Major Issues in Current Economic Work

Major Issues in Current Economic Work*

December 15, 2022

Next year’s economic work will involve a plethora of issues, but we must bear in mind the overall strategic picture and focus on the key problems. We should start with improving public expectations and boosting confidence in development, and pay close attention to major and key links, as this will lay the ground for overall success in our work.

I. Expanding Domestic Demand

The prominent issue we face in economic development at present is insufficient aggregate demand. Therefore, we should vigorously implement our strategy for expanding domestic demand and adopt more effective measures to ensure a virtuous cycle of social reproduction. In the past, China expanded domestic demand in order to effectively respond to the Asian financial crisis in 1998, the global financial crisis in 2008, and the impact of Covid-19 since 2020, and has thus accumulated successful experience in this regard. Now we should optimize our policy measures to give full play to the fundamental role of consumption and the key role of investment.

First, we should prioritize the recovery and expansion of consumption. With China making steady strides in new industrialization, informatization, urbanization, and agricultural modernization, consumption increasingly plays a fundamental role in driving economic growth. To fully unleash the potential of consumption, we should boost consumer purchasing power, improve the environment for consumption, and create new consumption scenarios. As there is a direct correlation between consumption and income, we must raise the incomes of both urban and rural residents through various channels. It is especially important to increase the spending power of the low- and middle-income groups, which have a high propensity to consume but were severely affected by Covid-19. Steps should be taken to prudently increase consumer credit to support spending on housing improvements, new energy vehicles, eldercare, and services related to education, health care, culture, and sports.

Second, we should drive investment society-wide with government investment and policy incentives. Currently, private investment expectations are low. We must fully harness the guiding role of government investment, which is a powerful tool for responding to cyclical fluctuations in the economy. Government investment should be ramped up to lay strong foundations, generate long-term benefits, strengthen areas of weakness, and adjust the economic structure. We should expedite the implementation of major projects under the 14th Five-year Plan, strengthen infrastructure development in transport, energy, water conservancy, agriculture, and information, and advance infrastructure connectivity between regions. We should support city clusters and metropolitan areas in building modern infrastructure systems and implement initiatives for urban renewal and rural development. We should increase investment in technology and industry and adopt a forward-looking approach to the development of major scientific and technological infrastructure and R&D capabilities for core technologies in key fields. We should see that policy-based finance plays its role in countercyclical regulation, and give more support to financing major projects in line with national development planning and industrial policy priority, while ensuring a balance between social and economic returns. We should widen market access for private investment to encourage and attract more private capital into major national projects and projects aimed at strengthening areas of weakness. We should do more to identify prospective projects, strengthen preparations, and provide stronger support in terms of production factors.

The supporting role of exports for economic growth should be further leveraged. We should keep exports to developed countries stable and expand exports to emerging economies. We should upgrade the processing trade, increase the value added of exports, expand trade in services, and develop digital trade. We should consolidate and expand export strengths in new industries, such as new energy vehicles, and increase imports of advanced technologies, important equipment, and energy and resources. We should give full play to the role of the China-Europe Railway Express and work faster to build China into a strong trading nation.

II. Building a Modern Industrial System

We need to bolster domestic foundations in order to remain on a solid footing. China has the world’s most complete industrial system and a domestic market with the greatest potential for growth. We must take effective steps to boost the resilience and security of our industrial and supply chains and move rapidly to strengthen areas of weakness and build on existing strengths.

First, we should ensure smooth economic flows. China’s economy must safeguard national security, meet basic living needs, and ensure the normal functioning of infrastructure and basic industries. We need to improve our capacity for food, energy and resource security. In particular, we must maintain firm control of our own food supply. We should launch a new drive to increase China’s grain production capacity by 50 million tonnes, further expand production capacity by improving farmland quality and applying science and technology, and increase yields by better utilizing our country’s land resources. Greater efforts should be made to explore and develop important domestic energy and mineral resources and to discover more untapped reserves and boost production. We should ensure power generation, transmission, loading and storage are well-coordinated and ramp up our efforts to develop a new energy system. We should support enterprises in teaming up to do business overseas and diversify our imports. We should build up our capacity to guarantee strategic reserves.

Second, we should accelerate the upgrading of China’s industrial system. We should make forward plans for key areas and fully modernize the industrial system. We must consolidate the leading position of traditionally competitive industries while also carving out new advantages. We should seize the opportunities arising from changes to the structure and configuration of global industry to open up new fields and succeed in new areas. Traditional manufacturing is the foundation of a modern industrial system. We must accelerate the digitalization of traditional manufacturing, and promote advanced and applicable technologies to make this sector higher-end, smarter, and more eco-friendly. Strategic emerging industries are the pillars and areas on which future development depends. We should promote research, development and application of frontier technologies for new energy, artificial intelligence, biological manufacturing, green and low-carbon industries, and quantum computing, and support the development of specialized enterprises that use advanced technologies to produce unique and innovative products. We should devote significant efforts to developing the digital economy, strengthening regular oversight, and supporting platform enterprises to fully harness their potential to drive development, create employment, and increase international competitiveness.

III. Developing Both the Public and Non-Public Sectors

For some time, there has been some inaccurate and even plainly false speculation in society about whether we remain committed to the socialist market economy and to consolidating and developing the public sector and at the same time encouraging, supporting and guiding the development of the non-public sector. Our attitude must be clear and unequivocal: We will continue to pursue reforms to develop the socialist market economy and work hard to develop both the public and non-public sectors.

First, we should deepen the reform of state-owned capital and state-owned enterprises (SOEs), and increase the core competitiveness of SOEs. The three-year action plan for SOE reform has been implemented with gratifying results. We should now prepare for the formulation of a new action plan to deepen SOE reform, with a focus on strengthening core competitiveness and core functions in line with the evolving landscape. The scale of China’s for-profit state-owned assets is large. However, some SOEs deliver a low return on assets and lack innovative capabilities, which is not compatible with the requirements of making state-owned capital and enterprises stronger, better and bigger and ensuring the state-owned sector provides strategic support for the economy. Continuing with a category-based reform approach, we should help SOEs balance their economic and social responsibilities and improve the system for managing state-owned assets with a priority on capital management. We should give full play to the role of companies responsible for the investment and operation of state-owned capital, press ahead with market-based merging and restructuring of SOEs, and develop a number of innovative SOEs. We should improve modern corporate governance of SOEs with distinctive Chinese characteristics and see that they truly operate on market mechanisms and develop themselves into world-class enterprises at a faster pace.

Second, we should further improve the environment for developing private businesses and promote the growth of the private sector. The private sector plays an important role in economic and social development, employment, fiscal revenue, and scientific and technological innovation. We should ensure equal treatment for SOEs and private businesses in laws and institutions, and encourage and support the growth of the private sector and private businesses with favorable policies and media coverage. We should protect the property rights of private enterprises and the rights and interests of entrepreneurs in accordance with the law. We will thoroughly review and revise laws, regulations and policies concerning businesses and steadfastly remove barriers to equal market access. We should refine the institutions for ensuring fair competition and oppose local protectionism and administrative monopolies to open up more space for private enterprises. We should strengthen management and services for micro, small and medium-sized enterprises (MSMEs) and support the development of MSMEs and individual businesses. Officials at all levels should take practical steps to help private businesses resolve difficulties and cultivate a cordial and clean relationship between government and business. SOEs, private businesses, and foreign-funded companies should all operate in compliance with laws and regulations.

IV. Redoubling Efforts to Attract and Utilize Foreign Investment

China’s utilization of foreign capital continued to grow at a fairly rapid pace in 2022. Across the globe, both developed countries and emerging economies have made attracting and utilizing foreign investment a major state policy, generating more intense international competition for investment. To promote high-standard opening up, we need to leverage the strengths of China’s enormous market and attract global resources and production factors with our strong domestic economy. We must not only retain existing high-quality foreign investment but also attract more. These efforts will help improve the level and quality of trade and investment cooperation.

First, we should expand market access. We should shorten the negative list for foreign investment as appropriate, and open the modern services sector wider. We should give full play to the role of pilot free trade zones, Hainan Free Trade Port, development zones and bonded areas, and other platforms that serve as forerunners and testing grounds for opening up. Policies on foreign investment access that have already been announced must be implemented without delay.

Second, we should improve all aspects of the business environment. To promote fair competition, we should implement national treatment for foreign-funded companies and ensure that they can participate in government procurement, bidding, and standard-setting on an equal footing and in accordance with the law. Greater protection should be provided for intellectual property rights and the legitimate rights and interests of foreign investors. We should take active steps to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the Digital Economy Partnership Agreement (DEPA), and other high-standard economic and trade agreements. Deeper reform should be carried out in related areas to actively promote alignment with corresponding rules, regulations, management practices, and standards.

Third, we should take targeted steps to improve services for foreign-funded companies. We should strengthen communication and exchanges with foreign investors, provide as much convenience as possible for foreign businesspeople coming to China for trade and investment negotiations, and see that Chinese economic and trade professionals regularly travel overseas to attract foreign investment.

V. Forestalling and Defusing Serious Economic and Financial Risks

We must address both symptoms and root causes, and balance short-term and long-term objectives to forestall systemic risks.

First, we should guard against systemic risks triggered by the real estate sector. The real estate sector has a significant impact on economic growth, employment, fiscal revenue, residents’ wealth, and financial stability. We must strike a balance between preventing systemic risks and guarding against moral hazard, and we must make every effort to handle risks to ensure steady development of the real estate market. All regions and relevant departments should shoulder their respective responsibilities. We should adopt city-specific policies to improve market expectations, expand effective demand, support people in buying their first homes or improving their housing, facilitate the implementation of childbirth and talent policies, and address the housing difficulties faced by our people, especially new urban residents and young people. We should encourage local governments and financial institutions to expand the supply of government-subsidized rental housing and to study ways to develop the long-term rental housing market. Based on the premise that housing is for living in, not for speculation, we should conduct an in-depth analysis of major trends and structural changes in both the supply-demand relationship in the real estate market and the pattern of urbanization. We should move faster on fundamental policies for the medium and long term, to eliminate the long-standing problems arising from a development model based on high debt, high leverage, and high turnover, and facilitate a smooth transition to a new model of development for the real estate sector.

Second, we should forestall and defuse financial risks. The financial sector is integral to China’s overall development. We must coordinate efforts to guard against major financial risks and moral hazard and verify that all stakeholders fulfill their responsibilities. To ensure that no regional or systemic financial risks arise, we must be ready to respond to issues promptly. We should strengthen the centralized, unified leadership of the Party Central Committee over financial work and expand the reform of the financial system.

Third, we should forestall and defuse local government debt risks. We must ensure that provincial governments shoulder the primary responsibility for preventing and resolving hidden debts. We need to step up efforts to deal with existing hidden debts, improve the mix of debt maturities, and reduce the burden of interest payments. We should steadily bring hidden and legally mandated local-government debt under unified supervision, reduce existing debt, and resolutely curb the creation of new debt. We should prohibit any forms of disguised borrowing and prevent local SOEs and public institutions from becoming platforms for local financing. We should strengthen holistic governance over local government financing platform companies and facilitate their transformation on a category-by-category basis. We should extend reform of the fiscal and taxation systems, improve the system of transfer payments, and put in place a sound fiscal system at and below the provincial level. We must work steadily to improve the local tax system and make sure that local governments have a steady source of financial revenue to pursue self-development.

There are many other important tasks to be completed in 2023. We must promote rural revitalization, ensure stable grain output, resolutely prevent any large-scale relapse into poverty, facilitate the flow of production factors between urban and rural areas, and build a beautiful and harmonious countryside that is desirable to live and work in. A new round of initiatives should be launched to drive deeper reform across the board, with a particular focus on building a high-standard socialist market economy and promoting high-standard opening up. We must make good preparations to ensure the success of the Third Belt and Road Forum for International Cooperation and promote the high-quality development of Belt and Road cooperation. It is important that we continue to pursue major strategies for regional development and for coordinated development between regions, and promote complementary development between all regions, with each region fully leveraging its strengths. As we transition towards green economic and social development, we must coordinate our efforts to cut carbon emissions, reduce pollution, expand green development, and pursue economic growth. We should create conditions for expediting the transition from dual control over the volume and intensity of energy use to dual control over the volume and intensity of carbon emissions. We should continue working to keep our skies blue, waters clear, and lands clean and build a beautiful China.

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

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