Opinion: China's economic strategy needs revision

Edited and Translated by People's Daily Online

China has made great achievements in its economic development. However, with the significantly changing international and domestic economic situations, the policy-makers must realize that China needs to change to adapt to the new situations, although the original economic development mode has helped it to reach the present heights.

China's original economic development strategies

The first one is the development strategy of cherishing economic growth always as a priority. China has implemented a series of reform and opening-up policies and measures that are good for its economic development and help arouse the enthusiasm of all social units, making China maintain a rapid economic growth for more than 30 years.

The second is the development strategy of driving the development with the investment. China's capital formation rate is always between 30 percent and 40 percent and is 37 percent on average, much higher than that of the developed countries (20 percent to 36 percent) and also higher than that of the medium-lower income countries and medium income countries (20 percent to 36 percent).

The third is the development strategy of taking the coastal regions as a priority. Since the reform and opening-up started in late 1970s, the central government has been implementing the strategy of taking coastal regions as a priority according to their regional advantages. This strategy is aimed at fostering the growth point of coastal cities and promoting the common prosperity of the whole country.

The fourth is the development strategy of encouraging exports. Before the reform and opening-up policy was implemented, China adopted the import substitution strategy. Since the reform and opening-up was implemented, China has been adhering to the strategy of encouraging the export. These strategies help China make great successes, and China has turned into the largest trade country of the world.

China’s development strategy has been proved successful. First, China’s economy has continued to maintain high-speed growth and its overall economic scale is rapidly keeping up with that of developed countries; second, its economic structure is rapidly improving and its rural labor force is rapidly moving into non-agricultural sectors and cities, accelerating the pace of industrialization and urbanization; third, the economy is increasingly open to the world and has been growingly involved in the process of the global economic integration; fourth, the standards of living for the masses are on the rapid rise.

Four directions for transformation of future strategy

After China’s economy has entered to the middle stage of the industrialization following continuous high-speed growth, its economic development strategy has also brought about many problems and should also advance with the changes. To change its development pattern, China may focus on the following four aspects:

First, the development strategy prioritizing growth should be transformed into the one prioritizing both growth and equality. Following three decades of high-speed growth, China has addressed the problem of food and clothing and elevated the standards of living for the masses, yet it is facing an increasingly wide gap in income. Thus, the development strategy prioritizing growth must be transformed into the one drawing equal attention to growth and equality.

Second, China should shift from investment-driven to consumption-led economic growth. From the perspective of the demand structure, the country should moderately reduce investments and boost consumption, especially household consumption, as a new growth engine. From the perspective of the supply structure, the country should lower the rate of capital accumulation, and transform its growth model from capital-driven into being driven by labor quality and technological progress.

From the perspective of the industrial structure, the country should reduce investments in heavy chemical industries and increase investments in light industries and the service industry. From the perspective of environmental protection, the country should eliminate high-energy-consumption and high-pollution projects, and increase investments in environmental protection and improvement.

Third, China should expand its economic focus from costal regions to the entire country. Since the reform and opening-up, the country’s costal regions have taken the lead in development, leaving other regions far behind. The country has entered a new stage of industrialization, and should make great efforts to promote the coordinated development of regional economies.

Fourth, China should phase out export incentives and strengthen efforts to promote free trade. In other words, it should remove incentives or restrictions for imports and exports, and let market forces regulate foreign trade, so as to optimize resources allocation and distribution, enhance the international competitive of China’s export goods, and minimize the potential negative effects of external economic turmoil on the domestic economy.

(The authors are from the Center for Economic Development Research under Wuhan University)