Vigorously Achieve a Long-Term Stable and Rapid Development

By Zhang Yitien and Li Yanling, People's Daily Research Center

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Vigorously Achieve a Long-Term Stable and Rapid Development

By Zhang Yitien and Li Yanling, People's Daily Research Center

Since the beginning of 2012, the international political and economic environment becomes more complex and volatile, so China’s economic development faces increasing difficulties. China's economic growth has slowed down, with GDP growth rate of 8.1%, 7.6%, and 7.4% for the first, second and third quarter respectively. What China's current economic situation is and how the future development trend will be caused widespread concern at home and abroad. Recently, economists from major domestic research institutes and institutions of higher education have heated discussions on China's economic situation and development trend and reached consensus on some major issues.

Economic Bright Spot: A Steady Progress And Structural Improvement

Affected by the intensified European debt crisis and continuous world economic downturn, China's export growth fell sharply in 2012, the economic downward pressure increased. China's Central authorities maintained the overall tone of keeping stable progress, correctly handled the relationship among steady growth, adjusting structure and monitoring expectations, placed the stable growth in a more important position, increased pre- and fine-tuning efforts to focus on expanding domestic demand and stablelizing external demand, which resulted in sound overall situation of economic and social development.

From the growth of three industries, the situation of agricultural production, especially grain production achieved the historic good harvest on nine years running. The growth rate of industrial production slowed down with the declining contribution to economic growth, but the growth of new industries accelerated with industrial structure incrementally upgraded, and the added value of small and micro-enterprises grew faster than that of large-scale industrial corporations, economic vitality increased somewhat.

From the demand in investment, consumption and export, the growth of investment in fixed assets was stable, and investment in real estate showed signs of stability, which provided support for stable economic growth. The growth of consumer market was steady, so the role of consumer demand in boosting economic growth significantly improved. Although export growth dropped sharply, yet, was still higher than the world average and the developed countries growth. In view of structure, the growth of trade in goods was slow and that in services fast, and foreign investment increase was low and overseas direct investment high, so foreign trade and overseas investment structure improved. The international balance of payments was equilibrium.

The employment situation was favorable, the income of urban and rural residents continued rapid growth to become a highlight of the economic operation. In the first three quarters, the newly created urban jobs employed 10.24 million people, 114% of the full year target. Real growth in per capita disposable income of urban residents recorded 9.8% while the per capita cash income of rural residents grew by 12.3% in real terms, both higher than the 7.7% GDP growth for the same period. Policies to stabilize commodity prices significantly affected the price rising, so rising percentage of consumer prices fell back to 1.7% in October from 4.5 percent in January in 2012.

It is believed that China's economic growth rate came down, but the relationship between economic growth, prices and employment were in overall coordination. The structure for the first, second and third industrial sectors as well as domestic demand and external demand structure changed for the better, and the overall economic operation presented the characteristics of stabilizing but making progress and improving structure. Taking into account the effects of policies on steady growth introduced this year to be further released, there is a large room of maneuver for the proactive fiscal policy and prudent monetary policy. China can fully complete the annual economic growth targets, and the economic growth in 2013 is expected to get back to more than 8%, higher than that in 2012,

The Key to Respond: Combine Well Steady Growth and Structural Adjustments

At present, China's transformation of its economic development mode has moved into a tough and critical period. There are three main points for this judgment. Firstly, after the international financial crisis, the international market demand has decreased, due to the slowdown pace of world economic recovery, external demand is difficult to have a big improvement in short-term. To maintain sustained, steady and rapid growth, we must focus on vigorously expanding domestic demand. Secondly, resources and environment constraints and factor costs increase, the extensive business operation model of high input, high pollution, high consumption, and low efficiency is unsustainable. Thirdly, previously existing contradictions and problems such as imbalance between investment and consumption, the huge gaps in income redistribution, weak technological innovation capacity, irrational industrial structure, weak agricultural foundation, uneven development between urban and rural areas have not been fundamentally resolved. And some new problems have emerged in economic operation: to upgrade main consumption structure enters a period of adjustment, further expansion of consumption is difficult though consumption growth is stable. The problem of excess production capacity is obvious so the economic efficiency of enterprises decrease. Economic growth slowing down highlights some contradictions and problems in economic operation, and becomes the obstacles to sustainable economic growth. Only accelerating the transformation of economic development mode and the strategic adjustment of economic structure, can these contradictions and problems be fundamentally solved, new economic growth momentum fostered, and longer term, stable and rapid development achieved.

It is stressed that keeping stable growth must be placed in a more important position in the context of the current economic slowdown. Steady growth, however, is not simply the pursuit of speed, but must be under the guidance of the Scientific Outlook on Development, and achieve economic growth conducive to speeding up the transformation of economic development mode, and to optimize the economic structure, and strike better combination between steady growth and structural adjustments. To this end, we should continue to strengthen and improve macro-control, to implement the proactive fiscal policy and prudent monetary policy, to appropriately expand the size of the deficit, to intensify structural tax cuts, to optimize the expenditures structure, to vigorously expand domestic demand and adjust the economic structure. The following three aspects should be focuses in the medium- and long term.

Actively expand economic development space. Solve the problem of imbalances between urban and rural development and among regional development, both of which help to optimize the economic structure, and release huge investment and consumer demand. At present, China's economy in rural areas and central and western regions shows signs of positive development. The growth rate of GDP, the real economy and investment in the central and western regions is higher than that in the eastern region. Continue to increase supportive efforts for the central and western regions, and give more emphasis on structural adjustment, technological innovation, and improve people's livelihood and vigorously realize urban-rural and regional coordinated development. Urbanization is an important engine for economic growth in China. Urbanization should be taken as an effective carrier to promote economic growth, optimize economic structure, strengthen scientific planning, improve the level of public services, smooth labor mobility, and form a rational urban system. In addition, accelerate the building of a long-term mechanism to expand consumption, and vigorously adjust income redistribution pattern and upgrade consumption structure to re-enter the sustained and rapid development track.

Vigorously optimize investment structure. Because of accelerating industrial transformation and upgrading and process of urbanization and agricultural modernization, China's high investment rate phenomenon will continue for some time. Preventing occurrence of new overcapacity, the stable growth of investment should be taken as the most effective and the most direct measures for the stable economic growth. In the course of stabilizing investment, we should attach great importance to optimizing the investment structure. First of all, increase investment in technological upgrading of enterprise. Technological upgrading of enterprises should be made an important starting focus for adjusting economic structure and industrial upgrading. Secondly, increase investment in livelihood undertakings. To guarantee and improve people's livelihood should occupy a more prominent position on the fiscal policy, and guide private capital and elements to flow to the people's livelihood areas. Thirdly, appropriately increase investment in major transport and urban infrastructure projects. Fourthly, increase investment in ordinary housing construction, well manage the construction of welfare housing projects, speed up the establishment and improvement of a long-term mechanism and policy system for the real estate market regulation, and promote the steady and rapid growth of real estate investment.

Further deepen economic restructuring. The economic restructuring provides continuous momentum for economic growth, and institutional guarantees to accelerate the transformation of economic development mode. Continue to improve the basic economic system with public ownership as the main body and development of various forms of ownership, create an institutional environment for various forms of ownership to equally use production factors, to engage in fair market competition, and enjoy equal protection in accordance with law. Speed up tax reform, further expand the pilot areas and industries for the business tax reform VAT, and appropriate reduce the standard rate of VAT, avoid double taxation, reduce enterprises tax burden, and bring enterprises role in tapping potentials into full play. Improve the tax-sharing system and the financial transfer payment system, and rationalize the financial redistribution relationship between central and local authorities and among local levels of government. Deepen reform of the financial system, structure a financial system with diverse organizations, efficient service, prudential supervision and risk control, and ensure better financial service for the real economy. Deepen the pricing reform, and improve the price formation mechanism for the resource-based products. Push forward the reform of social undertakings, income redistribution, and safeguard social fairness and justice. Accelerate the transformation of government functions, improve macro-control system, rationalize the relationship between governance and market, and give better play to the basic role of market in resource allocation.

Long-Term Development: Increase Growth Potential Through Innovation

Economic experts generally believe that China's economic growth from high-speed down to medium-high-speed involves short-term influence and also shows the stage conversion of China's economic growth, and the declined economic potential growth rate. However, China's vast territory, large population, and the big different levels of regional development provide a greater leeway for economic development. The in-depth development of industrialization and urbanization is in a step by step process and demographic dividend declines in a gradual process, so the downward movement of the economy's potential growth rate can be perfectly smoothed. It is expected that China's economic potential growth rate is 8% to 9% in the next five years, which is still very high in the world, which can ensure the smooth realization of China's development goals.

Some scholars argue that during the conversion period, the economy's potential growth rate does not plummet, nor is it impossible to rise again. The downward movement of potential growth rate of the national economy is in three ways: The first case shows a mutation process. For example，Japan's economic growth rate plummeted from 9.7% in 1960-1973 to 4.1% in 1974-1991. The second case shows a relatively steady and gradual process. For instance, South Korea's economic growth rate decreased slightly from 9.5% in 1963-1979 to 8.2% in 1980-1997, and then dropped to about 4% in late 1990s. The third case shows the economy's potential growth rate declines, but moves up again by promoting scientific and technological progress and other factors. For example，in 1990s, the U.S. economy's potential growth rate is driven upward by the IT revolution.

Other analysis point out that, the three variables, i.e. capital, employment, and total factor productivity determine the economy's potential growth rate. The most fundamental determinant is the total factor productivity (TFP). China's TFP contribution to economic growth is rather low, an average of less than 30% in the past 10 years, while the United States enjoys more than 70%. Improve total factor productivity and the potential for long-term growth through technological innovation and institutional innovation is a combination of policy options and the key to achieve longer term, more stable and rapid development. To this end, increase investment in human power and education, improve the quality of education, and ensure education and training more responsive to market demand; expand R & D investment, enhance input efficiency, promote technological innovation; accelerate the institutional reform to improve economic efficiency and release development potential.