Economic transformation will lay a solid foundation for domestic development and help propel the global economy

After weathering the global financial crisis, both the government as well as the Chinese industry have reached consensus that China’s economic development pattern needs to be transformed.

Changing the growth model and optimizing its industrial structure has become imperative for the nation.

Although hailed by many as a miracle, the Chinese economy has suffered greatly due to its irrational economic structure, which includes imbalanced demand and uncoordinated supply, inefficient usage of resources, severe environmental pollution and uneven development levels seen across the nation.

The current economic growth pattern has for long been overly dependent on exports and investments, rather than domestic demand and consumption.

From a perspective of rural-urban and inter-regional differences, China’s urbanization process and development of its central and western regions carry great potential, compared with eastern coastal areas.

China’s agricultural infrastructure is still vulnerable; the secondary sector is large in scale yet not powerful enough; the development of its tertiary sector is lagging, and some industry segments have been beset by overcapacity problems.

The nation is also facing mounting pressure due to shortage of resources and environmental pollution.

As China’s economy grows in size, the nation must shift from a resources-intensive and export-driven economy to one that is resources-efficient and technologically savvy.

It should also enable the public to share in the benefits of a concerted development of the economy, society and environment in order to maintain fast and sound economic growth in the long run and avoid major fluctuations.

Of course, China’s commitment to transforming its economic growth pattern is nothing new; it has been under the lens for more than a decade and a half.

In fact, the 1981 government work report had put forward 10 development guidelines centering on improving economic performance.

During the 9th Five-Year Plan, the central government emphasized that the economic growth pattern must move from an extensive to an intensive mode.

The 11th Five-Year Plan too strategically focused on economic growth pattern transformation.

However, no lasting change has been seen in this regard since the institutional apparatus underpinning the traditional economic development pattern is stubbornly playing its role, and a sound social, cultural and political milieu conducive to innovation and entrepreneurship hasn’t yet been established.

China’s economic transformation will not only lay a solid foundation for domestic development, but also lead to the sound development of the world economy.

As the world’s third largest economy, China’s economic transformation, aimed at “expanding domestic demand and readjusting economic structure” will increase domestic consumption and boost imports, which in turn will facilitate a rebalancing of world finance and trade.

Moreover, by upgrading the nation’s industrial structure and utilizing more clean energy sources, its carbon-intensity is certain to decline. This will be of far-reaching consequence in the fight against global climate change.

The next decade will be crucial in the nation’s second phase of reforms, with growth model transformation as its main thread. This transformation will greatly affect China’s development in the coming several decades.

To accelerate this transformation process and achieve sustainable development goals, the nation not only needs to rebalance investment and consumption, and expand domestic demand, but also make long-term arrangements to align with its changing demographic structure.

The concrete changes required include transforming from an export-oriented model to dependence on domestic demand; from an investment-driven model to a consumption-led model; from a carbon-intensive model to a low-carbon economy; from a government-dominated model to a market-oriented pattern, and finally, from pursuing non-equilibrium growth to a relatively balanced development.

Since 2009, the Chinese leadership has shown plenty of determination to transform the growth pattern on various important occasions.

For example, the State Council is evaluating a project aimed at accelerating strategic emerging industries; the widely-anticipated tri-networks integration plan has been finally released; and income allocation system reform is progressing steadily.

The progress seen in efforts to achieve this economic transformation has convinced many that China will not give it up half-way through.

Transforming China’s economic growth pattern, which is a complicated endeavor, needs simultaneous structural reform in other related fields, including corporate governance at state-owned enterprises, and improvements to its fiscal, taxation and government administrative systems.

However, the transformation will struggle to take root without major institutional breakthroughs.

The author is an economist with the State Information Center.

By Hu Shaowei