HIGH-QUALITY ECONOMIC DEVELOPMENT

HIGH-QUALITY ECONOMIC DEVELOPMENT*

December 18, 2017

Historic Achievements and Transformations in the Economy
Since the 18th CPC National Congress

Historic achievements and transformations have been made in the work of the Party and the country since the 18th CPC National Congress in 2012. The same has also happened in the economic field, creating solid material conditions for reform and development in other sectors.

After the 18th CPC National Congress, China was confronted by a complex economic situation both at home and abroad, facing many challenges that had rarely been seen since the launch of reform and opening up in 1978. The underlying impact of the global financial crisis persisted, with the world economy suffering a sluggish recovery, world trade in the doldrums, and protectionism widespread. With mounting downward pressure on the domestic economy, excess production capacity was becoming a salient issue, industrial product prices were in steady decline, and potential financial risks were increasing. All of these required us to think about the direction of our economic development, and devise solutions to problems on which we found it hard to reach agreement.

At that time, our major challenge was to come to a sound judgment on the economic situation and make the right decisions on how to carry on with our economic work. In the past five years, the Standing Committee of the Political Bureau of the CPC Central Committee, the Political Bureau of the CPC Central Committee, the Leading Group for Further Reform under the CPC Central Committee, and the Leading Group for Financial and Economic Affairs under the CPC Central Committee have held over one hundred meetings at which major assessments and decisions concerning overall national economic development have been made. This process — from practice to understanding and from practice to understanding all over again — is extraordinary, helping us to constantly sum up the underlying laws of the economy, increase our understanding, unify our thinking, and make the right decisions. Practice is the sole criterion for testing truth. Practice has proved that the Central Committee’s assessments of the economic situation, its decisions on economic work, and its adjustments to development ideas are sound, and this has guided us to achieve historic transformation and results in economic development.

First, our economic strength has reached a new level. This year’s total economic output has topped RMB80 trillion, making up 15 percent of the world aggregate, 3.5 percentage points higher than five years ago. In the past five years, our annual economic growth has averaged 7.1 percent. Our contribution to world growth has been over 30 percent on a yearly basis, exceeding the US, Europe and Japan combined. Our country has become the major engine and anchor of world economic growth. Our market has expanded and attracted investors at an unprecedented rate. 

Second, major changes have taken place in the economic structure. We have advanced supply-side structural reform, cutting overcapacity, reducing excess inventory, deleveraging, lowering costs, and strengthening areas of weakness. These measures were taken to reduce excess capacity, clear goods from the market, and promote balance between demand and supply. New technologies, new products, new industries and new business models have flourished, and innovation has played a more prominent role as the major driving force of the economy. The agricultural sector has witnessed stable growth and further structural adjustment. As a result of our concerted efforts, our economic growth now relies more on industry and services combined rather than industry alone, and more on consumption and investment combined rather than investment alone, and China has changed from a major exporter to both an importer and exporter. We have finally achieved long sought-after major structural changes.

Third, there is greater vitality and resilience in our economy. We have stated that we will let the market play the decisive role in allocating resources, let the government play its role better, and drive deeper reform in the economic system. On the whole we are making gradual and steady progress and have made breakthroughs in certain areas. The Leading Group for Further Reform under the CPC Central Committee reviewed and approved 105 major measures in structural economic reform. This reform was then rolled out across the board and major breakthroughs were made in key and fundamental fields, which served to emancipate the productive forces immensely.

Fourth, China has opened up further to the outside world. The Belt and Road Initiative, the Asian Infrastructure Investment Bank, and the Silk Road Fund that we have initiated and promoted, and the win-win cooperation philosophy we have advocated, have expanded our space for development. Foreign trade and foreign direct investment have seen stable growth. The Renminbi was included in the International Monetary Fund’s special drawing rights (SDR) basket, a major step towards the internationalization of the Renminbi. In terms of promoting trade and investment liberalization and facilitation, we have actively guided economic globalization onto the right path. Our influence on global economic growth and our voice in global economic governance have markedly increased.

Fifth, people’s sense of gain and fulfillment has increased. Over the past five years, a total of over 65 million jobs have been created in urban areas. Income growth has surpassed the overall rate of economic growth, and decisive progress has been made in eliminating poverty, with over 66 million people helped out of poverty. The quality of education has improved. A social security network covering rural and urban residents is in place. Access to health and medical services has significantly improved, and basic public services have become equally accessible to more people. China now has the world’s largest middle-income population.

Sixth, noticeable progress has been made in protecting the eco-environment. In the past five years, we have been firm in accelerating the pace of eco-civilization, leading to greater initiative and awareness of green development within the Party and the nation. Tangible results have been seen in the control and prevention of air, water and soil pollution. The average concentration of PM2.5 declined by 30 percent in key areas, energy intensity fell by 20.7 percent, and forest acreage and stock volume increased by 10.87 million hectares and 1.9 billion cubic meters respectively. Regarding the eco-environment, our commitment, measures and achievements are unprecedented.

These historic economic achievements and transformations of the past five years have been made under the strong leadership of the Party Central Committee, and with the joint efforts of the Party and the whole country.

In the past five years, we have raised a series of new visions, ideas and strategies through observing general development trends, assessing the overall situation, and engaging in hard work, which can be summed up as follows:

First, we have strengthened the centralized, unified leadership of the Party over economic work. We have made it clear that the Central Committee must take overall responsibility and full leadership over economic work as it is the central task in state governance. The Central Committee is not a place for empty talk but a place for decision-making. All its decisions must be carried out to the letter. To steer our economy on the right course we have improved the systems and mechanisms for the Party to lead economic work, reinforced the Central Committee’s ability to analyze and assess the situation with regard to development, formulated major guidelines and strategies, made important decisions and work plans in a timely manner, and ensured they are implemented under the Party’s leadership.

Second, we must always remain committed to a people-centered philosophy of development. We have made it explicit that the people’s aspiration for a better life is our goal and their dominant role is the main driving force. We have taken measures to ensure their wellbeing and improve their lives, building a moderately prosperous society in all respects by focusing on their major concerns. The people-centered approach should be integrated into the Five-sphere Integrated Plan and the Four-pronged Comprehensive Strategy. We have put forward a strategy of targeted poverty alleviation and eradication, and made comprehensive plans and determined efforts to win the fight against poverty and ensure that impoverished people enjoy a decent life together with the rest of the country.

Third, we have adapted to and steered the new normal in economic development. We believe that our economy is now facing a complex situation which involves a shift in the growth rate, a painful structural adjustment, and a need to absorb the fallout of previous stimulus policies. In this new normal stage we should emphasize the need to embrace the new development philosophy and advance supply-side structural reform. When assessing the economic situation, we must take a broad view, have a good understanding of long-term economic trends and laws, and in particular, we should know how to correctly assess the performance of our leading officials. GDP must not be the sole criterion in assessing an official’s performance, nor should we be swayed by the short-term fluctuations of economic indicators. These judgments have served to clarify our attitude towards our economic situation and our tasks in economic work. They have also helped the whole Party and all our people to better understand the economic situation, unify our thinking, and stabilize market expectations.

Fourth, we have ensured that the market will play the decisive role in resource allocation and that the government will perform its functions better. We have underlined that reform is the major driving force of economic growth. Reform is not a mission to be accomplished, rather it is an ongoing process. We must have the courage to tackle tough issues, break through logjams, and venture into risky areas to remove institutional barriers to economic development. Correctly handling the relationship between the government and the market is the key to economic reform. We have also made efforts to improve the market mechanism, break down monopolies, bring into play the pricing mechanism, stimulate the vitality of market entities, and take full advantage of the government’s role in macroeconomic regulation, public services, market supervision, social management and environmental protection. In the meantime, the economic vitality, dominance and influence of the state-owned sector have been boosted, and the vigor and creativity of the non-public sector stimulated. A clean and cordial relationship between government and business has thus taken shape, fostering entrepreneurship and breathing new life into economic growth.

Fifth, we have adapted to changes in key problems in economic development and improved our macro-regulation. We have stated that macroeconomic regulation must be based on the characteristics of the present development stage and changes in the economic situation — expanding demand and adjusting supply when necessary, which requires us to make discretionary choices and issue corresponding prescriptions. At present, the biggest challenge confronting our economy is in its structure and particularly on the supply side, which manifests itself in the inability of supply to adapt to changes in demand. In this case if we stimulate demand blindly, it will only end up creating more risks and overdrawing future growth potential. Fortunately, we have addressed the principal challenge, in particular the key factor in the challenge, by adjusting our approach to macro-regulation and taking supply-side structural reform as the general goal, and we have made the right decisions for the sound and sustained development of our economy.

Sixth, we have taken a problem-oriented approach in developing new strategies for economic growth. It is our belief that we should focus on major issues and have a long-term vision to maintain economic momentum. We have implemented key strategies in sectors concerning our future overall development. For example, we have decided to adopt the strategy of coordinated development of the Beijing-Tianjin-Hebei Region with a view to relieving Beijing of functions not essential to its role as the capital of our country. We have adopted the development strategy of the Yangtze River Economic Belt to strengthen environmental protection rather than seeking rapid growth at the cost of the environment, and we have devised the Belt and Road Initiative to promote win-win cooperation. Other such strategies include:

• the development plan for the Guangdong-Hong Kong-Macao Greater Bay Area;
• a new urbanization strategy with a focus on quality urban development and well-rounded development of the people;
• an innovation-driven strategy that emphasizes stimulation;
• a new food security concept highlighting basic self-sufficiency in grain and absolute grain security;
• new thinking on water conservancy concerning coordinated management of water resources, water ecosystems, the water environment and floods;
• a new energy security strategy to boost consumption, supply, and technological development in energy, reform the energy system, and strengthen international energy cooperation.

These important strategies have exerted and will continue to exert a profound influence upon our economic growth and transformation.

Seventh, we have realized that in addition to a good guiding philosophy and sound policies we should have sound tactics and approaches if we want to boost sound and sustainable economic development. We maintain stability while making progress in our work, and strike a balance between the two by being prudent in macro-regulation and making it more targeted and precise. We are steadfast and unwavering in implementing strategies, stay true to our principles, take into full consideration any difficulties and problems, and always have plans in place to deal with the worst-case scenario. Like a hammer driving a nail, we need to move forward step by step, until small victories add up into big ones, and in the process, we do everything we can to counter every possible risk and particularly systemic risks.

In conclusion, we have successfully steered the economy on the right course since the 18th CPC National Congress and developed the thought on the economy of socialism with Chinese characteristics for a new era with the new development philosophy as its core. A valuable asset of our Party and the country, this thought crystallizes the experience of our economic development over the past five years and is a theoretical summary of our political economics guided by basic tenets of Marxism. We must uphold this thought for a long time to come, enrich it, and bring about a more profound, extensive and historic transformation in our economy.

China’s Economy: From High-Speed Growth to High-Quality Development

Just as socialism with Chinese characteristics has entered a new era, China’s economic development has also embarked on a new phase, the basic feature of which is that our economy is now transitioning from rapid growth to high-quality development. I emphasized this in the report to the 19th CPC National Congress in 2017. It is a weighty conclusion, and its historical and current significance must be fully understood.

First, it is essential for our country to maintain sustained and sound economic development. China has reached a critical stage in transforming the growth model, and is faced with prominent problems such as rising labor costs, increased constraints imposed by resources and the environment, unsustainable models of extensive development, and impediments in economic flows. At the same time, a new revolution in science, technology and industry is gaining momentum, and multiple breakthroughs are being made all around the world. We must promote high-quality development if we are to adapt to new technological changes and new needs of the people, and we must form a high-quality, efficient and diversified supply system to provide more quality products and services. Only in this way can supply and demand achieve proper balance at a new level, and can our economy maintain sustained and sound development.

Second, it is essential for China to adapt to the evolution of the principal challenge facing Chinese society, and achieve moderate prosperity and socialist modernization in all respects. This challenge involves low-quality development as represented by imbalanced and insufficient development. As it evolves, our economy is also entering a new historic stage. To address this challenge, we must promote high-quality development. We must not neglect quantitative development, but we must pay more attention to quality, so as to achieve effective growth in quantity through a substantial improvement in quality.

Third, it is essential for China to achieve development in line with the principles of economics. Of the world’s 100 or more middle-income economies, since the 1960s only about a dozen have graduated to high-income economies. Following a phase of rapid economic growth, these successful countries all transformed from quantitative expansion to qualitative improvement. In contrast, those countries that have stagnated or even retrogressed are failing to grow because they have not achieved this fundamental transformation. Economic development is a process of spiral escalation, rather than linear. Once quantitative growth has accumulated to a certain degree, we must turn to qualitative improvement. China must follow this law in its economic development.

High-quality development can meet the people’s growing expectation for a better life. It reflects the new development philosophy: In high-quality development innovation is the primary driving force; coordination is an endogenous feature; go-green is a prevailing mode; openness is the only path; and sharing is the fundamental goal. 

In terms of supply, high-quality development requires a relatively complete industrial system, network-based and intelligent organization of production, and strength in innovation. It means understanding demand, exerting high brand influence, building strong core competitiveness, and delivering high-quality products and services. 

In terms of demand, high-quality development should continuously meet the people’s individual, diverse and growing expectations. These lead to changes in the supply system and structure, which in return generate new needs. 

In terms of input and output, high-quality development should entail improving the efficiency of labor, capital, land, resources and the environment, increasing the contribution of scientific and technological progress to economic growth, and increasing total factor productivity. 

In terms of distribution of the proceeds, high-quality development should ensure that investors obtain returns, enterprises make profits, employees earn incomes, and the government receives taxes, and that all such gains correspond to their respective contribution as evaluated by the market.

In terms of the macroeconomic cycle, high-quality development should ensure a smooth cycle of production, circulation, distribution and consumption, rational proportional relationships and configuration of major economic sectors, and stable economic development without excessive rises and falls. To be very specific, high-quality development means a change from seeking growth to seeking better growth.

To promote high-quality development, we need to develop a modern economic system, which is a strategic goal for China. To achieve this goal, we must take firm steps in the following areas:

• put quality first and give priority to efficiency in accordance with the requirements of high-quality development;
• advance supply-side structural reform;
• work hard for high quality, high efficiency and more robust drivers of economic growth through reform;
• build an industrial system that promotes coordinated development of the real economy, technological innovation, modern finance, and human resources;
• develop an economic system with more effective market mechanisms, dynamic micro entities, and sound macro-regulation.

Promoting high-quality development is the fundamental requirement behind our goals, our economic policies, and our macroeconomic regulation at present and in the period to come. We must put in place a framework for high-quality development that covers indicators, policies, standards, statistics, performance evaluation, and government appraisal of achievements. With this improved institutional environment, we will work to make constant new progress in high-quality economic development.

It is not easy for a populous country with an economy of our size to transit from high-speed growth to high-quality development, nor will this be achieved overnight. We must overcome unconventional obstacles specific to our current stage of economic development, and in particular, win the three critical battles against major risks, poverty, and pollution. We must also overcome conventional obstacles in the long term, and this requires us to transform our growth model, optimize our economic structure, foster new drivers of growth, and particularly, to clean up the market environment, improve the quality of human capital, and strengthen our governance capacity. If the first obstacles, in particular the battle against financial risks, are not overcome, we will not secure the conditions for achieving a moderately prosperous society. If the second obstacles are not overcome, we will not be able to fulfill the goal of realizing basic socialist modernization by 2035, 15 years ahead of schedule. This will naturally affect our development goal by the middle of the century to develop China into a great modern socialist country that is prosperous, strong, democratic, culturally advanced, harmonious, and beautiful. Therefore, the whole Party must maintain a strong sense of urgency and responsibility in order to overcome the obstacles, strengthen top-level design and overall planning, and carry out all activities effectively and efficiently.

I would like to emphasize here that the 19th CPC National Congress advanced the date of achieving basic socialist modernization by 15 years, mainly because our achievements have exceeded expectations and we have taken full account of the enormous potential of our development. This arrangement is pragmatic and realistic, and requires hard work. The purpose is not to launch another massive campaign for speedy growth or a new “great leap forward”. The more advantageous the situation, the more sober-minded we must be, understanding the relationship between long-term goals and current work and moving forward at a rapid but steady pace.

* Part of the speech at the Central Conference on Economic Work.

(Not to be republished for any commercial or other purposes.)