Peking University, Nov. 3, 2010: China is among the first countries to emerge from the global financial crisis. But how should China seize this opportunity to promote its economic growth momentum? What will drive China's economic growth in the next five years, and what macro policies should China adopt? Prof. Li Yining, a renowned economist with Peking University, recently shared his views with Beijing Daily. Edited excerpts follow:
Picking up from a gloomy economy first in the wake of the global economic crisis means more business opportunities for China. As a result, China should make use of this chance to reshape its development structure, create new name brands, and continue independent innovation.
China should prioritize domestic consumption and investment as the main drivers of its economic growth, rather than exports amid the fierce competition in the international market.
The following areas should be the major engines driving China's economic growth in the next five years:
Industrial upgrades
In line with the guiding proposal for formulating the nation's 12th Five-Year Program (2011-15), China should upgrade its industries in the context of the international market and make efforts to play a full role in such hi-tech industries as new energy, new materials, biotechnology, and environmental protection.
The new energy industry is expected to promote the automobile industry, transportation and other traffic facets, while new materials will facilitate renovation of the real estate and equipment manufacturing industries.
Biotechnology will prop up many industries, such as agriculture, aquaculture and medicine. It will also promote medical treatment, which will improve people's health and prolong people's lives, and further prompt development in many sectors.
China should take a digital road to make use of the Internet and apply the Internet of Things, with an aim to increase work efficiency and stimulate further development in many industries.
Originality should be encouraged in novel industrial design, so as to make China's manufacturing industry more advanced.
Urban-rural integration
The Chinese Central Government urged the acceleration of urbanization at a recent working conference since China's urbanization process is slow. The urban population increased from 20 percent in 1949 to only about 45 percent in 2009, which is far from the requirement for domestic consumption expansion.
Assuming an annual increase in the urban population of 1 percentage point, the proportion of the Chinese population living in cities will grow to 75 percent in 30 years. That means over 10 million people will move to the cities every year, including workers, elderly people and children, which requires the large-scale construction of houses, schools, hospitals and other facilities. Urbanization is therefore the largest potential market in China, expected to offer numerous jobs and opportunities for enterprises. The next five years should be a period of rapid urbanization, which will help drive the country's economic growth.
Forestland reform
China launched the reform of tenure in collective forests in June 2008, devolving collective forestland to rural households and allowing them to manage forestland. The reform has produced good results.
Thanks to the reform, some farmer migrant workers found employment by developing the forest economy after they were laid off during the global financial crisis last year. They invited their peers to join their forest businesses of breeding chickens and planting herbs and mushrooms in the forests they manage.
Since the Central Government stipulated that the forest and trees managed by farmers could be mortgaged, forest farmers have become rich. They are able to move out of their homes and build new houses of their own, which also serves as an economic growth engine.
Environmental protection
Low-carbon economy serves as both an opportunity and a challenge for China, because China has not yet mastered the core technology of the environmental protection industry. The current concept of environmental protection is broad, including desert control and afforestation as well as water and soil treatment. In a narrower sense, environmental protection means equipment, instruments and the manufacture of production materials related to environmental protection.
China should base efforts to develop a low-carbon economy on its own national conditions. If China were able to make some breakthroughs in environmental protection technology, then China would not only create production value, but also have a say in this regard.
Domestic consumption expansion
Creating more jobs and increasing residents' income in proportion of national income is key to expanding domestic consumption. The decline in people's income in recent years has not benefited consumption. The salaries for all working people should be elevated. Farmers' income should also be increased by promoting the industrialization of agriculture.
Addressing the housing issue is another aspect of expanding domestic consumption. The government must provide low-rent housing for low-income families and affordable housing for middle-income families. When people have new houses, they also buy furniture and household electric appliances, forming another force to drive up domestic demand.
Macroeconomic policy
China's annual economic growth should remain at 8 percent in the long run. If growth exceeds 9 or 10 percent, production material prices will soar.
To cope with existing inflation, China needs to set up an early-warning mechanism. Tight monetary policy, which incurs additional unemployment, is not the only way to restrain inflation.
China should adopt detailed, flexible fiscal and monetary policies in line with the real situation, so as to maintain stable economic growth.
Edited by: Jacques
Source: Beijing Review
