New Trend in Economic Development

Two-Pronged Industrial Restructuring

The main contradiction in China’s current economic development is no longer between gross production and speed, but in the adjustment of its internal structure. China needs to step up efforts in resolving the problem of overcapacity and implementing innovation-driven development. The conference demanded that tackling overcapacity should be unswervingly implemented without compromise and that the idea of survival of the fittest should be held fast through healthy market competition.

“To some industries, serious overcapacity is the most prominent structural problem, the main reason being that the local government’s administrative power dictates industrial development. The fundamental solution is to rely on the market mechanism, which will give play to the market effect of survival of the fittest,” said Feng Fei, director of the Research Department of Industrial Economy, Development Research Center of the State Council.

The conference pointed out that the fundamental way to address the problem of overcapacity is innovation. The government should strengthen the protection of intellectual property rights and improve tax policies for enterprises to promote innovation. According to Feng, the old pulling power and comparative advantages of China’s economy are weakening. Therefore, it is necessary to form new comparative advantages through innovation, which can ultimately upgrade China to the middle and upper reaches of industry and value chains.

Prevent and Control the Risks of Local Government Debt

To achieve steady economic growth, the country must remove risks and hidden dangers in its economic operation. In recent years, fast-growing local government debt is one such issue. The conference pointed out that China should make the control and elimination of local government debt risk a critical task of its economic work. China should both take short-term measures and build permanent systems to efficiently preclude the risk of local government debt.

According to Jia Kang, director of the Research Institute for Fiscal Science at China’s Ministry of Finance, although current local government debt totals are generally controllable, administrators should pay close attention to risk prevention in specific areas so as to avoid exacerbation of the overall problem.

“Raising this question at present is a precaution; we don’t have to panic. Most local government debts are in the area of urban construction and can be resolved by asset securitization and franchising,” said Zhu Baoliang.

Comprehensively Deepen Reform

The conference also stressed that China should incorporate reform and innovation in all aspects of economic and social development. The government must honor its word with results-oriented actions to earn people’s trust. By focusing on the outcomes of the reforms, China should achieve big wins via the accumulation of many small victories so that the public finds tangible benefits and the whole society notices improvements in the market environment and working conditions day by day.

According to Chi Fulin, head of the China (Hainan) Reform and Development Research Institution, these announcements identify two important signs of comprehensively deepening reform: the determination to firmly push forward reform and the pragmatic style to do so. These measures will enhance public confidence in reform and build a consensus.