domestic economy.

(Originally appeared in Qiushi Journal, Chinese edition, No.16, 2012)
Author: Executive Vice Chairman of the China Center for International Economic Exchanges

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