Where Does the Chinese Economy Potential for Stable and Long-Term Development Come from?

Through a comprehensive analysis of elements supporting the economy, including our foundation of factors, industrial system, and the scale of market, and by taking into account additional factors such as the market vitality and social creativity triggered by our efforts to comprehensively deepen reform and opening up as well as our growing capacity for macro control, we can confidently conclude that China is still in its important period of strategic opportunity and will remain so for some time. There is still massive energy and potential for driving forward development, and therefore China is absolutely equipped with the conditions and capacity it needs to maintain stable growth over the long term and bring about high-quality development.

I. China's development potential comes from its solid material foundations and complete industrial system.

The foundations of economic development are factors of production such as labor, technology, and capital, as well as their effective combination. These factors and the evolution in the way they are combined form the inner mechanisms that drive economic development. In order to judge economic growth potential, we must understand how these inner mechanisms operate, and conduct analysis from the perspective of the industrial system and material foundations that have been built up over the long term.

In the 70 years since the founding of the PRC, the 40 years since the launch of reform and the opening up, and particularly since the 18th National Congress of the CPC held in 2012, China has built up solid material foundations and established a complete industrial system. We are now equipped with abundant and high-quality factors of production such as labor, capital, and infrastructure. The socialist market economy is able to effectively mobilize and combine these factors, which provides solid foundations for continued economic growth while constantly generating and unleashing enormous growth potential.

1. Massive economic scale

In 2018, China's GDP surpassed 90 trillion yuan, which is 174 times greater than it was in 1952 when calculated in constant prices. This represents an average growth rate of 8.1% per year. China has maintained rapid growth for longer than any other major country in the world. In 2018, China's gross national income per capita reached US$9,732, which is higher than the average for middle-income countries.

China is currently the world's second largest economy, largest manufacturing nation, largest trader of goods, second largest consumer of commodities, and second largest recipient of foreign investment. At the end of 2018, China's foreign exchange reserves were valued at over US$3 trillion, making them the largest in the world for the 13th consecutive year.

A bird's-eye view of Dangjiu Village in Gandong Township, Rongshui Miao Autonomous County, Guangxi, shows that roads have been built to the doorstep of each home. In recent years, China has advanced implementation of the poverty alleviation, rural vitalization, and coordinated regional development strategies, creating massive momentum for driving growth. PHOTO BY XINHUA REPORTER HUANG XIAOBANG

In 2019, there were already more Chinese companies than US companies in the Fortune 500. As China's economy has expanded, corresponding advantages such as stability and scale effects have become more readily apparent. These advantages allow China to effectively withstand external shocks and create favorable conditions for economic upgrading.

2. Abundant human resources

China has a population of nearly 1.4 billion, which is equal to the combined populations of all developed countries, and a working-age population of over 900 million, which is equal to the combined populations of the US, Japan, and the EU. China's human resources are also constantly improving in quality. Every year, there are more than 8 million university graduates, more than 5 million graduates from secondary vocational schools, and more than 500,000 graduates returning from studies overseas. China's total number of scientists and engineers has been higher than that of the United States since 2009, and China ranks first in the world for number of researchers. The amount of resources dedicated to fostering talent in STEM fields (science, technology, engineering, and mathematics) is constantly increasing.

Our abundant supply of human resources, unified and efficient labor market and constantly improving policies for stimulating innovation and entrepreneurship together encourage the active participation of human resources in the process of economic growth and provide formidable momentum for the development of the economy.

3. Ample supplies of capital

Although the savings rate in China has dropped somewhat from its historical peak, it remains above 45%, far higher than that in the United States and other developed countries. By the end of 2018, the debt ratio of Chinese government was 37%, far lower than the EU alert level of 60%, which is widely accepted by the international community, and also lower than the average debt levels of the world's main market economies and emerging market economies. Ample supplies of capital and low levels of debt risk create favorable conditions for the continued healthy development of the Chinese economy.

4. A complete industrial system

China has a complete and independent industrial system, and it is the only country in the world that has all of the industrial categories classified by the UN. In 2018, China ranked first in the world for the production of more than 200 types of industrial goods, while it has also ranked first for value added of the manufacturing sector since 2010. The Chinese economy is already deeply integrated into the global division of labor. A complete industrial system and strong industrial support capacity are key for the stable operation of global value chains. These are also areas where the Chinese economy has major advantages, which will provide strong and reliable support for its continued growth.

5. An extensive network of infrastructure

Since the founding of the PRC and particularly since the launch of reform and opening up 40 years ago, China has made historic achievements in infrastructure development, and scored initial success in building a unified and modern infrastructure network that is appropriately advanced and well-coordinated. At the end of 2018, China's railway and highway networks reached 131,000 and 4.85 million km in length, respectively. The country also ranked first in the world for high-speed rail and expressway mileage, with 29,000 km of high-speed rail lines and 143,000 km of expressways.

In China, there are 24,000 productive berths at ports, and 235 airports for civil aviation, both of which are among the highest in the world. This interconnected web of infrastructure has boosted the economy's resilience and given it greater room to maneuver.

Tourists walk amongst the lanterns and food stalls at the Wangfujing night market in Beijing. In recent years, along with the clear trend of upgraded consumption, more and more new nighttime businesses have sprung up all over the country.

PHOTO PROVIDED BY VISUAL CHINA

II. China's development potential comes from its enormous market and expanding demand.

The scale and structure of a country's market have an important effect on its economic development capacity. China has its unique advantages in this regard. On the one hand, its huge market and complex internal structure are conducive to the formation of an economic system with more advanced forms of activity, a more complex division of labor, and a more reasonable structure. On the other hand, the development of China's economy is not yet balanced, and we must move quickly to address the problems of imbalanced and inadequate development. Promoting balanced development means that there will be immense aggregate demand and structural optimization of the economy, which will undoubtedly generate formidable momentum for development.

1. Substantial room for the expansion of consumption

In recent years, consumption has contributed to economic growth at a rate of over 60%, thus becoming the prime mover of economic development. China's middle-income group, which now has more than 400 million people, is the largest in the world, and the country also has more than 800 million Internet users. These groups provide immense consumption potential and a perfect testing ground for all kinds of new technologies and new forms and models of business, which allows the newest technologies and products to spread rapidly.

In 2018, China's Engel coefficient dropped to 28.4%, putting it in the wealthy range of 20% to 30% as defined by the UN. This means that after the demand for food has been satisfied, residents will develop greater and more sophisticated demands for clothing, durable goods, entertainment, etc. Urbanization, which is making consistent headway, is generating new opportunities for hundreds of millions of Chinese citizens to move from rural areas to urban areas and have higher quality lives, which will in turn create a huge consumer market. As such, the people's pursuit of a better life serves as the fundamental driver for cultivating and tapping into economic growth potential.

2. Substantial room for the enhancement of productive forces

Although China's economy is growing quickly, the development of our productive forces falls short of what would be considered advanced on the international stage. Our total factor productivity is only about 43% of that of the United States.

There are comparatively large gaps in productive forces between industries and regions, with a significant amount of production still relying on the expansion of factor input, and certain key products that we are still unable to develop and produce ourselves. The service sector is still quite underdeveloped, with lagging development of high value added knowledge intensive services, and insufficient integration and coordination between producer services and the manufacturing sector. If we can remedy these deficiencies and catch up to the global cutting edge, it will create a huge amount of room for the economy to grow.

3. Substantial room for structural optimization between urban and rural areas and between regions

China's urban-rural and regional development gaps remain quite large. The eastern region accounts for more than half of national GDP, and there are obvious development gaps between the eastern, central, and western regions.

The difference between the incomes of urban and rural residents is also quite large. In the first half of 2019, the per capita disposable income of rural residents was 7,778 yuan, while for urban residents it was 2.74 times higher at 21,342 yuan. In addition, there are significant gaps between urban and rural regions in areas such as infrastructure and public services. While imbalanced development and gaps between urban and rural areas and between regions are shortfalls in current development, they also indicate sufficient potential, strong resilience, and significant room to maneuver.

China has huge structural advantages. Under the coordination of the central government, comparatively underdeveloped regions have the opportunity to learn from the experience of eastern regions. They can make full use of late-development advantages, and catch up from the rear. In recent years, deepened implementation of poverty relief, rural vitalization, and coordinated regional development strategies has created huge momentum for driving growth. In the future, further consumption potential will be unleashed and room for market expansion will be unlocked as central and western regions and rural areas gradually reach medium and high levels of income, and China will create yet another miracle of development.

Rice is planted in Qingkou Saltworks, Lianyungang, Jiangsu Province on May 30, 2018 as part of a project to bring roughly 1,300 hectares of salt fields back into cultivation. China has successfully developed a strain of rice that can grow in tidal flats and alkali soils. PHOTO BY XINHUA REPORTER GENG YUHE

4. Substantial room for the improvement of public services

Since the launch of reform and opening up, demands on public goods have consistently elevated. In contrast with high requirements and expectations, however, there have been quite pronounced problems of inadequate supply, low quality, and unequal distribution. For example, at present there are still many people in rural areas without access to sanitary toilets, there are hundreds of millions of people in urban areas living in old and shabby residential complexes, there is significant room to improve the quality of medical treatment compared to advanced global standards, and there are only 30.9 nursing beds for per thousand elderly people.

The desire of the public for such things as employment, education, medical care, elderly care, and housing has constantly grown. To solve these problems and remedy deficiencies in development means there is lots of room for the economy to grow. Infrastructure projects such as the renovation of urban facilities, construction of rail transit lines, remodeling of dated residential communities, and development of wireless Internet and cloud computing centers will bring huge amounts of investment, while services such as elderly care, lifelong education, and medical care offered by general practitioners and mobile providers will generate significant consumption and employment.

III. China's development potential comes from the new technological revolution and the rapid growth of new drivers.

In recent years, China has vigorously pursued the strategy of innovation-driven development. With more spending on science and technology, we have seen a steady stream of breakthroughs leading to new technologies, new products, and new forms of business, and thus new drivers have grown rapidly. China is fully prepared to seize the opportunity provided by the new technological revolution that is sweeping the globe, and this will provide economic growth with all new sources of momentum.

1. The new technological revolution stimulates the development of new drivers.

China has made major breakthroughs in key segments and core technologies in many fields including life science, green energy development, agricultural production, and IT, some of which are on the global cutting edge. For instance, we have cultivated rice that can grow in salt water and under desert conditions. China was the first country to clone monkeys using a technique called somatic cell nuclear transfer. Our installed wind power capacity accounts for 34.1% of the world total, and our installed solar power capacity accounts for 36.5% of the world total. China is the only country that has one-million volt high voltage power transmission lines. China has ranked second in the world for R&D expenditures since 2013, with the largest number of research personnel for six consecutive years and the largest number of patent applications for eight consecutive years. In 2018, China spent 1.97 trillion yuan or 2.18% of its GDP on R&D, more than the average R&D expenditures of the EU-15. China ranks 14th in the 2019 Global Innovation Index Report published by the World Intellectual Property Organization, rising 21 places since 2013 to become the only middle-income economy to crack the top 20. Greater capacity for innovation will help China gain the upper hand in the new technological revolution.

The floodgates of Jatigede Dam in Indonesia. Built by Sinohydro, the dam officially went into operation in August 2015. In addition to its role in irrigation and flood prevention, it has also spurred development of local tourism and fishing industries. PHOTO BY XINHUA REPORTER DU YU

2. New industries and new forms and models of business stimulate the development of new drivers.

In 2018, the value added of economic activities belonging to the category of new industries and new forms and models of business was 14.54 trillion yuan, or 16.1% of China's GDP. It is largely thanks to the rapid growth of new drivers that the economy has not lost momentum, even as old drivers have faltered. From 2016 to 2018, growth of investment in infrastructure (excluding electric power) fell from 17.4% to 3.8%, while investment in computer and communications equipment, instrumentation, and general equipment increased by 0.8%, 1.4%, and 10.9%, respectively. Average growth of total retail sales of consumer goods fell below 10%, but online retail sales of physical goods registered average annual increases of over 25%. In 2018, the express delivery industry passed the major milestone of delivering 50 billion packages, with volume growing at an annual rate of about 50% for many years running. Beneath the new industries and new forms and models of business that are springing up are rapidly growing new drivers.

These will more effectively meet the people's needs for a better life, and provide powerful internal momentum for economic growth over the long term.

3. The streamlining of administration and delegation of power stimulate the development of new drivers.

In recent years, China has made efforts to streamline government administration and delegate power, and taken thorough steps to lower taxes and fees. The scale of tax and fee cuts reached about 1.3 trillion yuan in 2018, providing a strong boost for mass entrepreneurship and innovation. A great number of new businesses have emerged, especially innovative small and micro-enterprises. There have been more than 10 million new market entities per year, and this number has been increasing, with more than 20 million new market entities in 2018. Startups have been springing up on a massive scale. There were 97 startups valued at over US$1 billion established in 2018, which equates to one launch every 3.8 days, and the total value of these companies has reached US$178 billion. The massive increase in the number of market entities and the potential produced by entrepreneurship and innovation demonstrate that the market environment is improving and that people's confidence in economic development is increasing. This steady stream of momentum is propelling the Chinese economy toward stable long-term growth.

IV. China's development potential comes from creating new and better systems of macro regulation.

Since its 18th National Congress, the CPC has constantly strengthened and enhanced its centralized leadership over economic work, and gradually formed a macroeconomic policy framework to support high-quality development. As a result of sound macroeconomic regulation, China's economy has grown steadily with minimal fluctuation over the past few years, contrasting sharply with the situation in other major countries. In the World Economic Outlook published by the International Monetary Fund in April 2019, China was the only one of the world's major economies to have its economic growth forecast upwardly adjusted, from 6.2% at the beginning of 2019 to 6.3%. China has captured the attention of the world with its unprecedented success in economic development.

1. We have introduced the overarching objective of high-quality development.

The 19th National Congress of the CPC decided to promote high-quality development, develop a modern economic system, and expedite reform in quality, efficiency, and driving forces. Both now and for the near future, our definition of developmental thinking, formulation of economic policy, and implementation of macroeconomic regulation must all be checked against these fundamental requirements.

2. We have formed a policy framework guided by the new development philosophy and focused on supply-side structural reform.

Since economic development has entered a new era, it needs a new philosophy and a new focus. The new philosophy of innovative, coordinated, green, open, and shared development is a major innovation in Chinese socialist political economy. Our commitment to this philosophy represents a profound transformation that impacts all aspects of our development. Meanwhile, supply-side structural reform is the current focus of economic development and related work, and will remain so for the foreseeable future. This reform is concerned with improving the quality and effectiveness of the supply system, as well as the transformation and upgrading of the economic system. This will unleash a steady stream of momentum and unlock new prospects for economic development.

The Lingang New Area in Shanghai. The overall plan for the Lingang New Area of the China (Shanghai) Pilot Free Trade Zone was unveiled on August 6, 2019. The place serves as a major vehicle for Shanghai's efforts to promote reform and opening up and innovative development, and provides an important space for the city's future development. It thus bears a unique mission in advancing comprehensive, high-standard opening up. PHOTO PROVIDED BY JIEFANG DAILY

3. We have developed the core principle of pursuing progress amidst stability.

The CPC Central Committee has defined pursuing progress while ensuring stability as the underlying theme of economic work. Upholding stable macroeconomic policy, flexible microeconomic policy, and social policy that benefits those most in need will ensure that economic growth remains within an appropriate range and does not fall below minimum levels, and will also help diffuse major risks and drive forward necessary structural adjustment. In the period ahead, macroeconomic policy will lay greater emphasis on bolstering the guiding role of our objective to bring about high-quality development. Giving priority to overall coordination and balance, we will strengthen targeted, timely, and precise macroeconomic regulation on the basis of range-based regulation in order to guide China's economic development more effectively.

Chengdu Science City in the Tianfu New Area. The Tianfu New Area, located in the city of Chengdu in Sichuan Province, is a key node in the development of both the Belt and Road Initiative and the Yangtze River Economic Belt. In recent years, six industrial parks have been established in the area for emerging fields such as artificial intelligence. This has vigorously promoted new businesses focusing on the digital economy.

PHOTO PROVIDED BY THE NATIONAL DEVELOPMENT AND REFORM COMMISSION

V. China's development potential comes from high-level opening up and promotion of a global community with a shared future.

While continuing to act as a responsible major country and actively participating in reform and development of the global governance system, China has also provided itself and other developing countries with a more equitable international order and broader prospects for development. This has enabled more effective use of both domestic and international markets and resources, and created an external environment conducive to our economic development.

1. Advancing independent development amidst international competition

For more than a year now, trade friction instigated by the United States has seriously impacted the economic development of both China and the world. However, we must also recognize that China's industrial chains are already deeply integrated with the world economy, giving shape to a pattern of interdependence. Though a few countries may try to counteract it, nothing can change the historical trend of economic globalization. Since the founding of the PRC, China has had to deal with being closed off from the outside many times. Nevertheless, with a commitment to independence and autonomy, China has maintained stability through self-reliance and found new opportunities for international cooperation. In the face of trade friction with the US, we have, on the one hand, implemented policies for high-standard liberalization and facilitation of trade and investment in an effort to develop a more open economy, while on the other hand, we have bolstered our confidence and strength and turned external pressure into internal momentum with a focus on increasing our ability to develop independently. In the first half of 2019, China's exports of goods still increased by 6.1% in RMB terms, despite escalation of US-China trade tensions. With unilateralism and protectionism on the rise, China has had to depend on itself and expand new space for development amid international competition.

2. Promoting higher-level opening up

Against the backdrop of a grim and complex international environment, China has remained committed to the mutually beneficial strategy of opening up and becoming more open in all respects. China has adopted the Foreign Investment Law and The Special Management Measures (Negative List) for Foreign Investment Access (Version 2019), and revised the Catalogue of Industries for Guiding Foreign Investment, and the Catalogue of Priority Industries for Foreign Investment in Central and Western China. In 2018, the First China International Import Expo was successfully held, and construction began on the Hainan Pilot Free Trade Zone. China's total volume of imports and exports in goods surpassed 30 trillion yuan, and actual foreign investment utilization was $US138.3 billion, ranking first among developing countries. The Chinese government has actively introduced a series of measures, formulated plans for international production capacity cooperation and the development of overseas economic and trade cooperation zones, and provided information and support services for Chinese enterprises that are going global. Our campaign to open up more broadly has made rapid and steady progress according to predetermined timeframes and blueprints. With major efforts being made to attract foreign investment and encourage the overseas expansion of domestic companies, China will enjoy greater momentum for driving economic development.

3. Actively participating in reform and development of the global governance system

With the rise of emerging markets and developing countries, trends of power shifting from West to East and from North to South on the global economic landscape are readily apparent, and the western-dominated international structure is changing in profound ways. Since the 18th National Congress of the CPC, China has resolutely upheld the international order and system centered on the purposes and principles of the UN Charter while advocating adjustment and reform to push the international order and governance system in a more just and equitable direction. China has actively participated in the formulation of international trade regulations, and provided global public goods. In December 2015, China launched the Asian Infrastructure Investment Bank. In the more than three years since then, its membership has increased from 57 to 100, and it has issued loans totaling US$8.5 billion. In May 2018, China off icially submitted its proposal for reform of the World Trade Organization, advocating greater relevance for the organization in global economic governance, and greater inclusivity in the multilateral trading system. These efforts will help all countries of the world achieve shared development, and capture more room for economic development.

4. Promoting international cooperation through the Belt and Road Initiative

The Belt and Road Initiative (BRI) introduced by China aims to create a platform for cooperation characterized by political trust, economic integration, and cultural inclusiveness. From 2013 to 2018, China's total trade in goods with countries along the Belt and Road surpassed US$6 trillion, increasing at a rate of 4% per year. China has invested over US$30 billion in overseas trade cooperation zones, creating more than 300,000 jobs and generating more than US$2 billion in tax revenue. This has benefited both Chinese and local enterprises. According to a survey conducted by the International Finance Forum on the central banks of 26 countries along the Belt and Road, 67% of banks included in the survey have predicted that the support of the BRI will boost economic growth in their countries by 0 to 1.5 percentage points over the next five years, while 25% predict that the boost will be in the range of 1.5 to 5.5 percentage points. The BRI has already become a path for participating countries to move toward greater openness and prosperity. At the same time, it has brought Chinese enterprises many new opportunities, and opened up vast market and cooperation potential for China's economic development.

Ma Jiantang is Secretary of the CPC Leadership Group of the Development Research Center of the State Council of the People's Republic of China.

(Originally appeared in Qiushi Journal, Chinese edition, No. 20, 2019)