Move Faster to Create a New Development Dynamic

Move Faster to Create a New Development Dynamic*

January 11, 2021

The Recommendations for Formulating the 14th Five-Year Plan for Economic and Social Development and Long-Range Objectives Through the Year 2035 defined the creation of a new development dynamic with the domestic economy as the mainstay and the domestic economy and international engagement providing mutual reinforcement. This major strategy concerns our country’s overall development interests and must be thoroughly understood and actively implemented.

In recent years, we have witnessed a backlash against economic globalization and profound changes affecting the international economy. The Covid-19 pandemic exacerbated opposition to globalization, and many countries have now become more inward-looking. During the epidemic, I visited several provinces to gain an in-depth understanding of their measures to contain the virus and the problems in reopening the economy. During my visit to Zhejiang Province, I found that global industrial and supply chains had been partially disrupted due to the pandemic. This had directly impacted the domestic economy. Many companies were forced to suspend operations because they could not bring in the raw materials and personnel they needed or send their goods overseas. I realized just how much things had changed; the environment and the conditions that had facilitated large-scale imports and exports were no longer in place. 

Given these new circumstances, we needed to come up with new thinking to steer development. Accordingly, in April last year I proposed that we create a double development dynamic. At the Fifth Plenary Session of the 19th CPC Central Committee in October 2020, we adopted comprehensive measures to launch this strategy. The establishment of the new development dynamic is a strategic and proactive step for taking the initiative in development, a major historic mission that must be fulfilled in the new development stage, and an important measure for applying the new development philosophy.

As a socialist country with a large population and a vast market, China is certain to encounter various pressures and challenges in the process of modernization, the likes of which no other country has ever experienced. In 1936, Mao Zedong made an observation that still holds true for us even today. He said, “No matter how complicated, grave and harsh the circumstances, what a military leader needs most of all is the ability to function independently in organizing and employing the forces under his command. He may often be forced into a passive position by the enemy, but the important thing is to regain the initiative quickly. Failure to do so spells defeat.” “The initiative is not something imaginary but is concrete and material.”

If we can, through our own efforts, ensure that the flows of the domestic economy remain unimpeded, we can effectively shield ourselves from harm. We will then have the vigor and vitality not only to survive but to thrive in the most volatile international situations, making it impossible for anyone to keep us down or to back us into a corner. We must speed up our efforts to create the new development dynamic, so that we will be better able to survive, compete, and maintain sustainable development, whatever challenges or difficulties we encounter, whether anticipated or not. This way, we can ensure the course of national rejuvenation is never delayed or interrupted.

In practice, there are some misunderstandings that we need to guard against. 

Firstly, some people tend to speak only about the first part, that is, the domestic economy as the mainstay of the new development dynamic, and call for China to sharply narrow its opening to the outside world. 

Secondly, some others speak only of the latter part, or the mutual reinforcement between the domestic economy and international engagement, and still subscribe to the old dynamic of large-scale imports and exports with both ends of the economic process – markets and resources – being located abroad, despite the changes to the international landscape. 

Thirdly, sticking to one’s own line and focusing only on one’s own sphere of interest is also a mistake. Some are neglecting the building of a unified national market with a nationwide economic flow, preferring instead to focus on their own local or regional market. 

Fourthly, some have equated unimpeded economic flow with smooth logistics and are focused only on this basic level of circulation. 

Fifthly, in resolving technological bottlenecks, some people want to do everything themselves, which results in redundancy, or heedless of unfavorable conditions such as a weak industrial base, they tend to carry out extravagant projects that will ultimately fail.

Sixthly, in working to boost domestic demand and expand the domestic market, some people have once again resorted to blind lending to expand investment, and over-stimulating consumption, or even have reverted to energy-intensive and high-emission projects. 

Seventhly, some are concentrating on demand-side management at the expense of supply-side structural reform, making it impossible to achieve a higher-level, dynamic equilibrium in which supply promotes demand. 

Eighthly, some think that the new development dynamic is a matter for the economic and technology departments and hardly concerns them. 

All of these mindsets are inadequate or even erroneous; we must guard against them and rectify them should they arise. 

The key to building a new development dynamic is to ensure unimpeded economic flow, as is the case in traditional Chinese medicine, one must remove blockages to stimulate the free flow of vital energy and maintain the body’s balance. Economic activity requires the integration of various production factors at all stages, from production through distribution and circulation to consumption, in order to realize a smooth economic cycle. Under normal circumstances, this will lead to greater material production, greater social wealth, greater wellbeing for the people, and greater national strength, giving rise to an upward spiral of development. When obstructions and breakdowns occur, economic flow is disrupted. From a macroeconomic perspective, the economic growth rate drops, unemployment rises, risks arise, and the balance of payments falls into disequilibrium. At the microeconomic level, it leads to problems such as overcapacity, declining enterprise returns, and falling personal incomes. 

In the present stage of China’s development, the most important task in ensuring smooth economic flow is maintaining effective operations on the supply side. If we have a strong capacity for effective supply we can clear obstructions, resolve bottlenecks, create jobs, and provide incomes, which will increase our capacity to create demand. To this end, we must treat further supply-side structural reform as our main task and continue to carry out the priority tasks of cutting overcapacity, reducing excess inventory, deleveraging, lowering costs, and strengthening areas of weakness. We must comprehensively improve and upgrade the industrial structure, increase our capacity for innovation, our competitiveness, and our overall strength, boost the resilience of the supply system, and ensure that inputs produce higher-quality outputs with greater efficiency, so as to achieve a dynamic economic equilibrium at a high level.

I have said that the essence of the new development dynamic is realizing a high level of self-reliance. The environment for our economic development is changing, particularly with respect to our comparative advantages in production factors. As labor costs are rising and the carrying capacity of our resources and environment have reached a limit, the production function formula of the past is no longer sustainable, and science and technology are becoming more and more important on all fronts. In these circumstances, it is important to put more emphasis on home-grown innovation. As a result, the Recommendations present two major measures – promoting scientific and technological innovation, and removing bottlenecks in industry. 

We must understand that these issues are vital to the survival and development of our nation. We should comprehensively strengthen planning for scientific and technological innovation to bring together superior resources, and implement a competitive mechanism to award research projects in order to promote strong and steady progress in innovation. We must better align the chains of innovation and industry, and draw up roadmaps, timetables and systems of responsibility. Where appropriate, relevant departments and local governments should play the leading role in this effort. Where it is appropriate for enterprises to take the lead, governments should give them their full support. State-owned enterprises directly administered by the central government and other state-owned enterprises must have the courage to shoulder their responsibilities and take the lead in making themselves the source of original technologies and the leaders of the modern industrial chain. 

In today’s world, markets are the scarcest resource. China’s market is thus a huge advantage for our country. We must make full use of this factor and steadily consolidate it to make it a strong pillar of the new development dynamic. Expanding domestic demand is not a temporary policy to cope with financial risks and external shocks, nor is it about unleashing a deluge of strong stimulus policies or increasing government investment. Rather, it is about establishing an effective institutional framework to boost domestic demand based on our country’s actual economic status, moving to tap the potential of demand, working faster to build a complete demand system, strengthening demand-side management, and expanding consumer spending while also upgrading the level of consumption, so that the development of our vast domestic market becomes a sustainable process. 

To create a new development dynamic and pursue high-standard opening up, we require a robust domestic economic flow and stable economic fundamentals. On this base, we can create a strong pull for global production factors and resources, the ability to hold our own amid intense international competition, and powerful momentum for the allocation of global resources. We should continue to expand opening up based on the flow of production factors such as goods, services, capital and talent, and steadily expand institutional opening up with regard to rules, regulations, management and standards. We should ensure that China’s domestic economy plays a stronger role in guiding the double development dynamic, and foster new strengths for China’s participation in international economic cooperation and competition. We should work to harness international engagement as a means for improving the efficiency and level of the domestic economy and the quality and allocation of our production factors. Through competition in the international market we will boost the competitiveness of our export products and services, and promote industrial transformation and upgrading to increase China’s influence in global industry chains, supply chains, and innovation chains. Chinese enterprises now have interests that extend to many countries around the world. This requires that we pay more attention to understanding international affairs and carrying out thorough studies on countries that are our stakeholders, trading partners, and investment destinations, in order to establish a clear picture of potential benefits and risks. 

To sum up, the requirements to enter a new development stage, apply a new development philosophy, and build a new development dynamic are determined by the theoretical, historical and practical logic of our country’s economic and social development. These three elements are closely interrelated. Our entry into the new development stage clarifies the historic juncture that national development has reached, the new development philosophy makes clear the guiding principles behind our modernization drive, and the new development dynamic elucidates the path that will take us to economic modernization. An understanding of the new development stage will provide us with the practical basis for applying the new development philosophy and creating a new development dynamic. The new development philosophy will provide us with a guide for understanding the new development stage and creating a new development dynamic. Creating a new development dynamic is a strategic choice in terms of our response to the opportunities and challenges in the new development stage and our implementation of the new development philosophy.

* Part of the speech at a study session on implementing the decisions of the Fifth Plenary Session of the 19th CPC Central Committee, attended by principal officials at the provincial and ministerial level.

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