By HU ANGANG

THE year 2018 kicks off China’s efforts to put all the guiding principles from the 19th National Congress of the Communist Party of China (CPC) into action. It also marks the 40th anniversary of reform and opening-up and a major transition of China’s economy to the phase of high-quality development. In connection with this, the report on the work of the government delivered by Premier Li Keqiang in March, which gives a comprehensive analysis of China’s development, serves as a window to best see China’s development path forward.

Notable Achievements in the Past Five Years

In his report, Premier Li reviewed and commented on the work of the past five years, and observed that the achievements made on every front are ground-breaking. Looking back at the past five years, with quite a number of contradictions interwoven, in particular the international financial crisis still lingering on and advocacy for reverse globalization, the growth rate of global trade lagged behind that of global economy, and the share of international trade in global GDP continued its decline after hitting a peak in 2008. The share of international trade in China’s GDP peaked at 64.8 percent in 2006. But by 2016, it dropped to 33.1 percent. It’s no doubt that China is also severely affected by the international financial crisis and the trend of reverse globalization.

Chinese Premier Li Keqiang delivers a government work report at the first session of the 13th National People’s Congress on March 5, 2018.

But China’s development is still encouraging for the world. Premier Li pointed out that China’s economic strength has reached a new high. Its GDP has risen from RMB 54 trillion to RMB 82.7 trillion, registering an average annual growth of 7.1 percent; and its share in the global economy has grown to roughly 15 percent, up from 11.4 percent five years ago. China’s contribution to global growth has exceeded 30 percent. 

The structure of the Chinese economy has seen a major transformation. With the share of the service sector rising from 45.3 to 51.6 percent of the economy, consumption’s contribution to growth has increased from 54.9 to 58.8 percent, becoming the main driver of growth. Innovation-driven development has yielded fruitful outcomes. China’s investment in research and development (R&D) has grown at an average annual rate of 11 percent, ranking second in the world in scale. The contribution of technological advances to economic growth has risen from 52.2 to 57.5 percent. In manned spacecraft, deep-water exploration, quantum communications, large aircraft development, and more, China has seen a stream of major outcomes of innovation. 

Significant headway has been made in reform and opening-up. Reforms to streamline administration and delegate powers, improve regulation, and optimize services have driven profound shifts in the function of government, and significantly strengthened market dynamism and public creativity. The Belt and Road Initiative has been making major progress. The composition of both Chinese foreign trade and foreign investment has been improved, with volumes ranking among the largest in the world.

Living standards have been constantly improving. China has made decisive progress in the fight against poverty: More than 68 million people have been lifted out of poverty, including a total of 8.3 million relocated from inhospitable areas, and the poverty headcount ratio has dropped from 10.2 to 3.1 percent. Personal income has increased by an annual average of 7.4 percent, outpacing economic growth and creating the world’s largest middle-income group. The environment has seen gradual improvement. To address air, water, and soil pollution, China has designed and enforced a 10-point list of measures for each and achieved solid progress.

It’s fair to say that the achievements China has made in the last five years have covered every front and are ground-breaking, signifying rapid development in the economic, political, cultural, social, ecological and national defense spheres.

The past five years have also seen unprecedented improvements in China’s international influence and image. Distinctively Chinese major country diplomacy has been pursued on all fronts. The country successfully hosted the first Belt and Road Forum for International Cooperation, the 22nd APEC Economic Leaders Meeting, the G20 Hangzhou Summit, the BRICS Xiamen Summit, and other major diplomatic events at home. China has called for building a community with a shared future for mankind and has contributed more Chinese ideas to the reform of the global governance system.

The RMB was included in the IMF’s Special Drawing Rights basket, representing a major step forward in its internationalization. China’s economic, scientific and technological, national defense and overall strengths have all become front-runners in the world, contributing to an unprecedented advancement in China’s position in the world and bringing about huge opportunities to the world.

2018 Targets for Macro-regulation

The core task in 2018 of the Chinese government is to finish building a moderately prosperous society in all respects. To be specific, it refers to accomplishing goals and targets set in the 13th Five-Year Plan.

In this regard, Premier Li Keqiang mentioned that China’s material and technological foundations are much stronger; its industrial system is complete, its market is vast, its human resources are abundant, and its entrepreneurs and innovators are dynamic. China enjoys composite advantages, and this means that the country has the ability and conditions to achieve higher quality, more efficient, fairer, and more sustainable development. It’s fair to say that this report has fully demonstrated China’s confidence in the path, theory, system, and culture of socialism with Chinese characteristics.

The report has set the following projected targets for development this year: GDP growth of around 6.5 percent; CPI (Consumer Price Index) increase of around three percent; over 11 million new urban jobs, the surveyed urban unemployment rate within 5.5 percent, and the registered urban jobless rate within 4.5 percent; basic parity in personal income growth and economic growth; a steady rise in import and export volumes, and a basic equilibrium in the balance of payments; a drop of at least three percent in energy consumption per unit of GDP, and continued reduction in the emission of major pollutants; substantive progress in supply-side structural reform, basically stable macro leverage, and systematic and effective prevention and control of risks.

Compared to the report of 2017, a new indicator of “the surveyed urban unemployment rate within 5.5 percent” is added. It covers all migrant workers living in urban areas, its inclusion in the report therefore reflects that one important aspect of high-quality development is to ensure and improve people’s living standards, in particular to meet the employment demands of migrant population from rural areas.

The aforementioned targets are basically consistent with those of the 13th Five-Year Plan, and in line with the transition to a phase of high-quality development. In addition, judging from economic fundamentals and job creation capacity, a 6.5 percent GDP growth is achievable, since China has been pursuing stable, positive economic performance and seeking high-quality growth. This also reflects the achievements made in China’s macro-economic regulation.

As for the issue of 6.5 percent GDP growth rate, I believe the past 40 years’ journey of China’s reform and opening-up could be divided into two phases: the high-speed growth phase with average annual rate at about 9.9 percent from 1978 to 2011; followed by the medium-high-growth phase from 2012, when the 18th CPC National Congress convened and China began to shift from high-speed growth to high-quality development.

There will not be a hard landing for China’s economy. We can draw this conclusion from several statistics. In terms of projected targets, China’s GDP growth changed from eight percent in 2011 to 7.5 percent during the 2012-2014 period, to around seven percent from 2015 to 2016, and to 6.5 percent from 2017 to 2018. We could clearly tell the trajectory of China’s economy towards stable, positive, and high-quality growth. It not only follows the laws of economic development, but also is in line with the different stages of China’s development.

China entered the 10th Five-Year Plan period in 2001, and started the transition from a low-income to a lower-middle-income country; when the 12th Five-Year Plan period began in 2011, China joined the upper-middle-income club. And China will enter the high-income stage in the future, which essentially means high-quality development, featuring relative slowdown in growth rate but larger economic scale. China’s share in the global economy will continue to rise, and indicators of economic quality will improve notably. For example, the contribution of technological advances to economic growth will exceed 60 percent.

We can say that China has achieved a soft landing.

Looking back at the journey China has taken of reform and opening-up in the past 40 years, we can’t help saying that one could never imagine the difficulty unless he has gone through it himself and that although success seems easily achieved, it is in fact anything but easy.

Huge Influences on the World

This year’s report on the work of the government said that in 2017 all the main targets and tasks for economic and social development were accomplished and performance exceeded expectations. GDP grew 6.9 percent and personal income rose 7.3 percent, both beating the previous year’s growth rates. Around 13.51 million new urban jobs were created, and the jobless rate was the lowest in recent years. Industrial growth began to rebound, and corporate profits increased by 21 percent. Government revenue grew 7.4 percent, reversing the slowdown in growth. The total import and export value rose 14.2 percent. Inward foreign investment reached US $136.3 billion, hitting a new all-time high. The state of play in the economy was good, with growth and quality, structural improvement, and performance each reinforcing the other.

As the largest driver of growth for the world’s economy, China’s stability is crucial to the world’s stability, China’s progress will promote that of the world, and China’s sound development will contribute to that of the world. This point could be further explained by the increase in import and export.

China’s import and export volume increased to RMB 27.79 trillion last year, registering a 14.2 percent growth year on year. Export totaled RMB 15.33 trillion, rising by 10.8 percent; import rose by 18.7 percent to RMB 12.46 trillion. Trade surplus dropped by 14.2 percent to RMB 2.87 trillion.

The huge growth of China’s international trade, import growth in particular, has created a positive spillover effect on the world. Firstly, China’ imports from emerging markets like Latin American countries and African countries rose by 22 percent, and exports to these areas increased by 17.3 percent; secondly, China’s trade volume with the developed economies of Europe, the U.S. and Japan increased by 14.8 percent; thirdly, China’s crude oil import and natural gas import from energy-exporting markets rose by 10.1 percent and 26.9 percent respectively, directly promoting the rebounding of international commodity prices; fourthly, China’s export of automobiles, computers and medical instruments and equipment to technology-importing markets grew by 27.2 percent, 16.6 percent, and 10.3 percent respectively.

China has led the recovery of the international exports and imports. Statistics from the World Trade Organization show that during the first three quarters of 2017, trade in goods among the 70 major economies in the world increased by over nine percent, reaching an all-time high. This partly comes from recovery and partly comes from further growth. There is hope that the world may say goodbye to the international financial crisis that has persisted for 10 years.

In the backdrop of economic globalization, China’s growth is in sync with that of the world. The 40 years’ reform and opening-up has witnessed China’s opening and inclusion to the world economy. In terms of trade in goods volume, China ranked 29th in 1978, but now ranks first. Although there were three periods of negative growth, each time it happened, China assisted the world’s recovery afterwards.

The first negative growth occurred during the Asian financial crisis. In 1998, China’s international trade volume dropped by 0.4 percent on a year-on-year basis, and imports decreased by 1.5 percent. However, in the following years, China registered continuous trade growth, not only promoting trade increase in Asia, but also contributing to the world’s trade progress. But back then China’s trade volume only ranked 10th in the world.

The second negative growth happened in the international financial crisis. In 2009, China’s trade in goods dropped by 16.3 percent on a year-on-year basis, with imports decreased by 13.7 percent, and exports by 18.3 percent. But in the following years, China’ s international trade witnessed continued growth, contributing to the growth of the international trade. In 2013, China overtook the U.S. to become the top goods trader.

The third negative growth occurred due to the large-scale decrease of international trade. The world’s trade in goods dropped from US $37.96 trillion of 2014 to US $32.18 trillion of 2016, decreasing by 15.2 percent. China’s trade volume dropped from RMB 26.42 trillion to RMB 24.34 trillion during the same period. But now China’s large increase in international trade is once again driving the world’s growth.

China is now transitioning from a stage of high-speed growth to a phase of high-quality development. The dynamism and potential of China’s development continue to be unleashed further, with its development becoming more coordinated and sustainable. In particular, China’s share of the world economy sees a continued rise, thus ensuring China will continue to be a major source of growth and stability of the global economy.  

HU ANGANG is a professor in the School of Public Policy & Management at Tsinghua University and director of the Center for China Study at Tsinghua-CAS (Chinese Academy of Sciences).