By Li Wei

Research Report Vol.18 No.3, 2016

China’s development in the next five years is critical in its modernization drive. Passed by the 18th National People’s Congress in March 2016, The Thirteenth Five-Year Plan for National Economic and Social Development of the People’s Republic of China (referred as the 13th Five-Year Plan) determined that China should uphold the philosophy of innovative, coordinated, green, open and shared development. It put forward the goals and tasks of economic and social development in the next five years. The implementation of the 13th Five-Year Plan will not only advance China’s growth into a new stage, but also create more opportunities to deepen cooperation around the globe.

I. With Great Growth Potential and Ample Policy Room, China Will Surely Realize the Goals of the 13th Five-Year Plan as Long as Policies Are Designed in a Scientific Way and Implemented Properly

The 13th Five-Year Plan sets the goal of keeping the average GDP growth rate above 6.5% in China in the next five years, whose realization is doubted by some people at home and abroad. However, in my opinion, concerns about China’s prospects in the next five years are unnecessary. First, China enjoys tremendous potential of economic growth. Significant achievements have been chalked up in China’s modernization drive since the reform and opening-up. The past three decades saw how China became a country with middle and high income from low income, with per capita GDP nearly $8,000 in 2015, which, nonetheless, is four to six times less than that of the advanced economies. So there is still a long way to go before completing China’s modernization drive. The fact that it is not finished implies much room for China’s investment and demand to grow. With respect to the capital stock, China still has much room for the growth of investment demand. At present, capital stock per capita in China is less than 1/5 of that in the United States and only a quarter of that in Japan, meaning China’s modernization drive still requires a lot of capital investment in such fields as upgrading traditional industries, fostering new industries, creating infrastructure network within and among cities, advancing modernization drive, and promoting the development of rural and underdeveloped areas. When it comes to current consumption, demand will greatly grow in China. At present, final consumption expenditure per capita in China is less than 1/14 of that in the US or 1/9 of that in Japan, suggesting China, in order to complete modernization drive, has to create more and more products and services for people’s growing demand. With regard of labor supply, China’s transformation of development mode is being backed by high-quality population. For one thing, China faces severe challenges like the decreasing number of labor and rising labor costs; for another, at the catch-up stage of industrialization, China has cultivated various specialized personnel suitable for the world’s complete industrial system. It produces more than 7 million college graduates and over 2 million graduates of adult higher education every year. It’s no exaggeration to say that the high-quality population has become the new advantage of China’s future development. In the 13th Five-Year plan period, advancing the new type of urbanization with Chinese characteristics alone will create immeasurable demand for investment and consumption. In 2015, China’s urbanization rate reached 56.1%, but population with registered urban residency only accounted for less than 40%. There is a big gap between China and developed countries or even some developing ones in the extent and quality of urbanization. Therefore, the Chinese government attaches great importance to this, and the 13th Five-Year Plan proposes to raise the two figures to 60% and 45% respectively by 2020. To reach this goal, there will be another 55 million urban residents and some 70 million people with registered urban residency in the next five years, which will no doubt bring a huge amount of demand for investment and consumption. Second, China has not only enormous potential to grow, but also macroeconomic regulation and policy instruments facilitating the release of the potential. This can be proved by past experience that China succeeded in the reform and opening-up during the past 30 years. It can also be proved by the fact that China has maintained an average economic growth rate of 8.4% and made the greatest contributions to global economic growth during the eight years since the 2008 global financial crisis. It will also be proved by future practice that China will implement strategies and measures of the 13th Five-Year Plan. Specific details are as follows. We can take advantage of proactive fiscal policy to expand total demand of the society and invigorate the market. The Chinese government is always cautious about fiscal deficit, thus capable of implementing more proactive fiscal policy. In 2016, China will act this way, designing a deficit of 2.18 trillion yuan, 560 billion yuan more than the previous year, and a deficit ratio up to 3% for the first time. This is a major measure that the Chinese government allows fiscal policy to play its role in expanding total demand of the society, reducing tax burden on enterprises, and invigorating the market. We can improve the flexibility of monetary policy, reduce the cost of social financing and increase market liquidity. Unlike other major economies, China has been carrying out prudent monetary policy in the face of the financial crisis and economic downturn. The current lending and deposit benchmark rates, especially the former, are significantly higher than those of other economies and can be reduced. In addition, China has the most foreign exchange reserves, arriving at $3.3 trillion at the end of 2015, which will provide effective means and lay a solid foundation for stabilizing RMB exchange rate, inhibiting excessive volatility in financial markets, and creating favorable market expectations and development environment. We can optimize allocation of resources and improve productivity, with the help of more scientific industrial policies, which are important means to guide and promote economic development in many countries. Besides, it is also common to set up industrial development guide funds as an important tool of industrial policy. China’s central government has set up funds for developing small and medium enterprises and for starting and investing in emerging industries, etc. With more financial resources and new requirements for industry development, China can further expand the scale of such funds and set up new ones, which can attract social capital and channel all kinds of resources to be allocated in more efficient sectors. We can encourage the whole society to innovate through more effective technology innovation policies. Ranking the second in R&D investment, China invested a total of 1.4 trillion yuan in R&D in 2015, only second to the United States. China is actively promoting innovation policies, including the Law of the PRC on Promoting the Transformation of Scientific and Technological Achievements, all of which will turn innovation resources to productivity. The large scale of innovation resources and effective innovation policies, combined together, will unleash infinite innovation.

II. In the New Five Years, China’s Core Tasks Include Advancing Structural Reform of the Supply Front, Speeding up Economic Transformation and Upgrading, Promoting Real Change of the Growth Pattern, Among Which the Second is the Top Priority

The 13th Five-Year Plan lists a series of major tasks of China in the next five years, among which the greatest importance should be attached to advancing structural reform of the supply front and economic restructuring. Plenty of problems in the current development of China, like weaker growth momentum, decreasing resources, worsening environment, and prominent social problems, are closely related to its improper economic structure. To complete the major tasks in the 13th Five-Year Plan, China has to put more efforts in promoting economic restructuring, with the greatest attention given to structural reform of the supply front, and with the core of changing the growth pattern. ...

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