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Reform and Urbanization to Power China’s Economic Growth

Jan 15 , 2013
  • Niu Li

    Director of Macro-economy Studies, State Information Center

The recently concluded Central Economic Conference decided that China will stick to the principle of “striving for progress while maintaining stability” for its economic development and that a proactive fiscal policy and prudent monetary policy will continue. There were three notable changes in the conference. First, the target set for this year’s economy was for a “continuous and healthy growth,” instead of the previous one of “steady and fast growth.” The new target emphasizes the quality and efficiency of economic growth. Second, the conference regarded reform as “the largest source of dividend” for development, sending a clear message about the launch of a new round of economic restructuring. Third, the conference stated that a new model of urbanization will provide the largest potential for promoting domestic spending and calls for an orderly urbanization of migrants from rural areas.

The most notable of the new phrases adopted in the conference, was the one about the target for economic development. The previous phrase of striving for “a steady and fast development” in the economy was changed to “a continuous and healthy development”. More emphasis was placed on the growth’s quality and efficiency rather than its speed and size. Party General Secretary Xi Jinping said at the conference: “The growth should be a substantial, unadulterated and sustainable one with high efficiency and good quality.” Vice-premier Li Keqiang emphasized that the GDP growth would be “tantamount to a self entertainment” if it could not bring increased income to the people, no matter how fast it grew. Improving the growth’s quality and efficiency means there are a number of tasks to accomplish. First, the growth should be substantial rather than inflated. Second, it should promote employment, so that people can rest assured. Third, growth of the people’s income should keep pace with that of the national economy. Fourth, the growth speed and efficiency should be well matched, for without efficiency there would be no sustainability. Fifth, the environment of energy and resources should be a sustainable one.

At the 18th congress of the Communist Party of China, General Secretary Xi Jinping warned that “empty talks will jeopardize the nation,” and called the Party to “do solid work for China’s rejuvenation”. He chose Guangdong as the first destination of his provincial visits after he became the Party chief. In Guangdong, which had pioneered China’s reform and opening-up drive, Xi vowed that there would be no stop to this movement. At a forum held on November 21 on pilot projects for a nation-wide holistic reform, Vice-premier Li Keqiang said: “Reform is the largest dividend for China.” He was the first person to present this understanding.

The Central Economic Work Conference mapped out a new campaign to further the reform of the economic structure in an all-round, deep way. First, the new campaign will keep the reform on the track of a socialist market economy while conducting the reform in a more systematic, holistic and coordinated manner. The reform mainly features a process of “delegating power” and “relinquishing benefit.” By “delegating power”, governments at all levels minimize bureaucratic procedures and delegate power to lower levels when necessary. By “relinquishing benefits,” the government gives benefits to enterprises and citizens, State-owned and large enterprises yield benefits to private and small and medium-sized ones, and businesses cut their profits to help citizens. With regard to how the reform will proceed, the “top-level designing and general planning” will be carried out on the basis of local experiments and grassroots innovations.

The largest distinguishing feature of China’s reform is that it has been evolutionary, and has rarely has it set timetables. The current conference, however, has set a clear roadmap and timetable to implement the overall plan of the reform.

The conference did not specify which fields will be included in the reform. Apart from the overall and coordinated reform, sectors that are likely to be involved in the reform include: the income distribution system, investment and financing system, fiscal and taxation system, banking system, State-owned enterprises, resources pricing mechanism, and the social security system.

At a forum on economic and social development and reform, Vice-premier Li Keqiang said, “it is no doubt that the world economy has entered a long-term depression and more twists and turns may appear.” He said China has to depend more on domestic spending to promote its economic growth and the largest domestic demand at present is urbanization, which has lagged behind other fields in the reform.

Currently the urbanization rate in China is a little higher than 50 percent, far from the 70 percent threshold, at which the urbanization process will become stabilized. A rise of one percentage point will draw 10 million rural residents into cities and hence generate 100 billion yuan in increased consumer demand. The acceleration of urbanization will inevitably help raise the productivity, stimulate investment in urban infrastructure and public service and increase people’s income and spending, which in turn will create favorable conditions for agricultural modernization and thus release the huge potential of domestic demand.

The conference also emphasized that urbanization of rural migrants should proceed in an orderly manner and under a scientific planning of population distribution. New urban areas should be built following a low-carbon, eco-friendly and intelligent model.

Niu Li is the Director, Macro-economy Studies Office, Economic Projections Department of the State Information Center

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