How to Resolve Major Difficulties in Realizing the First Centenary Goal*

October 29, 2015

To achieve the targets and tasks set at the ongoing plenary session, we must redouble our efforts to resolve major difficulties. It is a mission we must accomplish as well as a barrier we must overcome. As an ancient Chinese thinker put it, "Leaders chart the course while the people get the job done."¹

Firstly, in transforming the economic growth model, we must focus on improving the quality and efficiency of development. Economic development is the foundation; without it, nothing is possible. Since the introduction of reform and opening up in 1978, we have been focusing on development, with outstanding success. To complete the building of a moderately prosperous society in all respects, we still need to make development our top priority and bring it to a new level. We should stick to the strategy that development alone can make the difference, ensuring that an effective approach is taken to development, intensifying structural reform, and focusing on improving the quality and efficiency of development in order to achieve higher quality, fairer, more efficient, and more sustainable development.

Currently, China's economy faces significant downward pressure. This is partly due to the influence of global and periodical factors, but fundamentally it is due to structural problems. For instance, an important reason for the current economic downturn is the slowing down of industrial growth as the industrial structure is forced to adapt to changing needs and some industries are afflicted by excessive industrial capacity. These are also the main causes of poor corporate performance. The key to improving the quality and efficiency of development lies in moving faster to change the economic growth model and adjust the economic structure, and in taking resolute measures to reduce overcapacity. There is no other correct choice.

The 13th Five-year Plan period (2016-2020) provides an important window of opportunity for transforming the economic growth model and adjusting the economic structure. If we fail to achieve this, and instead implement stimulus policy for short-term economic growth, we will continue to jeopardize future growth. If we hesitate to address the conflicts and problems arising from our traditional economic growth model, and simply mark time, we will lose this precious window of opportunity and deplete the valuable resources we have accumulated since the introduction of reform and opening up. This has been proved by the experience of many countries. Opportunities never wait for us and neither do problems.

Economic development should maintain a certain pace, on condition that high quality and efficiency are guaranteed. The mounting downward pressure on the economy appears on the surface to be the result of insufficient effective demand, but is actually caused by insufficient effective supply. In general, the industrial capacity of our country is huge, but it is partly compromised by ineffective supply and lacks effective supply of high quality and high level. China is a big producer and exporter, but most of our products and technology are low-end while few are high-tech, high-quality and high added-value. We must focus on improving the quality and level of supply as well as expanding demand.

In the past our industrial capacity was limited, and emphasis was therefore on advancing it by expanding investment. Now, our capacity is excessive. If we still rely on expanding large-scale investment to speed up growth, the effect will be limited and the marginal utility will diminish. Although in the short term investment can be an important fuel for economic growth, final consumption is the lasting engine. In this regard, while expanding effective investment and ensuring it plays a key role, we must give full play to the fundamental role that consumption plays in fueling growth.

We must implement in a vigorous and orderly manner the three strategic initiatives – the Belt and Road Initiative, the Coordinated Development of Beijing, Tianjin and Hebei, and the Yangtze River Economic Belt. These initiatives represent new space for development and we must expand these in the near future. Over the past 30 years, three city clusters have gradually emerged – the Beijing-Tianjin-Hebei Region, the Yangtze River Delta, and the Pearl River Delta – and have become the main regions driving national development. Northeast China, the Central Plains, the middle reaches of the Yangtze River, and the Chengdu-Chongqing region, each with a population of more than 100 million, are big markets with ample conditions to form complete industrial systems and create new space for development. Of course, we must produce an optimal strategy for regional planning, press ahead with this and avoid any short-sighted measures.

In regard to the key tasks of transforming the economic growth model and adjusting the economic structure, specific requirements have been put forward in the "Recommendations of the Central Committee of the Communist Party of China for the 13th Five-year Plan for Economic and Social Development". The key to realizing these requirements lies in securing high-quality and efficient development.

First, investments must be productive. Expanding investment can boost growth. However, if too many investments are inefficient and produce no returns, the relevant loans and debts cannot be repaid and will become bad loans, creating financial risks for enterprises and fiscal and financial risks for the state. Although the payback period of infrastructure investment, and particularly of public service infrastructure investment, is long, we should not do things decades in advance. And even with reference to those projects that we should activate, we should consider whether our financial resources are sufficient.

Second, products must be marketable, which determines whether an investment will have reasonable returns. If the government, without analyzing the market, replaces enterprises in allocating resources, or encourages enterprises to expand investment through preferential policies, it will probably hinder continued progress.

Third, enterprises must make profits. Being an enterprise means having the ability to make money. Should an enterprise fail to make profits, or make unsustainable losses for a period of two or three years, it affects not only the growth rate but also its employees' income and the government's revenues, which will result in financial and even social risks. We must base our policies on the development of enterprises, and particularly of the enterprises in the real economy, pay close attention to their sound development, and enhance their profitability.

Fourth, employees must have reasonable incomes. People go to work to earn a living. No one would work in a company if wages do not meet the needs of the employees, or are lower than the average salary determined by the market. Of course, if wages rise faster than a company's profits determined by the macroeconomy, the higher wages will become a heavy burden. In such circumstances, some labor-intensive overseas-funded enterprises will transfer to other countries with lower wage costs.

Fifth, the government must collect taxes. The government must provide public services and infrastructure. Where does the government get the money? Mainly from tax revenues. The government can also issue bonds, but cannot overindulge. If the government has no tax revenues to do those things it should do when the economy grows fast, the standard of living and public services cannot be improved and it will be hard to maintain social harmony and stability. The government's money must be spent wisely; government spending must be carefully controlled.

Transforming our economic growth model and adjusting the economic structure are the key tasks for the 13th Five-year Plan period. With a focus on making a profound adjustment of the economic structure, and on rejuvenating the real economy, we must adjust and improve related policies, establish a new industrial system, foster a core of strategic industries, build an industrial system for modern agriculture, and make China into a strong manufacturer and an effective provider of modern services.

Innovation is the principal engine driving the shift in the economic growth model and the adjustment of the economic structure. We must encourage new technology, new industries and new forms of business. Aiming to be at the forefront of international scientific and technological research, we must produce numerous significant innovations, promote the industrial application of scientific and technological advances, and ensure that innovations are commercialized in real economic activity in order to form new products and industries.

Secondly, in strengthening areas of weakness, we must properly address imbalanced development. To realize a moderately prosperous society in all respects, we must not only have in our mind "a moderately prosperous society", we must also focus on the issue of "in all respects" – the latter being more important and more difficult to achieve. "A moderately prosperous society" represents a certain level of development, while "in all respects" extends that level of development to one that is balanced, coordinated and sustainable. If unbalanced, uncoordinated, and unsustainable development becomes a more serious problem, and our areas of weakness become more prominent, we cannot truly say we have realized our goals even if we accomplish the goals for GDP and growth rate by 2020 as scheduled. In that case, even if we declare we have attained the goals, they will not be recognized by our people and the international community.

To realize a moderately prosperous society in all respects, we must seek economic, political, cultural, social and ecological progress. We should ensure a better developed economy, more complete democracy, more advanced science and education, a more thriving culture, a more harmonious society, and a higher standard of living. While making economic development our central task, we must strive for economic, political, cultural, social and ecological progress, and coordinate all aspects of our drive for modernization. All these must progress together – we cannot have a situation where some advance at the expense of others.

For example, the pace of ecological progress is rather slow. Through over 30 years of rapid, continuous economic development, our capacity for producing agricultural products and manufactured items and for providing services has enhanced rapidly, but our capacity for preserving ecosystems has shrunk, and the environment in some places is still deteriorating. We must try our best to enhance ecological progress, incorporate ecological ideas, principles and goals into all our economic and social development efforts, include them in our plans at all levels, and implement them.

Functional zoning is the fundamental system for protecting and using our land-air resources, and the principal measure to protect the environment at the source. Although it was first proposed several years ago, it has not been carried out to the letter. In our land of 9.6 million square kilometers, natural conditions vary enormously in different places; if we err in functional zoning, it will not be easy to put things right in the future. We must move faster to enhance policies concerning functional zoning and differentiated performance appraisal, and drive all regions to develop in line with their functional definitions. We must give high priority to protecting the environment and letting nature restore itself, and protect and restore the ecosystems of mountains, waters, forests, and farmland. We must intensify our efforts in environment governance, reform the fundamental system of environment governance, make all natural ecosystems more stable and better able to provide services, and safeguard national ecological security.

To realize a moderately prosperous society in all respects, we must ensure that all the people are covered and share the fruits of development. The main problems that arise in completing a moderately prosperous society in all respects lie in the area of living standards. A lack of all-round development, to a great extent, manifests itself in the wellbeing of different social groups. "In a country, the people are the most important."² To ensure that living standards are improved through the involvement and dedication of all people and the shared enjoyment of benefits therein, we must make sure basic living needs are met, focus on key areas, improve systems, and guide expectations. At the same time, we must emphasize equal opportunity and guarantee basic living standards.

Poverty alleviation of the impoverished rural population is our biggest area of weakness. Bringing about a moderately prosperous society in all respects does not mean that each and every individual is ensured the same level of prosperity, but if the living standards of the currently impoverished rural population of over 70 million do not improve noticeably, our realization of a moderately prosperous society in all respects will lack credibility. Therefore, in the Recommendations, helping the impoverished rural population shake off poverty is regarded as a fundamental indicator of the realization of a moderately prosperous society in all respects. In the Recommendations, emphasis is placed on the implementation of targeted poverty alleviation and we are required, through applying greater determination and adopting a well-designed approach, to take stronger and innovative measures to carry out our poverty alleviation projects in a bid to ensure that all the rural populations living below the current poverty threshold and all impoverished counties are lifted out of poverty, and to solve the problems of regional poverty.

Now there are about 18 million urban residents living on subsistence allowances; we must improve our welfare systems to ensure their basic living needs are met. For more than 130 million senior citizens at and above 65 years old, we must increase our supply of elderly care and make medical services more convenient; for more than 200 million migrant workers in cities, we must gradually give them equal access to the basic public services where they now reside; for tens of millions of annual college graduates working in megapolises and other permanent residents in these urban areas, we must ensure they have suitable living conditions; for over 9 million urban residents registered as unemployed, we must ensure that they have a vocational skill to achieve stable employment and a stable income. In summary, we must remain committed to a people-centered notion of development; for specific groups of people facing specific difficulties, we must try every means to help them solve practical problems.

In the 13th Five-year Plan period, our revenue cannot increase at the same high pace as previously. We must strike a proper balance between developing the economy and safeguarding people's wellbeing. We must continue to intensify our efforts to safeguard people's wellbeing on the basis of economic development, yet we must not make promises beyond our financial means, which we would find hard to keep. We must focus on improving our basic public services, and particularly on increasing support for basic public services in old revolutionary bases, areas with concentrations of ethnic minorities, border areas, and poverty-stricken areas, and on assisting specific groups of people with special difficulties. On this basis, we must do a good job in education, employment, income distribution, social security, medical services and health care. At the same time, we must keep our spending within the limits of our income, and actively adjust the structure of fiscal expenditure. Earlier, we made some promises based on the rapid growth of our fiscal revenue. Now it seems necessary to study them from a sustainability perspective; we must be determined to reduce expenditures where necessary.

To build a moderately prosperous society in all respects, we must ensure that every aspect is covered. There should be moderate prosperity in both urban and rural areas. We must narrow the urban-rural development gap, which is a major impediment to realizing a moderately prosperous society in all respects. We should view this issue dialectically. Urban and rural areas have different functions, as do different regions. The main parts of Qinghai and Tibet as a key eco-functional zone – commonly referred to as the world's Third Pole – have enormous value in producing eco-friendly products and providing services for ecological conservation. If the region is exploited blindly, resulting in destruction of the ecology, then we cannot correct that no matter how much money we spend in the future. However, in the existing accounting system, in which only GDP is used to measure the level of development, the development disparity between this region and developed regions is inevitably growing. When we say narrow the urban-rural development gap, we cannot view it as only narrowing the gaps in GDP and growth rate, but rather, we should view it as narrowing the gaps in the levels of residents' income, access to infrastructure, equitable access to basic public services, and living standards. In addition, we must have a comprehensive understanding of the urban-rural income gap. The living costs, and in particular the housing costs are quite different in urban and rural areas and thus income alone is not an accurate reflection of real problems.

Thirdly, in guarding against risks, we must focus on strengthening our awareness of and capacity for risk prevention and control. The next five years might become a period in which risks in all areas of our development will accumulate continuously and even become increasingly felt. The major threats we may encounter include domestic economic, political, ideological, and social risks and those from nature, as well as global economic, political and military risks. If major risks occur and we are not able to fight against them, our national security could face fatal problems, and the process of finishing building a moderately prosperous society will probably be interrupted. "Nip the problem in the bud when it is in the making; prepare yourself for risks yet to emerge,"³ said our ancestors. We must try our best to prevent any major risks, and, when they occur, be able to ward them off.

In the past, we tended to think that the conflicts and problems afflicting the people resulted from a low level of economic development and low income; if only we could develop the economy, and if the people lived a better life, social conflicts and problems would consequently decrease. Now it seems that problems always exist whether the economy is undeveloped or developed, and that the problems arising when the economy is developed are no fewer than those arising when the economy is undeveloped – they can even become more complicated. In this new era, if we fail to coordinate interests well and handle problems properly, the situation could deteriorate to the extent that it hinders our development process.

What calls for special attention is that risks often may not occur alone, but more likely intertwine with each other and form a risk complex. With regard to possible risks, local Party committees and governments at all levels must improve their sense of responsibility and consciousness, and enhance risk prevention and control within the scope of their functions and duties; they must not pass the buck either up or to future Party committees and governments, nor must they be irresponsible in their work and thereby create risks. We must redouble our efforts to explore and identify the sources of risks, improve our capacity in dynamic monitoring and real time alarms, and advance risk prevention and control in an effective and meticulous manner. We must have a clear idea of potential risks and their causes, prepare different remedies for different risks, and adopt a holistic approach. We must take timely and strong measures, strive to defuse risks at source, and prevent small risks from evolving into big ones, individual ones into complex ones, partial ones into regional or systemic ones, economic ones into social and political ones, and global ones into domestic ones.

* Part of the speech at the second full assembly of the Fifth Plenary Session of the 18th CPC Central Committee.

Notes 

¹  Chen Liang: On Tackling Major Issues in Governance (Lun Zhi Yao Zhi Dao). Chen Liang (1143-1194) was a thinker and writer of the Southern Song Dynasty. 

²  Fang Xuanling et al.: Book of Jin (Jin Shu). Fang Xuanling (579-648) was an official of the Tang Dynasty. 

³  Liu Xu et al.: Old Book of Tang (Jiu Tang Shu). Liu Xu (887-946) was a statesman and historian during the Five Dynasties.

(Not to be republished for any commercial or other purposes.)