New development pattern boosts high-quality growth
The south main tower (left) of Quanzhou Bay cross-sea bridge of the Fuzhou-Xiamen high-speed railway in Fujian Province, on Sept. 15, 2020. Photo: XINHUA
President Xi Jinping has mentioned on multiple occasions this year that “a new development pattern will gradually be created which prioritizes the domestic market as the foundation while letting domestic and foreign markets boost each other.”
As the world is going through major changes unseen in a century, the creation of the new development pattern is an important strategic plan that the CPC Central Committee has developed to realize national rejuvenation. China should seek a dynamic balance and be efficiency-oriented as it makes progress through boosting domestic demand and extending the industrial chains. We should make best use of the socialist system’s advantages that enable us to concentrate resources to accomplish large undertakings. Meanwhile, we need to optimize infrastructure, accelerate the formation of a new economic development pattern and continue to drive high-quality growth.
Domestic circulation
Since China’s reform and opening up and its accession to the WTO, the country has played a huge role in the global division of labor by leveraging its comparative advantage supported by its strength in factors of production. By engaging in global merchandise trade, China has not only helped meet the global market requirements generated by globalization but also rapidly grown its GDP. However, a complete circle of production and demand has yet to take shape in China, since part of the capital resources and markets are outside China.
One of the reasons is that the scale of production in both traditional industries and advanced industries in China has grown so large in such a short time that their gross output has overflowed the domestic demand for investment goods, intermediate goods and consumer goods. Consequently, a portion of the products has to be exported, which has forced China’s downstream market to rely on international trade. In this case, when trade protectionism rises, the world economy gets sluggish and the global market shrinks, and the market demand of traditional and advanced industries, which depend heavily on the global market, will take a blow. If they fail to find another market in a short time, these industries will have to cut back output or even transfer factories.
The other reason behind China’s incomplete circle of production and demand is that advanced industries in China started late and are still lagging behind their counterparts in the global market. In the short run, these industries will find it difficult to provide all the advanced investment goods and intermediate goods which are essential throughou t the productive process.
For example, some machinery equipment and components embedded with core technologies have to be imported or made with technologies from other countries. This means China’s upstream value chain must resort to international trade for imported resources and technologies. When developed countries like the US restrict exportation of core technologies and equipment to China, China’s supply chain of both traditional and advanced industries, which rely heavily on imported technologies and materials, will be hard hit. If these businesses fail to find substitute technologies quickly, they may have to either downgrade technologies or terminate production.
Over the past 30 years, globalization has greatly driven the economic growth of China and the world, but the trend is now showing a countercurrent. As the international landscape becomes ever more complex with growing uncertainty and instability, China must be more risk-aware, opportunity-aware, and become more forward-looking. China needs to look at the bigger picture as it gradually maps out a new development pattern where domestic and foreign markets boost each other, with the domestic market as the foundation. We must put our strengths together, boost domestic demand and reduce our reliance on the global market, global resources and global technologies, by developing our own industrial chain.
Infrastructure
How China invests in infrastructure shows how the country leverages its institutional advantage in the economic field. The domains of infrastructure have gone beyond traditional infrastructure to new type infrastructure and the ones that are tailor-made for improving people’s livelihoods. Optimizing the selection of infrastructure projects helps not only boost domestic demand but also extends the industrial chain and establishes the new development pattern.
New infrastructure projects have the potential to drive a new round of scientific and technological revolution and transform industries. This means investment should concentrate on the R&D and application of new technologies, as well as the exploration of new types of businesses. By doing so, we can optimize investment demand on the demand side and upgrade industrial structures on the supply side.
Infrastructure benefiting people’s livelihoods helps to increase investment in such areas as housing, education, medical treatment and environment. By improving people’s livelihoods through infrastructure, China can directly increase investment demand and indirectly stimulate consumer demand. In the long run, improving residents’ education and health will drive capital accumulation.
Traditional infrastructure is able to enhance China’s comparative strength, and provide the necessary capital for all stages throughout the supply chain and industrial chain. Traditional infrastructure coexists harmoniously with the aforementioned two kinds of infrastructure. The three types of infrastructure now develop in tandem.
While boosting the new development pattern, we should start with three initiatives. First, identify the goals and measures for developing new infrastructure, then provide more slots for national key projects, and science and technology projects. To this end, we should build social capital to invest more in new infrastructure. Second, we should strengthen areas of weakness to improve people’s livelihoods and accelerate the construction of infrastructure for education and public health. To do this, we need to strengthen talent team building, reduce the tax burden of scientific and technological talent, and increase the share of labor income. Third, we need to fuel the transformation of production factor markets, encouraging the application of all kinds of production factors during infrastructure construction. Meanwhile, we can boost market confidence by distributing bonuses from reforms and improving income distribution.
Efficiency and dynamic balance
China’s economy has entered a high-quality development stage. This marks an important time to shift the nation’s development pattern, optimize its economic structure, and shift its growth drivers. The economy now faces intertwined problems of structural production and distribution. The new development pattern will improve production efficiency, equality in income distribution, and achieve a dynamic balance in efficiency and equality, while continuing to drive high-quality development.
First, China’s economy faces unsustainable efficiency, typical to a traditional growth model. As the return on traditional investment and the demographic dividend have both shrunk, new economic growth drivers urgently need to be put in place. The creation of a new development pattern calls for improved strength in R&D and equipment manufacturing for core technologies, as well as high-tech manufacturing industries and producer services. These measures can reduce the reliance of China’s supply chain and industrial chain on global resources and technologies. Because advanced industries are usually technology-intensive, China’s advanced industries need to enhance their capacity for independent innovation and master core technologies if they want to catch up with their competitors. Furthermore, new technologies need to be matched with new platforms. Since China is shifting from a factor-driven to an innovation-driven economy, we need to increase supply of advanced industries and their scale of application.
Second, a wide income gap remains in different parts of China. The Gini coefficient is high in China, and an urban-rural development imbalance remains. A new form of inclusive development needs to be explored. The creation of a new development pattern calls, not only for an improved income distribution system and expanded access to public services, but also an upgraded consumption structure and investment structure. This helps to reduce industries’ reliance on the global market. Misallocations of resources still exist in China’s production factor market, which requires us to optimize income distribution by reforming the production factor market and raising the proportion of labor income and resident income, to boost consumer demand and upgrade consumption structures. Also, some areas in China’s investment structure are overly invested. An improved investment structure is able to enhance investment performance, improve people’s wellbeing, and improve low-income groups’ sense of fulfillment and social welfare. This will boost domestic demand indirectly.
Finally, a new development pattern can ensure a healthy interaction between efficiency and equality by building a positive circle between production and distribution. New industries and technologies have fundamentally changed the distribution pattern of production factors, and new production factors, such as knowledge, technologies and data, are going to weigh more in the distribution system. This helps increase the ratio of labor income, enhance social mobility and achieve greater equality.
The author is an associate professor at the Lingnan (University) College at Sun Yat-sen University.
Edited by NIU XIAOQIAN
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