Drive the “Chinese Miracle” into a New Era

By Zhang Maorong

from “Made in China” to “Created in China”,

emphasis on quality rather than speed of growth,

from quantity to quality.

The three-day Central Economic Work Conference was held in Beijing from December 18th to 20th. “Xi Jinping Thought on Socialist Economy with Chinese Characteristics for a New Era”, which emphasizes that the fundamental requirement of China’s economy is high-quality development, was presented and discussed. Supply-side structural reform is the biggest theoretical and practical driver of high-quality development.

Two Positive Effects of Supply-side Structural Reform

Supply-side structural reform is key to China’s economic stability and recovery, which has two positive effects:

On one hand, we need to improve the supply-demand relationship by reducing ineffective supply of low-end goods and services, so that industrial sectors can cope with deflation and corporations can improve business conditions, recover profitability, and optimize industrial structures.

On the other hand, there is a need to press ahead with new technology, new industries, new products, and new business models by transferring the resource allocation released from supply-side reform to innovative production activities, in order to invigorate sustainable and healthy economic development.

The Focus of Reform is to Improve the Real Economy with Manufacturing as the core

President Xi Jinping proposed that in developing a modern economy, we must focus on the real economy, and give priority to improving the quality of the supply system.

Central Economic Work Conference indicated, “It’s significant to promote the continued rapid growth of new momentum, speeding up the optimization and upgrading of the manufacturing industry as well as continuing to focus on five priority tasks- cutting overcapacity, reducing excess inventory, deleveraging, lowering costs and strengthening areas of weakness. There will be a shift from “Made in China” to “Created in China”.

In order to speed up the development of advanced manufacturing, the conference made it clear that the real economy must be integrated with the digital economy, and that information must be integrated with industrialization.

Innovation is key to Supply-side Structural Reform

Supply-side structural reform cannot be completed without innovation. Innovation is the primary driving force behind development; it is the strategic foundation of a modernized economy.

In the past five years, the vigorous implementation of China’s innovation-driven development strategy has helped to build an innovative country. Success with major scientific and technology breakthroughs such as the Tiangong space lab, the “Jiaolong” deep sea submersible, the Chinese “sky-eye” single-aperture spherical telescope, the “WuKong” dark matter detection satellite, the “Mozi” quantum satellite and the production of large commercial aircraft has fully demonstrated the improvement in our innovation capability.

On this basis, the 19th CPC National Congress presented a major fast-track strategy of making China a country of innovators and building a modern economic system.

Last month the Ministry of Science and Technology approved the establishment of six major national research centers, with the goal of focusing on the world’s scientific and technological frontiers, and strengthening scientific and technological innovation.

China’s Supply-side Structural Reform has achieved Remarkable Results

China’s supply-side structural reform is making steady progress. In 2017, the reduction of excess capacity in steel, coal and power industries surpassed its targets in advance. In the first two years of the 13th Five-Year Plan period, we removed 440 million metric tons of coal production capacity and reduced steel production capacity by around 115 million metric tons. It is hoped to accomplish the task of cutting overcapacity on time or in advance in 2018.

The first Technical Assessment Report on the Progress of G20 Structural Reform released by the Organization for Economic Cooperation and Development (OECD) (June 2017) noted that structural reform in China has made positive progress, especially in the areas of better productivity, stable employment, and higher incomes.

The reform is having a significant impact in China’s business conditions.

Figures for the last three years show that industrial profits declined by 2.3% year-on-year in 2015, but increased by 8.5% in 2016. During the first 10 months of 2017 they grew by 23.2 percent, 14.8 percentage points higher than in 2016.

In the same time, the proportion of value-added in tertiary industry rose from 44.4% in 2011 to 52.9% in the first three quarters of 2017; more than 2/3 of economic increase was driven by consumption rather than investment and export.

Supply-side structural reform has promoted the growth of new technologies, new industries, and new business models in China.

The venture capital sector uses the term “Unicorn” to describe start-ups that have been valued at more than $ 1 billion but not yet listed because they are precious and rare. By July 2017, the total estimated value of “Unicorns” in China had reached 36 billion U.S. dollars – much higher than the corresponding figure of 22 billion U.S. dollars in the United States. China’s position as world leader demonstrates the strong innovation capability of our country.

In June 2017, the high-speed bullet train Fuxing (meaning rejuvenation), in which China has completely independent intellectual property rights, entered service. China has joined the world’s leaders in this technology, and now owns the world’s fastest high-speed train.

China also leads the world in terms of digital technology, artificial intelligence, intellectual networking, and financial technology. Beijing Zhongguancun has become the second largest target of venture capital investment in the world following Silicon Valley, and its artificial intelligence has kept pace with Silicon Valley.

Consequently, Klaus Schwab, founder and executive chairman of the World Economic Forum, has proposed that China has demonstrated its ability to lead the fourth industrial revolution.

China has become the Global Leader in Structural Reform

China’s prospects for economic growth are good, with the further implementation of structural reform.

China’s annual GDP growth averaged 7.2% from 2013 to 2016, which was higher than the world total of 2.6% and the rate of 4% in developing countries. In the first three quarters of 2017, China’s economy increased by 6.9%, which was among the highest of all the major economies.

International organizations are optimistic about China’s economy and regularly raise their forecasts for China’s economic growth. The latest World Economic Outlook released by IMF noted that China’s growth rate this year and next year is expected to rise by 0.1 percentage points to 6.8% and 6.5% respectively. This is the fourth time that the forecast for China’s economic growth in 2017 has risen. Forbes magazine said: “The “Chinese miracle ” is not over, but has entered the second era.”

China has become the global leader in structural reform. Structural reform has helped the domestic economy to transition towards high-quality, and it has become the main driving force and stabilizer of world economic growth.

In 2016, with the GDP rising to 11.2 trillion US dollars, the share of the Chinese economy in the world economy is 14.8%, which is 3.4 percentage points higher than that of 2012. China has maintained its position as the world’s second largest economy.  From 2013 to 2016, China contributed 30 percent of global economic growth. This ranked first in the world and exceeded the total contribution of the United States, the Eurozone, and Japan.

A research report released by PricewaterhouseCoopers (PWC) indicates that China has already overtaken the US as the largest economy based on GDP in PPP (purchasing power parity) terms, and could be the largest in absolute terms before 2030.  French newspaper Les Echos noted that as the “engine” of the global economy, stable economic development in China will give strong confidence to all trading partners.

Zhang Maorong

Researcher in the International Economy Department of the China Institute of Contemporary International Relations (CICIR)

Opinion articles reflect the views of their authors only, not necessarily those of China Matters