Lou Jiwei's article: Grasping the four key stages of high-quality economic development | High quality | Economy
The Chinese economy is gradually shifting towards a stage of high-quality development, and it is mutually reinforcing with global economic development. It is difficult for any force to decouple China from the global economy. I will mainly discuss several views on the high-quality development of the Chinese economy in conjunction with fiscal policies.
The reform and opening up has opened up a stage of rapid economic development
In 1992, China established the reform goal of a socialist market economy system. In 1994, through comprehensive and key breakthroughs in supporting reforms, including tax system, tax sharing system, market access, financial reform, RMB current account convertibility, and the lifting of price administrative controls, the market began to play a fundamental role in resource allocation. Reform and opening up are constantly advancing. In 2001, China joined the World Trade Organization and became a developing country actively integrating into economic globalization. It can be said that reform and opening up is the foundation of China's high-speed and high-quality development.
Another important factor supporting China's rapid development is the demographic dividend. The large population born in the 1950s and 1960s entered the employment period in the 1980s, when the dependency ratio was low and the labor force was abundant. In the production function, it manifests as low returns on labor factors and high returns on capital factors, delaying the diminishing effect of capital returns, increasing the proportion of investment to GDP, and promoting economic growth. At the same time, the export of labor-intensive products has a huge competitive advantage and has also driven economic growth.
Another special reason is that since the reform and opening up, China has formed a pattern of competition among different regions to maintain high growth. There are pros and cons to this. During a period of time, it has indeed promoted rapid economic growth, but there have also been instances where some places may exceed their financial resources and engage in illegal borrowing to carry out basic construction.
In 1998, in response to the impact of the Asian financial crisis, China implemented an expansionary fiscal policy, mainly to increase the fiscal deficit and concentrate funds on infrastructure construction. At that time, infrastructure was in a very weak state, and expansionary fiscal policies provided stable cash flow for some infrastructure projects. More importantly, the effective improvement of infrastructure and the continuous optimization of the business environment have supported economic growth.
Entering a new era and gradually transitioning towards high-quality development
The negative effects of focusing too much on growth rate and not on growth quality have begun to emerge. There is overcapacity in products related to large-scale infrastructure investment, such as steel, cement, and chemicals. In 2008, in response to the impact of the international financial crisis, some regions began to borrow heavily for infrastructure construction, leading to a rapid increase in local government debt and a rapid rise in real estate prices. A large amount of financial assets have entered the local implicit debt and real estate sectors, leading to a shift from real to virtual finance and containing systemic risks. The ecological environment has deteriorated, with severe water and air pollution. In 2013, there were only 176 days of good air quality in Beijing. The trend of aging population is evident, with a decrease in the working age population and a rapid increase in labor costs. At the same time, the income gap between urban and rural areas and between regions has widened.
In July 2013, the Central Committee of the Communist Party of China proposed that China's economy is in a period of "three phases overlapping", namely a period of shifting growth rate, a period of painful structural adjustment, and a period of digestion of early stimulus policies. Next, China has taken a series of measures and the economy has begun to transition towards high-quality development.
Control air pollution nationwide. By changing heating methods, shutting down high polluting enterprises, and strengthening water pollution treatment measures, the ecological environment is gradually improving. From 2013 to 2022, the number of days with heavy pollution decreased by 92%. Among them, the number of days with good air quality in Beijing increased to 286 in 2022, and the number of days with heavy pollution decreased from 58 to 3.
Winning the battle against poverty. Through measures such as improving infrastructure, developing characteristic industries, increasing investment in special poverty alleviation funds, and providing targeted assistance to developed regions, all 98.99 million rural impoverished people under current standards have been lifted out of poverty.
Implement the "three reductions, one reduction, and one supplement" task, which includes five key areas of work: reducing production capacity, reducing inventory, deleveraging, reducing costs, and addressing weaknesses. The Central Committee of the Communist Party of China has put forward targeted requirements such as "adhering to the positioning that houses are for living, not for speculation", "resolutely curbing the addition of implicit local government debt", and "guarding the bottom line of preventing systemic risks", guiding the economy to continue its transformation towards high-quality development.
Several key points for achieving high-quality development
The report of the 19th National Congress of the Communist Party of China proposed that China's economy has shifted from a stage of high-speed growth to a stage of high-quality development. This significant judgment is also a systematic understanding of the transformation in the previous stage. The report of the 20th National Congress of the Communist Party of China further proposes that high-quality development is the primary task of comprehensively building a socialist modernized country. Our country's economy is shifting towards a stage of high-quality development, and we need to take improving the quality of the supply system as our main focus. We need to completely change the extensive growth that relied mainly on factor input, scale expansion, and neglecting quality and efficiency, as well as the resulting problems of overcapacity, inventory backlog, increased leverage, increased risks, low efficiency, environmental pollution, and insufficient public services. To achieve high-quality development, appropriate policies need to be adopted, and institutional and mechanistic reforms are even more necessary.
Firstly, maintain an appropriate growth rate. The economic growth rate used to be around 9%, gradually shifting to 6% to 7%, and the potential economic growth rate in the next five years should be between 5% to 6%. With the intensification of population aging, it may drop to 4% to 5% in another 5 years. In the short term, macroeconomic regulation policies are crucial, and economic growth should be maintained at potential growth rates as much as possible without generating inflation.
If there are no special circumstances, the economic growth rate this year will exceed 5%. Considering last year's low base, it is still lower than the potential growth rate, which is not conducive to maintaining full employment. Adding external unfavorable factors, it is necessary to increase the intensity of fiscal and monetary policy expansion overall. Moderate reduction of interest rates, and more importantly, timely adjustment of budgets to increase fiscal deficits, mainly by increasing the central deficit. Most of the subsidies are used for phased subsidies such as rent, water and electricity, and interest for small and medium-sized enterprises. Depending on the operational status of the enterprise, fiscal subsidies can be directly credited to the account; A small portion can be transferred to local governments to alleviate local financial difficulties, while resolutely punishing arbitrary fees and fines, and creating a good business environment. Appropriately increasing local fiscal deficits is mainly not for adding new construction projects, but to make up for the arrears of existing projects.
According to the calculation method of international traffic flow, the degree of fiscal policy expansion or contraction can be accurately evaluated. Scientific analysis should be conducted to adjust the budget in a timely manner. The scar effect caused by the epidemic is quite serious, and enterprises, residents, and local governments are repairing their balance sheets. Confidence recovery also requires a process. Only when the balance sheet becomes normal and confidence is restored, can companies dare to invest. Only when the employment situation improves and residents have confidence in future income, can they dare to consume. Correspondingly, fiscal revenue will also increase.
Secondly, shift from investment driven to consumption driven. For a considerable period of time, China's economic growth relied on government investment to leverage private investment. After a certain stage of capital accumulation, the effect will gradually weaken. At present, the proportion of final consumption to GDP is about 54%, which is lower than the international average. In the future, this proportion should be above 60%.
China is the world's second largest consumer market and the largest trading partner of more than 120 countries and regions. It has sustained attractiveness to global investment and needs to accelerate the formation of a new development pattern with domestic circulation as the main body and domestic and international dual circulation promoting each other. There is still vast room for growth in the consumer market. At present, most migrant workers work in urban areas and temporarily reside there. Allowing about 290 million migrant workers to truly settle in urban areas will significantly increase consumption, generate new employment opportunities, and help improve income distribution fairness.
Thirdly, break the dual structure of urban and rural areas. The requirement for high-quality development is comprehensive and more focused on the supply side. We must continuously improve labor efficiency, capital efficiency, land efficiency, resource efficiency, and environmental efficiency, continuously enhance total factor productivity, and improve the efficiency of production factor allocation through structural reform. At present, the biggest impact on allocation efficiency is the urban-rural dual structure, where labor and land, as the most basic and important production factors, cannot flow smoothly between urban and rural areas. Only by accelerating the transfer of rural labor to urban areas can rural industries become competitive and generate sufficient market demand. Breaking the urban-rural dual structure should be a key aspect of further reform.
The Third Plenary Session of the 18th Central Committee of the Communist Party of China proposed that the dual structure of urban and rural areas is the main obstacle to the integration of urban and rural development. Therefore, it is necessary to break through the dual structure of urban and rural areas, truly achieve integrated development of urban and rural areas, and form a unified national market. At the same time, the reform will involve significant legal amendments and related interest adjustments, which need to be gradually explored. Over the years, a large number of reform explorations have indeed been carried out and phased progress has been made.
Fourthly, address issues that affect sustainable fiscal development. Firstly, it is necessary to distinguish between the short-term and long-term effects of fiscal policies. If scientific analysis suggests that short-term fiscal policy needs to expand, it is necessary to increase the fiscal deficit in a timely manner to restore the economy to a normal state as soon as possible. This approach has the lowest cost and will not affect the sustainability of the fiscal system. If it is believed that certain policies have institutional deficiencies, structural reforms should be carried out to make up for them, in order to avoid long-term financial pressure and damage to fiscal sustainability.
For example, the institutional design of our social insurance system is not perfect enough, which affects the balance of the operation of social insurance funds. At the beginning of this century, Nordic countries encountered the problem of unsustainable social pension systems. They promptly revised the system, made national actuaries every year, and announced the results to the society, striving for consensus among the whole society. Based on this, they adjusted the retirement age, payment standards, and payment substitution rates. The experience in this regard is worth learning from.
Finance is the foundation and important pillar of national governance, which includes maintaining long-term sustainability of finance, which is also an inevitable requirement for high-quality economic development.
