How can We Keep “the Party’s Top Priority” Abreast of the Times?

— China’s Economy after the 19^th CPC National Congress

By Mei Xinyu

Why did the party reiterate the need to “unleash and develop productive forces”?

Why should China maintain a sound and sustainable economic growth?

What is the path for China’s agricultural and financial development in the future?

After a thorough reading of the report of the 19th CPC National Congress, its key message can be interpreted as: development is still the top priority, the approach and focus should keep abreast of the times; economic development will continue to be China’s central pillar in the foreseeable future.

Xi Jinping highlighted the concept of “a new vision for development” in the report when he called on China to “adopt a new vision for development. Development is the underpinning and the key for solving all our country’s problems; our development must be sound development. We must pursue with firmness of purpose the vision of innovative, coordinated, green, and open development that is for everyone… we must actively participate in and promote economic globalization, develop an open economy of higher standards, and continue to increase China’s economic power and composite strength.” “We must unleash and develop productive forces, continue reforms to develop the socialist market economy, and promote sustained and sound economic growth.”

Why did the party reiterate the need to “unleash and develop productive forces”？

Throughout the history of the Communist Party of China, the starting point of vital political decision-making has always included the core theme of “unleashing and developing productive forces”. This applied in the first 30 years after the foundation of People’s Republic of China when the security situation was grim and the country found itself under siege, and equally so during the first phase of reform and opening up, when economic development became China’s central pillar.

Taking land reform as an example, The Land Reform Law published in June 1950, containing six chapters and 40 clauses, made clear from the very beginning of its first chapter that the basic goal of land reform was to unleash and develop rural productive forces, as the first step on the path towards the industrialization of the new China.

Why was this possible in China, when land reform in some African countries has led only to economic recession in agriculture and even across the whole economy?

The root of the difference lies in the theoretical basis and the actual implementation of China’s land reform. China’s version emphasized “unleashing and developing social productive forces”, while some countries in Africa simply used it as a tool for their economic and political power transition, totally neglecting the impact of their reform on the social productive forces.

Why should China maintain a sound and sustainable economic growth?

Socialism with Chinese characteristics has entered a new era, but the fact that China is in the primary stage of socialism remains unchanged, and the international situation that confronts us is still full of risks and challenges. Hence, development is still the Party ‘s top priority in governance.

The specific goals of development and the adjustment of the approach were addressed in accordance with a full and thorough consideration of current and foreseeable social and economic development trends.

For instance, the report pointed out that towards agriculture, rural areas, and rural people, to which the Central Committee of the CPC and the State council have always attached great importance over the years, “we will establish industrial, production, and business operation systems for modern agriculture, and improve the systems for supporting and protecting agriculture; we will develop appropriately scaled agricultural operations of various forms, cultivate new types of agribusiness, improve specialized agricultural services, and encourage small household farmers to become involved in modern agriculture.”

The idea of “developing appropriately-scaled agricultural operations of various forms” shows clearly how policy-making has changed with the times. In the past, the central committee was afraid that this might cause farmers to lose their lands and therefore their livelihoods, hence it would have been difficult for the government to promote this idea.

However, China has now become the world’s biggest industrial power. Urbanization and employment in non-agricultural sectors have maintained sound momentum over the years, so now is the perfect time for the government to break free from the shackles of traditional concepts of agricultural development. In terms of primary products such as agricultural products, policy-making in trade should now focus on consolidating and improving the efficiency and competitiveness of the national economy.

What is the path for China’s agricultural and financial development in the future?

In terms of financial sector, the report noted that “we will deepen institutional reform in the financial sector, make it better serve the real economy, increase the proportion of direct financing, and promote the healthy development of multilevel capital market; we will improve the framework of regulation underpinned by monetary policy and macro-prudential policy, and see that interest rates and exchanges rates become more market-based; we will improve the financial regulatory system to forestall systemic financial risks.”

Deeper financial reform has been a striking feature of China’s economic development since reform and opening up. The value of financial assets has increased exponentially over the years, and the range of financial services available has expanded accordingly. The share of China’s financial industry in the global market has changed tremendously compared with one or two decades ago.

The ranking of China’s financial institutions in global terms has improved dramatically and they now figure among the world’s leaders. The role the financial sector plays in underpinning national economic development, especially the stable growth that has been maintained since the outbreak of sub-prime mortgage crisis, is irreplaceable.

However, the great development of the financial industry in recent years also entails potential risks – financial resources have become more virtual, and financial debt has inflated. Such factors have pushed decision-makers to make the financial governance one of their highest priorities, to prevent any significant systemic risks.

In such circumstances, the plans for the financial sector proposed in the 19^th CPC National Congress are prudent and careful in comparison with the reports of the party congress and the two sessions in recent years – ideas like “the modernization of the financial system”, “financial innovation” and “inclusive finance” are no longer to be seen. Instead, the government has placed much more emphasis on the financial sector serving the real economy, on adopting macro-prudential policies, and on forestalling systemic financial risks.

Among the reasons for such prudence, one lies in the potential internal risks hidden in China’s financial sector; the other is the general trend towards tightening monetary policies of major countries’ central banks. This could lead to a tightening trend of global liquidity and a significant reverse in international capital flows, which will in turn escalate the risk of financial crisis.

While financial innovation can be beneficial in seizing a higher share of the market against a backdrop of expanding global liquidity, in the current situation it is more likely to generate systematic financial risks. Hence greater caution is the rational option at the moment.

(Mei Xinyu, a researcher of Academy of International Trade and Economic Cooperation (CAITEC), MOFCOM)

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