Create a New Development Dynamic and Sharpen the Competitive Edge

Create a New Development Dynamic and Sharpen the Competitive Edge*

October 29, 2020

Go All Out to Create a New Development Dynamic

We have decided to create a double development dynamic with the domestic economy as the mainstay and the domestic economy and international engagement providing mutual reinforcement. This policy decision was made in the context of our current development stage, environment, and changing conditions, and in particular the changes in our comparative strengths. This is a strategic plan tailored to the prevailing situation in China and a vision for the future – a plan that will bring a systemic and profound change to China. We should accelerate the creation of this new development dynamic from an overall and strategic perspective. 

In essence, this is also an essential choice we have made in order to adapt to our new development stage and gain a new edge in international cooperation and competition. Before we launched reform and opening up in 1978, the domestic market was the mainstay of our national economy, and imports and exports accounted for only a small share. Later we opened up to the outside world to expand foreign trade and attract more foreign investment. Since we acceded to the World Trade Organization in 2001, we have fully participated in the international division of labor and engaged with the international market. A development dynamic relying on the international market for the supply of resources and sales of products has taken shape. Riding on the waves of economic globalization, this has played a pivotal role in our rapid economic growth and the improvement of our people’s lives. 

The international financial crisis of 2008 was a watershed in the evolution of our development dynamic. In the face of daunting external crises, we stimulated domestic demand to bolster steady and rapid growth, and made it the main engine of our economy. There has since been a significant increase in the share of domestic market in our economy. After the 18th CPC National Congress in 2012, we continued our policy of expanding domestic demand, and our economic development was driven more by domestic demand, especially by consumption. Our country’s trade-to-GDP ratio dropped from a high point of 67 percent in 2006 to nearly 32 percent in 2019; the proportion of the current account surplus in GDP has also fallen from over 10 percent at its peak to around 1 percent at present; the contribution of domestic demand to economic growth has grown to more than 100 percent in seven years. Our policy to create a new development dynamic is based on China’s economic conditions and its development trend. It is a practical blueprint. 

In the coming years, the dominant position of the domestic market in our economy will become more apparent, and the potential of domestic demand will be further unlocked. In terms of demand, with 1.4 billion people, including a middle-income population of more than 400 million, China’s retail sales will soon surpass that of the US, ranking first in the world, and still leaving room for further growth. In terms of supply, our strong production capacity based on the huge domestic market can facilitate the integration and innovation of factors of production worldwide, and maximize the effects of economies of scale and agglomeration. As long as we continue to adapt to changing circumstances and implement precisely-targeted policies, we have all the strengths to create a new development dynamic and gain a new competitive edge. 

First, creating the new development dynamic is neither a passive response to pressure nor a stopgap measure, but a proactive move aiming to seize the initiative in development. Looking around, the other major economies are dominated by their domestic demand, with a smooth internal flow of production, distribution, circulation and consumption. China is now the world’s second largest economy and largest manufacturing country. The need to adjust the relationship between the domestic economy and international engagement has become increasingly apparent. This was our primary consideration when we put forward this strategy. In the face of growing international instability and uncertainty, we should increase reliance on our domestic market, unleash the potential of domestic demand – which will reduce our exposure to external impacts and the effect of falling foreign demand – and ensure normal functioning of the economy and general stability in society in extreme circumstances. 

Second, what we aim to create is an open development dynamic, rather than an enclosed domestic model. Our country is deeply integrated into the global economy. Its economy interacts with and is dependent on the industries of many other countries on a mutual basis. The internal and external markets are interdependent in a relationship of mutual reinforcement. Taking the domestic economy as the mainstay does not mean we run the economy behind closed doors. Instead, we will improve the interaction between domestic and international markets and increase our ability to participate in the allocation of global resources by unlocking the potential of domestic demand, attracting more global resources and factors of production into the domestic market, and taking full advantage of both domestic and international markets and resources. In doing so, we will gain a strategic edge in our opening up. We will not close our doors to the world; we will only open our doors even wider. We must understand the relationship between the domestic economy and the new development dynamic. We will take proactive and effective action to establish new mechanisms for a higher-standard open economy, and open up on a larger scale, across more areas and in greater depth. 

Third, the new development dynamic must be built upon a unified national market, not on small and fragmented local markets. The Central Committee’s strategy targets the whole country – it does not require localities to create an isolated dynamic within their respective province, city or county. Every area should find its own position and comparative strengths in the domestic economy and the double development dynamic, combine this strategy with other initiatives on regional development, coordinated development between regions, functional zoning, and pilot free trade zones, and reach new heights in reform and opening up. No one should try to build a small but all-inclusive dynamic, or to create regional barriers in the guise of internal economic flow. Areas where conditions permit may explore ways to facilitate the new development dynamic across the country as forerunners. 

It is imperative to follow the new development philosophy in creating the new development dynamic. It has been five years since we put forward this philosophy. All sectors have reached agreement on this philosophy, and are applying it to the full in practice. Creating a new development dynamic is essential for applying the new development philosophy, which is determined by both historical trends and present needs. We should press forward in a holistic manner, be forward-looking, plan the broader picture, organize strategies, and implement them as a whole. We need to synergize policies, ensure mutual reinforcement of different sectors, and expand the application of the new development philosophy. 

Priorities in Creating the New Development Dynamic

The creation of the new development dynamic is a systemic project. We should strengthen planning and design at the top level, and delegate detailed tasks to lower levels with priorities assigned. 

First, accelerating the process of fostering a complete domestic demand system. This is an important foundation for boosting the domestic economy and reinforcing its status as the mainstay of the double development dynamic. Economic activities constitute a dynamic process that rotates and moves in cycles. We should promote deeper reform, strengthen policy guidance, and remove key bottlenecks. To meet domestic demand, we should integrate the strategy of expanding domestic demand with supply-side structural reform, and attune the supply system closer to domestic demand. The goal is to reach an ideal dynamic equilibrium, where demand drives supply and supply in turn creates demand. We need to build a modern logistics system as a key foundation for the double development dynamic, improving both “hardware” and “software”, channels and platforms. 

Second, expediting greater self-reliance in science and technology. This is the key for China to ensure a smoothly-functioning domestic economy and take further advantage of international markets. We should heighten our sense of responsibility and awareness of crisis, dispense with any illusions, and look reality in the face. We need to make breakthroughs in core technologies in key fields, and remove bottlenecks in major areas. We should rouse the enthusiasm of our people for innovation, educate and attract talent in all fields, give full play to their knowledge and strength, nurture more world-class scientific and technological leaders and innovation teams, and build a reserve force of young scientists who have a competitive edge on the international stage. We should create a favorable environment for scientists and students who have returned from abroad, in which they may live, work, study and conduct R&D in comfort, and place them in suitable posts so that they can fulfill their potential and contribute to the country. 

Third, optimizing and upgrading industrial and supply chains. This is urgent if we are to secure the dominance of the domestic economy and increase China’s ability in leading international engagement. Manufacturing is critical to our economy and serves as the foundation of all our efforts to strengthen the country. In the fight against Covid-19, our complete manufacturing industry has played a crucial role, which once again proves the significance of the manufacturing sector to the development and security of a country, especially a large country.

Therefore we should prioritize efforts to make our industrial chains more resilient and competitive, and to establish industrial and supply chains that are self-supporting, controllable, safe and highly-efficient. We should thoroughly analyze the industrial and supply chains for key industries, identify and address weak points that are susceptible to risk, design tailored plans and targeted policies for different industries, and gradually improve self-reliance and risk control in industries and fields bearing on national security. We should take strong measures to keep our enterprises well-grounded in the domestic economy, and encourage industries to transfer within the country in an orderly manner, or keep the key elements of the industrial chain in China when they move abroad. 

Fourth, modernizing agriculture and rural areas. Economic flow between urban and rural areas is an important element of the domestic economy, and a crucial factor that ensures an appropriate balance between the domestic economy and international engagement. Modernizing agriculture and rural areas is also an important part of building a modern socialist country in all respects, and an essential part of addressing imbalanced and insufficient development. The whole Party should continue to give top priority to matters related to agriculture, rural areas and rural people, and implement the rural revitalization strategy in an all-round way. We need to effectively integrate the consolidation and expansion of poverty elimination results with rural revitalization, further revitalizing all once-impoverished areas, promoting economic and social development, and improving people’s lives there. Ensuring a sufficient supply of grain and other major agricultural products is of paramount importance to agriculture, rural areas and rural people. We should never take the issue of food security lightly, and must ensure basic self-sufficiency in grain and absolute security of staple foodstuffs, so that we always have control over our own food supply. We should promote supply-side structural reform of agriculture, optimize the produce mix and distribution of production areas, and reinforce the grain production zones, the protected areas for key agricultural produce, and the areas growing specialty crops.

Fifth, improving quality of life. This is the fundamental purpose of ensuring unimpeded flows in the domestic economy, a key link connecting the domestic economy and international engagement, and a key element of their mutual reinforcement. Satisfying the people’s changing demands, improving their wellbeing in all respects, and ensuring a better life for all are the ultimate goals of socialist production. Optimizing the income distribution structure and expanding the middle-income group can strengthen the endogenous momentum of high-quality development, which is a key link in ensuring unimpeded flows in the domestic economy. We should continue with multiple models of distribution with “to each according to their work” as the principal form, increase the proportion of the remuneration for labor in the primary distribution of gross national income, establish a reasonable wage-growth mechanism, and guarantee wages and the rights and interests of laborers. We should continue to expand the middle-income group and pilot ways to increase earnings for middle- and low-income groups, such as through the right of use of land, capital and other factors of production and the right to proceeds from them. Adopting a problem-oriented approach, we must do more to improve the lives and address the concerns of the people, do everything in our capacity to strengthen areas of weakness, and make steady progress towards common prosperity, so that our people will have a greater sense of gain, fulfillment and security.

Sixth, ensuring a security-based development, which is a red line. This is also an important precondition and guarantee for the new development dynamic, and is essential for the smooth flow of the domestic economy. At this plenary session, the Party Central Committee has drawn up a strategic plan for balancing development and security, which is an effective guideline for China’s economic and social development in complex circumstances. We should adopt a holistic approach to national security, and strengthen our national security system and capability, placing national interests above everything else, with political security as the foundation and people’s safety as the ultimate goal. We need to properly balance opening up and security, build a tight safety net for opening up, and increase our ability to safeguard national security in this environment. Safeguarding people’s lives is our top priority, and we must raise our ability to ensure public security. We must do everything possible to ensure that the people live and work in contentment, that society remains stable and orderly, and that our country enjoys enduring peace and stability.

* Part of the speech at the second full assembly of the Fifth Plenary Session of the 19th CPC Central Committee.

(Not to be republished for any commercial or other purposes.)