Chen Wenling: China’s 40 years of reform and opening up: achievements and challenges

I am very happy and honored to be invited by the Development Research Center of the State Council to participate in the Fifth Annual Meeting (2018) of the National Research Think Tank Forum. The speech delivered by Director Long Guoqiang was wonderful and I would like to talk about China’s 40 years of reform and opening up from two aspects.

Part one: what did the reform and opening up bring to China?

I have published two articles this year discussing the reform and opening up from different angles. Today, I want to look at the reform and opening up from a different perspective. This year marks the 40th anniversary of China’s reform and opening up. When we look back, we can see that China and the world have undergone earth-shaking changes.

First of all, China has become the main competitor of the world’s most powerful country, the United States. 40 years ago, people would never expect that China will become a competitor of the US but today, China is listed as the biggest strategic competitor by the Trump administration. Although there is still a big gap between China and the United States in such area as military, economy, science and technology, the US has become very anxieties because of China’s rapid development. The US has misjudged the situation and tried to contain China by adopting a series of unreasonable actions, but this will stop China from making further achievements.

During the 40 years of reform and opening up, two significant events affected China’s development greatly. The first one is that on January 1, 1979, China and the United States established diplomatic relations; the second event is that China started reform and opening up. It is no accident that these two major events occurred simultaneously. During the past forty years, China gradually stepped on the world stage and it has become interdependent with the US in many areas. The economic connection between China and the US can not be cut off, otherwise they will suffer terribly. Therefore, the American enterprises and consumers who suffered from the China-US trade war are thinking is the trade war necessary? Can the United States contain China? Will the unilateral sanctions work for China? China is catching up with developed countries and its institutional and late-comer advantages are greater than them. In the future, China’s economy will continue to move forward. On the contrary, the United States will fall due to its lost credibility.

Second, the Chinese people have gained enormous benefits from the reform and opening up. According to McKinsey research, China’s middle-class has more than 440 million people and will reach 600 million by 2022. That means China’s middle-class population is twice the current population of the United States. Recently, the Economist magazine conducted a country-satisfaction poll in 50 countries and China ranks the first place because 91.4% of the Chinese population believe that China will continue to improve in the next decade and will become a better country. Furthermore, 70.4% of the Chinese population are satisfied with China, but the rest 30% indicates that China still has many problems need to be solved.

The benefits brought by the reform and opening up have improved Chinese people’s confidence in their motherland. I attended a seminar on private economy at the Chinese Academy of Social Sciences this morning and according to my calculation, China’s private economy has now contributed 50% of the national tax, 60% of GDP, 70% of scientific and technological innovations, 80% of urban employment. 90% of the enterprises are private, which has created employment for 300 million people. China has enabled more and more people to share the fruits of reform and opening up and see its bright future.

Third, the great achievements China has made through reform and opening up made more emerging economies and developed countries realized that in order to be successful, a country does not have to copy other countries’ model but choose its own development path according to its own national conditions. This has brought hope to many countries and people. People used to think that the United States is a country of paradise and freedom but it now faces unprecedented social divisions, including the contradiction between the rich and the poor, different political parties and ethnic groups. It is undeniable that the competition between China and the United States is getting fiercer. During his campaign, Trump said that the United States has become a developing country because the high-speed rail, ports and other infrastructure in China are better than the United States but he will make the United States great again. Last month, Trump said on Twitter that he has successfully achieved his goal, the United States surpassed China, and he has made the United States great again.

In fact, I think that the United States is splitting up because of the Trump administration. The US is striding towards the nineteenth century, uses unilateralism and outdated domestic rules to impose sanctions on China, and launches trade wars against other countries. Director Long has just said that although both the United States and China are promoting WTO reform, the ideologies of the two countries are totally different. China embraces the future and wants to develop the next generation of trade, cross-border e-commerce, while the United States seeks protection. Should we go for openness or closeness? Trade facilitation and liberalization or protectionism?

Fourth, China’s further reform and opening up will provide China and other countries with new public goods for jointly building the “Belt and Road”, and creating a better world and an open world economy. The new public products include the interconnection created by the “Belt and Road” to reduce circulation costs, improve efficiency and promote the flow of capital, information and human capital, so that all the nations can develop together, share development and achieve sustainable development. It also includes China’s organization of the first international import expo, which has created a new platform for more countries to enter the world’s largest market. The new business models innovated by Chinese enterprises during the reform and opening up is also another type of public good. For example, the state council of China has increased the number of cross-border e-commerce pilot areas from the previous 13 to the current 35, and the scale of e-commerce is valued at more than 26 trillion.

Thanks to the reform and opening up, more than 80% of China’s population are using mobile’s payment on a daily basis. China has become more open than ever while the United States is moving towards closure. Recently, the US Department of Commerce decided to impose strict restrictions on the export of 14 kinds of high-tech products, and certain products imported from China. Who will suffer, China or the US? In 2017, China exported $580 billion of goods to the United States. Among the first US$50 billion Chinese goods suffered from the extra tariffs imposed by the US, most of them come from the top ten strategic industries of the “Made in China 2025” program. For the further $200 billion of goods that are subject to the extra 10% tariff, 48% of them are intermediate products and 30% of them are investment-related products, implying that most of the trade products exported to the US market are not directly sold to consumers, but the production materials, finished products or semi-finished products required by American manufacturers. Therefore, the US also suffered significantly from the trade war launched by itself. The cost of manufacturing in the United States has risen rapidly, which is why 90% of the US companies appeared at the hearing of Robert Lighthizer are against high tariffs and trade wars.

China is connecting the world through the Belt and Road initiative, on the contrary, the United States is dividing the world, cutting the supply chain, industrial chain, and value chain through trade wars. Who is doing the right thing? Who is moving backwards? The answer is very straightforward. Not only China, many other countries have adopted different measures to fight back America’s sanctions, including its allies. China’s reform and opening up has brought a brand-new perspective to itself and the world.

Part two: the severe challenges facing China.

Undoubtedly, China’s reform and opening up is successful but it also faces severe new challenges, which can be summarized in the following three areas.

The first challenge comes from the deeper reforms China will undertake in the near future. Personally, I think that the reform and opening up in the past 40 years has reshaped China’s microeconomic foundation and fostered a competitive and dynamic micro market entity. The problem we are facing now is how to make sure that the superstructure fits the current economic foundation? How to ensure that production relations fit productivity? The superstructure and production relations should not constraint productivity. How should we reform them? It is about changing ourselves, especially the managers of reform, which is the biggest challenge facing China. In the report of the 19th National Congress, President Xi Jinping said that we have issued 1,500 documents on reform in recent years, nonetheless, many companies and people do not feel the strength and benefits of reform and suggested that reform is needed in many aspects. This is because the current reform reduced the vested interests of some people, thus, it is very difficult to reform the micro-foundation, rebuild a production relationship which will liberate productive forces and further release China’s development.

The second challenge, also our biggest challenge, is the insufficient development of new economic momentum, including the momentum needed for new economic development and the cultivation of new momentum.

If the old economic momentum can be quickly replaced by the new one, we will be able to liberate more productivity and provide greater stamina for economic development. If the momentum conversion is very difficult and the process is very long, or the new momentum is killed even before it appears, the new momentum will slowly disappear.

What is the most important thing to nurture and develop new economic momentum?

First of all, we need theoretical innovation. The world is changing all the time, new momentum, new formats and business models have appeared but many basic theories did not develop accordingly. When western economics was founded, the world was dominated by the real economy and industrialization was in process. Now, the world has just entered the era of information revolution from the eras of agriculture and industry, in which many new economies and new business models have emerged one after another. How can we continue to develop in the future with the unchanged development and economic theories? How can we reflect innovative development? Innovative development is not just about technological innovation, we also need to innovate relevant theories, ideas and concepts which can be sued to guide practices.

The second is institutional innovation. Our institutional innovation lags far behind practice. For example, the proposal of the Belt and Road Initiative, the principles of joint construction, sharing and connectivity are theoretically flawless, but we still face many problems during the implementation process. Taking the China-Laos Railway as an example, the two countries have already started to build the railway and the economic cooperation development zone has also been established along the border between the two countries, the Lao can travel freely to China but it is difficult for all Chinese officials, including the management team of the economic cooperation development zone travel to Laos due to the lengthy and complicated procedures on the Chinese side. The person in charge of a local cross-border cooperation zone told me that he has not been to Laos for three years because of the complicated approval process. This actually limits the implementation of our proposed initiatives or strategies. If there is no institutional innovation, how can such new ideas and strategies be implemented?

The third is mechanism innovation. For example, we should establish an international cooperation mechanism based on regulation, especially the long-term cooperation mechanism for the Belt and Road. The governments should be responsible for strategic connection but enterprises, commercial principle and market should play an important role in formulating the mechanism. We must conduct market evaluation for every project to minimize political risks, market risks and investment risks. Therefore, the essence of theoretical innovation, mechanism innovation, and policy innovation is the adjustment between the superstructure and production relationship.

The last challenge is the international challenge facing us. The whole world is facing an unprecedented fierce competition and almost all major powers have changed their strategy for competition, not just China and the United States. During the Cold War, the world was dominated by two big superpowers but now multi-polarization has become the new trend of the world. Nowadays, big countries tend to choose their groups according to their national core interests, rather than simply follow another country. Therefore, the increasingly fierce competition will become a major test for China. Will China’s strategy be successfully implemented? This is another important test China will have in the future.

 Thank you very much.