Zheng Xinli: Deepen Reform to Release the Four Major Growth Potentials

The “Proposals of the Central Committee of the Communist Party of China on Formulating the 14th Five-Year Plan for National Economic and Social Development and the Long-range Objectives Through the year 2035” (hereinafter referred to as the “Proposals”) were adopted at the Fifth Plenary Session of the 19th Central Committee of the Communist Party of China. The proposals define the economic development goals, strategies and priorities for the next five and fifteen years. To achieve the development goals of the 14th Five-Year Plan, we need to release four major economic growth potentials and promote economic development through reforms.

Firstly, to establish a new system for urban-rural integration and development to promote rural revitalization. After entering the “14th Five-Year Plan” period, the main structural problems facing China’s economic development is the irrational structure of urban and rural areas, and the relatively lagging development of agriculture and rural areas. If we can commit ourselves to promote agricultural and rural modernization during the “14th Five-Year Plan” or even a longer period, implement a better integration of migrant workers and develop characteristic towns to increase per capita income of the rural population, we will be able to release the huge potential for consumption and investment, and ensure a stable, healthy and high-quality economic development in the future. An important new momentum of economic development during the “14th Five-Year Plan” period will come from rural revitalization. Further reforms are needed to reduce disparities between urban and rural development.

In accordance with the requirement of “deepening rural reforms” in the “Proposals”, we should improve the urban-rural integration development, promote the equal exchange and two-way flow of various production factors between urban and rural markets, and enhance the vitality of agricultural and rural development. Among them, the reform of the rural land system is the key. The reform of the “three-rights separation” of contractual land is progressing steadily: through the transfer of land management rights, the scale and mechanization have been increased, thereby increasing agricultural labor productivity and land output.

Furthermore, the “Proposals” recommends various measures to ensure effective use of idle rural land resources, which will bring huge system dividends to the rural area. It has been approved that revitalizing idle homesteads and capital in the countryside, and attracting social capital is important for the prosperity of the rural economy. The entry of urban production factors will activate the dormant productivity in rural areas and meet the ever-increasing demand for agricultural products, vitalize rural economy and eventually reduce the urban-rural gap.

Secondly, to improve the incentive mechanism for scientific and technological innovation and promote the development of strategic emerging industries. The development of strategic emerging industries is an important part of accelerating the development of a modern industrial system. The “Proposals” suggest that we should accelerate the growth of a new generation of information technology, biotechnology, new energy, new materials, high-end equipment, new energy vehicles, environmental protection, aerospace, marine equipment and other industries. Moreover, we need to use industrial integration to create advanced manufacturing clusters, develop new economic growth engines, and cultivate new technologies, products, and business models.

One problem facing the development of the strategic industries is the technical obstacle. We must overcome technical problems, set innovation as the core of China’s modernization, and take scientific and technological self-reliance as strategic support for national development. It is necessary to improve the scientific and technological innovation system and mechanism, strengthen the national strategic strength, and forge a group of companies with super innovative capabilities like Huawei. We should focus on improving the technology productivity conversion, reform the profit distribution mechanism, and leave more profits to innovators. Apart from that, protecting intellectual property rights, encouraging companies to set up R&D institutions overseas, recruiting global talents, promoting innovation, and reforming the education system is also very important.

Thirdly, to strengthen the construction of new infrastructure by improving the functions of the capital market. The construction of new infrastructure covers three main aspects: information infrastructure, including 5G, industrial Internet, Internet of things, artificial intelligence, etc.; infrastructure integration, that is, the intelligent transformation of traditional infrastructure; infrastructure innovation, refers to infrastructure with public welfare attributes that supports scientific research, technology development and product development, including scientific and technological infrastructure and education system. The huge investment required by these new infrastructures can be provided mainly by bond financing.

China’s capital market is underdeveloped and the proportion of financing through the stock and bond markets is obviously low. Currently, the development of government and corporate bond markets is facing historical opportunities: China has taken the lead in economic recovery during the COVID-19 pandemic and investors around the world are generally optimistic about China’s economy: RMB is appreciating and investing in long-term RMB bonds issued by the Chinese government and companies has become an attractive option; China has the world’s largest and most complete manufacturing system. It is in the stage of industrial upgrading and digital transformation and in the future, there will be more and more Chinese companies with strong competitiveness in the global stage. Supporting the construction of new infrastructure through the issuance of long-term RMB bonds will not only improve the functions of the capital market, but also help to expand domestic demand and boost economic development, and promote RMB internationalization. After the completion of the new infrastructure construction, China’s economy will reach a new level and lay a solid foundation for the basic realization of modernization.

Last but not least, to establish a public product financing mechanism. Public products and services covers the fields of education, medical care, social security, ecological environment and so on, most of which are of public welfare or semi-public welfare nature. For a long time, these products and services mainly relied on governmental financial investment but insufficient investment has caused inadequate supply and restricted social progress and economic development. In the past few years, the implementation of the Public-Private Partnership Model(PPP) for public products and services has achieved great results, but local debts have increased accordingly. We should draw lessons from the past and continue to implement this model.

Relevant government departments should cooperate with each other closely. The investment authority is mainly responsible for selecting projects, the financial department should be responsible for policy compensation, while policy banks and securities authorities are responsible for supporting fundt. Providing residents with clean air and water has a typical nature of public welfare and for such kind of projects, we should support them by different measures and ultimately making the environmental protection industry a major pillar industry. In the field of medical care and social security, the demand for medical care, health, and elderly care is increasing rapidly, which requires the government to integrate administrative legislation and policy formulation with the functions of enterprises to establish a complete social medical system. For example, there are 20 million disabled elderly people and 30 million semi-disabled elderly people in China, the establishment of a complete care system for them will not only free their children, but also create many jobs. According to Japan’s experience, one caregiver can take care of two disabled or semi-disabled elderly people, which means we can create 25 million jobs for rural laborers who want to work in the cities.