Chen wenling: High-quality Development Has Strategic Significance

Speech delivered by CCIEE Chief Economist Chen Wenling at “2019 CCTV Financial Forum”

I would like to thank CCTV for inviting me to this forum. The theme of the forum is “High-quality Development”, which is a great topic. At the recently-concluded Central Economic Working Conference, several important tasks have been proposed and one of them is to promote high-quality economic development.

Why did CCTV choose “High-quality Development” as the theme of today’s forum? Among the tasks arranged at the Central Economic Working Conference, high-quality development is of particular strategic significance. China’s economic growth has moved from a high-speed growth stage to a high-quality development stage and high-quality development is not a temporary tactical choice, but a major strategic decision. It is very important to implement the arrangements made at the 19th CPC National Congress, especially the requirements of the Central Economic Working Conference on high-quality development. Here, I would like to share three viewpoints with you on high-quality development.

First of all, high-quality economic development is a major deployment for achieving China’s two hundred-year strategic goals. It is a strategic choice for connecting the two hundred-year strategic goals seamlessly.

The first hundred-year goal shall be achieved before the hundredth anniversary of the Chinese Communist Party’s founding, including the battles before 1949, nearly 30 years of reconstruction before the reform and opening up and the rapid economic development in the 40 years of reform and opening-up. During the period of reform and opening-up, the average annual economic growth rate was close to 9%, or 8.84%, a more accurate figure calculated by some experts. In fact, the average annual growth rate of GDP was 9.6% before 2008. Last year, the growth rate was 6.6% and this year, the growth rate is expected to reach 6.2% approximately. Furthermore, US President Trump has sent a very clear message today that he would sign a trade agreement with China, implying a phased ceasefire between China and the United States, which will bring better expectations to the world economy, the United States and the Chinese economy. Although the fourth quarter will end soon, China’s economic growth rate may pick up before the end of this year. The Sino-US trade has begun to release its goodwill since October as the US increased its exports to China. For example, the contract for soybeans imports was close to 20 million tons and the contract for pork imports is 1.6 million tons. The US government has extended the supply deadline to China’s Huawei several times. Therefore, I think that China’s GDP growth should be around 6.2% this year.

In terms of the economic task deployment for 2020, the Central Economic Working Conference did not announce that the GDP growth rate should become an economic indicator. In my opinion, this is progress because GDP growth is the result of economic operation and should not be treated as a directive indicator like it was during the planned economy period. Since the 11th “Five-Year Plan” period, GDP has become a guiding indicator, and the binding indicators have been classified as energy conservation, consumption reduction and emission reduction. I believe that this change reflects a strategic replacement and China’s economic growth will undergo the following transformations from now on to the 14th “Five-Year Plan” period.

 First of all, Chinese economic development will shift from speed-focused to high-quality development. Secondly, the structural optimization of China’s economy will become more important than its size. Thirdly, the Chinese economy will shift from extensive growth to intensive growth. Lastly, the Chinese economy will shift from a vertical division of the global industrial chain to horizontal division. Actually, the horizontal division of the global industrial chain between China and the international community has already begun. During the first 30 years of reform and opening up, Chinese manufacturing has been in the middle- and low-end of the global industrial chain. During the 14th “Five-Year Plan” period, China will strive for a horizontal division of the global industrial chain.

China is the first country that commits to the Copenhagen Accord, the country that leads the global implementation of the Paris Agreement, and a leading country that implements the concept of green development. I believe that high-quality development is a natural and inevitable choice of China and a precondition for building a socialist modernization power. China’s regional structure, industrial structure, financial structure, trade structure and population will undergo major adjustments. According to the spirit of the Central Economic Working Conference, the structural adjustment will be faster and a new layout for high-quality development will be created.

Secondly, high-quality development is a strategic choice for China to move to the forefront of the times amid the increasingly fierce international competition, especially the increasingly complex and changing international environment.

The world’s most powerful country has treated China as the biggest strategic competitor and has taken actions to contain China so that it could maintain its leadership, such as the trade war, the war in science, technology and finance. Shortly before his departure from the white house, former US President Barack Obama made a speech at the West Point Military Academy, saying that the United States would lead the world for at least another 100 years. The current president Trump said that America’s interests come first. He opposes globalism and promised to make the United States great forever. During my conversations with many Americans, I said that according to the forecast of the World Bank, 7 of the world’s top 10 countries will be developing countries and emerging economies by 2050. China will be the first, followed by India and the United States. Based on the forecast of PricewaterhouseCoopers, 6 of the world’s top 10 countries will be developing countries and emerging economies by 2050. China will be the first, followed by the United States and India. I do not know if the United States is ready for this change? Undoubtedly, China will have the world’s largest economy in the future.

Is it good enough if only the size of China’s economy ranks the first? The answer is No. To achieve the second hundred-year goal and build a socialist modern power, we must become a strong country according to the international standard and recognized by the international community, not just a country with Chinese characteristics. A strong country should have the best quality-development. Ministers Li Yizhong and Miao Wei have just said that China’s manufacturing industry still belongs to the third-tier country. I think that China’s manufacturing industry is now moving to the second-tier and will become one of the leading countries after decades of hard work.

The world today has undergone profound changes and adjustments. China’s relations with the world’s largest power have also experienced significant adjustments. The world’s superpower treats China as a competitor and China needs to make a response accordingly. In the report of the 19th National Congress of the Communist Party of China, President Xi Jinping pointed out that China is approaching the center of the world stage, especially in the past two years. Undoubtedly, the two biggest competitors or rivals will be China and the United States.

I have participated in many discussions and meetings on Sino-US relations, including closed-door meetings. I can see that many senior strategists in the United States are very worried about the competition between China and the US. Dr. Henry Kissinger said at the “New Economy Forum”, co-organized by CCIEE and Bloomberg in November that if the United States and China continue to confront each other, it will bring more serious disasters to the world than World War I and II. At the United Nations General Assembly in September this year, UN Secretary-General Guterres said that the world is facing a major split and the competition and opposition between the two largest economies in the world will divide the world. Each of the two countries will have their own trading system, financial system and Internet system, which will be a disaster and rewrite the world’s geo-economic and even geo-military strategies.

The competition among the world’s major powers is becoming increasingly fierce, and countries are constantly teaming up in accordance with their interests. For example, in terms of free trade and multilateralism, more countries are on the side of China, but in terms of WTO reform, especially whether China can still maintain its status as a developing country, more countries may be on the side of the United States. They will choose their side according to their national interests.

China’s current economic volume, sustained and rapid economic development, achievements in poverty alleviation, green development, energy conservation, consumption reduction and emission reduction have gained appreciation worldwide. China’s “Belt and Road” initiative has also received positive responses from countries and international organizations. So far, 139 countries and 30 international organizations have signed 199 “Belt and Road” related cooperation agreements with China. Americans are very concerned about the “Belt and Road” because they are wondering if China wants to build another system? I told them that no countries will take part if the initiative can not bring them any benefits. The building of the “Belt and Road” can bring everyone a common hope because we all have common interests, aspirations and expectations.

China has made significant progress in its economic development and has every confidence in its development path, theories, institution and culture. However, the quality of China’s economic development is not enough to make it a world leader. For example, in terms of original technology innovation, basic research and education, we are behind the United States. The average education expenditure of the US is 8 times higher than that of China. The United States spends 2.58% of its GDP on R&D and this figure is 2.19% in China. Our military expenditures are not comparable to those of the United States. In terms of military expenditures, the US spent $700 billion in 2018 and 719 billion in 2019. In 2020, the budget is 750 billion, accounting for 40% of the global military expenditures, which is much higher than that of China.

The shortcoming of China is not about the economic size or total manufacturing output, but the quality of economic development and manufacturing. In the past, the total manufacturing volume of China was incomparable with that of the United States. For example, the output value of the US manufacturing industry once accounted for 50% of the world’s total during World War II, 33% when China launched its reform and opening up and currently, it accounts for 15% of the world’s total only. However, China’s manufacturing outcome accounts for almost 30% of the world’s total. In terms of manufacturing output, market and trade, China has a bigger size than the US. Since 2013, China has become the largest exporter and second-largest importer. The market dividend has become the biggest dividend in China. In 2018, the total value of China’s trade, retail sales and real estate market transactions was 363 trillion RMB. Obviously, China has become the world’s largest market.

However, the United States spends much more money on basic education and research than China. Funding for basic research in the United States is very different from China’s financial subsidies. In China, the governments give direct subsidies to enterprises but in the United States, subsidies were given through bidding and procurement methods. Normally, a commercial contract is signed between the government and companies and the company must complete the project according to the contract. The contracts are commercialized and market-oriented. For example, the US Department of Defense spends 20% of its annual funding on basic research. At the very beginning, the Internet is a project commissioned by the US Department of Defense for military purposes, later it has become a civilian technology and eventually, the global Internet revolution.

The GPS positioning system is also military project research commissioned by the US Department of Defense. As can be seen, the R&D funds have been given to many enterprises or research institutions through commercial contracts. Every year, the US spends hundreds of billions of dollars on basic research and development, which is equivalent to 4 trillion RMB. The United States subsidizes companies in the form of procurement policies, which is a commercial operation. Companies have to complete the commissioned project according to the signed contracts and provide the governments with a return on their investment. This is why the United States can lead the world in science and technology.

The long-arm jurisdiction of the US has made a great impact on the world because it uses domestic laws to sanction countries and businesses that do not act in the interests of the United States. In the past 10 years, the United States has received a fine of 320 billion from the rest of the world as a result of its long-arm jurisdiction. Under the US Treasury, there is a special agency, which fines companies, institutions and individuals in violation of US regulations and laws. In order to win the competition among big powers, China needs to achieve high-quality development, have more highly-skilled professionals, promote high-level management and improve governance. Personally, I think that we need to conduct more research studying what kind of national system and method are being used by the United States to maintain its leading position in science and technology, military and economy.

The Sino-US trade war is completely different from all trade frictions and trade wars in history. The biggest change is that the fourth scientific and technological revolution, industrial revolution, economic globalization and the fifth manufacturing shift are happening simultaneously and they are closely connected, which has never happened before. This is a once-in-a-lifetime opportunity and we can finally stand on the same starting line with western developed countries in this ultra complex economic system. If we want to overtake our competitors, we can no longer reply on extensive development model, instead, we should shift to high-quality development. This is the only way we can improve our weak links and make China a leader in the scientific and technological revolution, industrial revolution and economic globalization.

China has the basic conditions for high-quality development. First of all, China has created a solid material and technological foundation in the past 70 years. Secondly, China has a large market and huge potential in domestic demand. In 2018, the total market value was about 363 trillion yuan and in 2019, it may reach 400 trillion yuan, of which international trade will be 33 trillion yuan, retail sales of consumer goods will be 40 trillion yuan, 14 trillion yuan in real estate and 310 trillion yuan in the logistics market. The huge market of China will become its largest dividend in the future. Apart from its market size, the modern distribution of products will also become the core competitiveness of China. For example, the Canton Fair has been held for more than 120 times, and the Shanghai Import Expo has been held twice so far, plus more than 4,000 wholesale markets like Yiwu, this will enable China to become the world’s largest trading center. Such a change will play a significant role in improving the quality of China’s economic development and forming a circulation-oriented economic operation mode. In the future, we need to promote the transformation and upgrading of the manufacturing industry while making better use of the role played by the market and modern circulation.

Recently, the Minister of China’s Ministry of Industry and Information Technology said that 80% of China’s manufacturing is still traditional industries and thus, we must promote the transformation and upgrading of traditional industries. If China’s enterprises of traditional industries can become world champions and industrial giants, it means that we have achieved high-quality development. If all Chinese companies strive for producing the best products, just like what Fuyao Glass did, they will become undefeatable. Many traditional industries still have great development potential. There are no backward industries, only outdated management, production and mentality.

China has created a foundation for high-quality development in manufacturing because we have great human resources. During the transition of the two hundred-year goals, we can steadily move our industries towards the mid-to-high end of the global industrial chain, become one of the high-income countries and allocate international resources efficiently. China has an excellent development prospect.

At the beginning of the Sino-US trade war, everyone was fearful of the sanctions imposed by the United States. 20 months later, however, we have not only gained more confidence but also a better understanding of the US and China. We need to improve our weak links by upgrading and transforming the manufacturing industry. Otherwise, some of the Chinese enterprises will breakdown in just one day if other countries refuse to supply them with certain core technology or products. China must follow the path of high-quality development and improve its weak links as soon as possible.

Actually, China has already made great progress in high-quality economic development. For example, according to the innovation evaluation released by the World Intellectual Property Organization on July 24, 2019, China has jumped to 14th place. The latest “Fortune 500” list shows that 129 of them are Chinese companies and 121 come from the US. For the first time, China has more “Fortune 500” companies that the US. Among the 494 unicorn companies selected by the Forbes Research Institute, 206 of them come from China, 203 in the United States, 35 in Europe, 21 in India, 13 in the United Kingdom, 7 in France and 2 in Japan. The World Intellectual Property Organization’s report shows that China’s patent applications, trademark applications and industrial designs rank the first in the world, of which patent applications account for 46% of the world’s total and industrial design accounts for 54%.

Apart from the advantages in infrastructure, human resources and large market, China also has a complete manufacturing system, covering 41 major categories, 191 medium categories and 525 small categories. The products produced by the US manufacturing industry only accounts for 40% of its domestic market and the value of the US manufacturing industry accounts for 11% of the value-added of its GDP. In other words, the US manufacturers can only satisfy 40% of its domestic demand, which is why the United States has a large trade deficit with China and other 102 countries. The trade deficit of the US demonstrates that the US needs the manufacturing and supply capacities of other countries. No other countries have created such a demand for the US. We do not want the trade war but we are not afraid of it. The trade war will make the United States lose its credibility in the international community.

Thirdly, the most important thing of high-quality development is the supply of great thoughts, institutions and the improvement of national governance.

Six tasks were proposed at the Central Economic Working Conference and the first one is about the concept of development. High-quality development must be guided by great ideas and systems. To implement the requirements of the Central Economic Working Conference, we must study the objective laws of economic and social development and the trends of China’s economic and social development. Furthermore, we should sum up the experience of China’s development and continue to explore the possible paths for China’s future.

The future has come. If our thinking can not keep up with the development trend, or if our policies do not meet the needs of implementations, many new economies, formats and business models will be hindered. The conversion between old and new kinetic energy will also be hindered. High-quality development requires high-quality theory and ideological guidance.

The Central Economic Working Conference made it very clear that we should oppose all forms of formalism and bureaucracy. Local governments, enterprises and civil servants should be released from extensive bureaucracy and concentrate on economic work. They should work hard on studying how to improve China’s high-quality development, rather than just sit and prattle about general principles. In some places, formalism and bureaucracy are everywhere. During my fact-finding trips, some local officials told me that they spend most of their time on various meeting every year and hence has no time to do real jobs. How can we promote high-quality economic development under such kind of circumstances? The reason why China’s reform and opening-up could promote rapid economic development lies in the release of productive forces, the transformation of production relations, the emancipation of thought and the vitality of micro-subjects.

Therefore, I agree with the proposal for opposing all forms of formalism and bureaucracy. Bureaucracy will not promote high-quality development but reduce the quality and speed of economic development.

China has the foundation and conditions for making itself a good example of high-quality development. For instance, Shenzhen has become an innovative international city and some Japanese delegations traveled to Shenzhen to learn from its experience. During the Sino-US Trade war, the first group of companies sanctioned by the United States comes from Shenzhen. 80% of the 216 Chinese companies sanctioned by the US are private enterprises and 80% of the private enterprises are high-tech companies, which may pose a threat to the United States and even surpass their US counterparts.

The Chinese nation has a history of 5,000 years and the source of Chinese culture is the integration of Confucianism, Buddhism and Taoism. Sakyamuni is a foreign culture but it has become a very valuable part of Chinese culture. Thus, Chinese culture is an inclusive culture. We have every confidence in promoting China’s high-quality development. In the future, we must adhere to our own principles, focus on original creation and basic research, work mainly on the real economy and manufacturing industry, but also value the experience from other countries, pay attention to the monetary capital and service industry. I think that we should adjust our mentality, otherwise we will not be able to get out of the Western ideological system and the confusion caused by changes in the world situation.

China is on the road to a modern socialist country. It will move forward but the United States is declining. If China and the United States could deepen cooperation, this will help the United States to maintain its status as a world power. If the United States adopts a bullying policy, continues to contain China and launch attacks on other countries, the US will suffer from a more serious decline. The world faces unprecedented changes and the biggest variable is the trend of the Sino-US relations. I believe that the United States will eventually realize its strategic misjudgment and give up its unwise decision.

When China’s GDP was overtaking Japan, the entire Japanese nation was anxious and the relationship between Japan and China was very tense. Today, China’s total GDP is 13.6 trillion US dollars but Japan’s GDP is 5 trillion only. In about two years, China’s GDP will be almost three times of Japan. Currently, China’s total economy accounts for 66% of the United States. When China’s GDP equals that of the United States, the United States may re-examine its relationship with China. When China’s economy is twice more than the United States or the per capita GDP of China is as same as the United States, the United States might treat China properly or as a strategic partner, which is a long-term process. China’s experience, plan, ideas, including the “Belt and Road” initiative have brought hope to the world. As long as we do not make strategic or subversive mistakes and oppose all forms of formalism and bureaucracy, China will make great success continuously.

Thank you all!