Ladies and Gentlemen,
Welcome to the CCIEE Annual Meeting on China’s Economy on the theme of “Leading the New Normal to a Decisive Victory for the “13th Five-Year Plan”. China is at the beginning of the “13th Five-Year Plan” period, a critical stage in completing the building of a well-off society in all aspects. It is meaningful for us to gather at this time to discuss decisions of the Central Economic Work Conference, brainstorm on how to grasp opportunities and meet challenges under the new vision of “innovative, coordinated, green, open and shared” development, and diagnose and draw a blueprint for Chinese and global economic development.
It has been seven years since the global financial crisis broke out in 2008, yet the world economy is still in the shadow of crisis, with a slow and difficult recovery due to overcapacity, sluggish trade liberalization and slide of the total factor productivity (TFP). There is a long way to go before we could achieve a strong, sustainable and balanced growth. Developed countries are in a comparatively good situation. The US economy has grown by over 2% for six consecutive quarters, but its momentum of recovery is unstable. Japan and the EU have achieved a low-speed growth, but are not on a solid footing. The emerging economies have suffered a collective slowdown. Although China and India have maintained stable economic performance, Russia and Brazil are on the verge of recession.
Looking ahead to the next year, the global economy may experience “four lows and one high”, namely low growth, low trade, low inflation, low investment and high debt, with weak momentum of recovery. It is noteworthy that the international oil prices have recently slumped to a seven-year low of less than USD 40 per barrel, adding more uncertainties to the world economy. The US Fed finally decided to raise interest rates, and with that the US has shifted from a cycle of quantitative easing to one of rising interest rates. However, the rate increase will not be a plain sailing, but rather a slow process. And the structural vulnerability of emerging economies may become more pronounced, as they are exposed to growing risks of imported deflation and the risks of dollar-denominated foreign debt.
Of course, the world economy is not all about confusion, challenges and risks. With breakthroughs and cross-sector integration taking place in areas like the Internet, new energy, big data and sharing economy, new dynamics of development are also shaping, propelling the transformation of development models. Consequently, innovation will be considered as a strategic option for reshaping the global economic structure, rather than a policy alternative to break away from the financial crisis. This is a new trend worth following with expectations.
As the configuration, order and rules of the world economy undergo major changes and adjustments, China, a big emerging economy and an open and responsible major country, is also experiencing profound changes. In my view, the term “transformation” alone is far from enough to describe the changes taking place in China today. It is fair to say that the new normal has become an overarching feature of China’s economy, which is reflected not only in the shift of growth speed, but also in the changing dynamics of growth, the optimization of the economic structure, adjustment of the mode of resources allocation, changes to the administrative behavior of the government and the sharing of social welfare. It has rich connotations and unique characteristics.
Looking ahead to the next five years, China will face more complex internal and external environment and more severe challenges than the “12th Five-Year plan” period. Its tasks will be more daunting and arduous. As China shifts from the old normal to the new one, it can no longer use the old methods to solve new problems. It must explore a new approach to economic management. Particularly, we need to have a “problem-oriented” way of thinking and match supply to demand by “deleveraging, cutting overcapacity and inventories, reducing costs and strengthening the weak areas”. We must uphold the “bottom-line thinking” to accurately identify, prejudge and defuse risks, and improve and introduce new policy tools to maintain stable economic performance and build up the momentum of growth. With that in mind, I would like to raise the following issues for discussion.
First, we need to adjust the yardsticks for economic assessment. The new normal requires a new macro-control framework and a new indicator system to shake off the shackles of mandatory growth targets and break dependence on economic stimulus. We must get rid of the anxiety about the downshift of growth speed and increase efficiency in macro-resources distribution as a way to drive development. In the future, we may consider including TFP as a key reference indicator and establish a “dual target” system that attaches equal importance to GDP growth and TFP, so that we can leap over the “trap of declining TFP”, fully unleash the potential of Chinese economy, and solve the triangle dilemma of mutual constraints among the “economy, resources and development”.
Second, we need to establish a regulatory model that strikes a balance between effective demand and supply. It is important to maintain multiple equilibrium between the total volume and economic structure, demand and supply, and short-term and long-term development during the “13th Five-Year Plan” period. Practice has shown that total volume control cannot solve structural problems. To redress the imbalances between structural surplus and structural weakness, we must achieve a greater equilibrium between effective demand and supply on the basis of balanced total demand and supply. In the long run, we need to make the yearly macro-control targets part of the overall goals of national development strategy, aligning short-term macro-control with long-term plans, and breaking down mandatory targets over several years. Efforts also need to be made to strengthen structural, ranged, targeted, precise and expected regulation on the basis of effective total volume control to make macroeconomic control more scientific and effective.
Third, we need to provide impetus and favorable conditions for the supply-side structural reform. In the past, macroeconomic management focused mostly on the output end to the neglect of the input end. I think it is even more important to emphasize the “input-output ratio” of the economic performance and increase the overall efficiency of the factor input. For one thing, targeted efforts should be made to make breakthroughs in shoring up the weak areas by upgrading equipment, markedly enhancing technological capacity, accelerating the transition to the medium-to-high end of the industrial chain, supplying more quality products at competitive prices, and meeting the market demand for quality and tailored goods and services. For another, the factor costs, including labor, capital, land, energy and logistics, should be reduced through a new round of market-oriented reform. We should increase infrastructure connectivity and promote the development of sharing economy to speed up the free flow of production factors among different sectors and regions, fully utilize low-cost and good-quality factors around the world, improve the distribution mechanism of factor revenue and avoid soaring costs in production, circulation and transaction.
Fourth, we need to increase investment in innovation and software infrastructure across the board. The most important initiative of the “13th Five-Year Plan” is to put innovation at the center stage of development by introducing an “innovation-driven” development strategy. It is not that we do not need investment under the new normal, but that we need effective investment conducive to realizing potential gains. China’s per capita capital stock is only one fifth that of the United States or Japan, which promises a large space for improvement. What we need to do is to reallocate a large portion of the hardware investment that mainly goes to infrastructure to software investment such as innovative research and development, human capital, innovation in key basic areas, education, healthcare and public service products, so as to jump-start a new engine for all-round development of China’s economy.
Fifth, we need to take the initiative to gain greater benefits from international macroeconomic policy coordination. China is now moving from a major regional player to a major global player. Major strategic moves such as the “Belt and Road” initiative, including the RMB into the SDR basket, and actively engaging in the remaking of multilateral trade rules and reshaping of the global value chain, have demonstrated that China has more deeply integrated into the world economic system. It has been a key contributor to global economic growth for many years in a roll, and contributed to 30% of the world economy in the first three quarters of this year. China’s structural reform, domestic macroeconomic regulation, financial reform and the internationalization of RMB will have growing global and regional spillover effects. In the future, China needs to maximize the benefits it could gain from international coordination and cooperation on macroeconomic policy in the fields of rules making, policy communication and global governance. While supporting international development through international cooperation, we should also obtain legitimate benefits in this process. Of course, in so doing, we should make a point of avoiding negative externalities of reform measures, including ones to make the RMB a global currency. When we participate in global governance, we should not only contribute “China’s Wisdom” and “China’s solutions”, but also strive to maintain global economic stability and achieve greater external dividends.
As a Chinese proverb goes, “reform should sit on top of the government’s agenda”. Reform and opening up are vital for China’s future, and the road ahead for economic restructuring is long and winding. I look forward to hearing your insights on the theme of this year’s annual meeting.
To conclude, I wish the meeting a complete success!