Key Issues in the New Development Stage

Key Issues in the New Development Stage*

December 8, 2021

In the new development stage, our country is experiencing a profound level of change in its domestic and external environment and faces many new matters of consequence. We should understand them fully. Here I want to emphasize the following:

First, we must understand our strategic goal of common prosperity and know how to make it happen.

“A country is truly prosperous only when its people are prosperous.” The creation and distribution of wealth is a critical issue faced by all countries. In some Western countries, growing social wealth is accompanied by polarization and a persistent wealth gap. In Latin America, the disparity in distribution is significant in some low-income countries.

Under socialism, our expectation is that the country will progressively unleash and develop the productive forces, create and accumulate social wealth, and at the same time prevent polarization and make more substantive progress in promoting well-rounded human development and common prosperity for all. We used to practice inflexible egalitarianism when the level of average income was low in our country. After we launched reform and opening up in 1978, some people and regions took the lead in achieving prosperity, and the income gap in the country grew quickly. Some people have amassed wealth by dubious means, and this can pose threats and challenges to healthy economic and social development.

Common prosperity is an essential requirement of socialism with Chinese characteristics. How can we achieve this goal? We are charting a path forward. First, we should make the “cake” of social wealth bigger through the concerted efforts of all our people; then we should properly handle the relationship between growth and distribution by institutional means so as to share the cake fairly. This will take a long time, and we should create the conditions, improve the relevant institutions, and take steady steps towards this goal.

In promoting high-quality development we should prioritize employment, which is pivotal to people’s wellbeing. Economic growth should play a bigger part in boosting employment and providing more and better employment opportunities. We should support the development of micro, small and medium-sized enterprises and their role as main job providers. We must draw lessons from some Western countries where the real economy has been sidelined by the virtual economy. We should continue to make the real economy stronger to create more high-quality jobs. We should invest more in human capital, raise the quality of education, and strengthen vocational education and skills training. This will help us to improve the quality of the workforce, adapt to the need for high-quality development, and prevent the risk of large-scale unemployment.

We should make greater use of the functions and roles of distribution. We should properly handle the relationship between efficiency and equity and put in place a basic institutional framework in which distribution, redistribution and third distribution coordinate with and complement each other. Distribution according to work should continue as the mainstay, and we should increase the share of work remuneration in primary distribution and improve distribution based on factors of production.

We should ensure the adjusting role of redistribution and make it more targeted by better leveraging taxation, social security, and transfer payments. We should bring into play the role of third distribution, and guide and support enterprises and social groups with both the will and the capacity to participate actively in public welfare and charity undertakings, but we will not allow charitable donations to be coerced by means of moral blackmail.

We should improve our system of policies and institutions on public services. In pursuing common prosperity, we must not resort to welfarism. In the past, some countries embraced populism, and pampered a large number of lazy people who were given something for nothing. Consequently, the fiscal burden became too heavy, and they were caught in the middle-income trap. Once welfare has gone up, there is no way to bring it back down again. Welfarism beyond the means of the state is unsustainable and will inevitably have severe economic and political consequences. We should respect the principle of doing what we can to the best of our ability, focus on improving public services, provide basic public services in a targeted manner in education, health care, elderly care, housing, and other fields that concern the people the most, and ensure subsistence for those in difficulty. We should not set expectations too high or make unrealistic commitments.

Second, we must understand the nature of capital and how it works.

Karl Marx and Frederick Engels did not envisage the possibility of a market economy under socialism. Thus they could not anticipate how socialist countries should treat capital. Though Vladimir Lenin and Joseph Stalin led socialist development in the Soviet Union under a highly centralized planned economy they did not encounter significant problems caused by capital.

Creating the socialist market economy has been one of our Party’s great achievements. As we develop our socialist market economy, it is to be expected that various types of capital will become involved. Although capital in a socialist economy is inherently different in many respects from that in a capitalist economy, they both have a natural tendency to pursue profit. “It is wealth that binds the people of a country together, and it is the law that governs the wealth of a country.” We need to explore how to boost the positive contribution of capital in the socialist market economy while keeping its negative effects under control. Due to inexperience and a lack of regulation in recent years, disorderly capital expansion, cynical manipulation of the capital market, and the pursuit of exorbitant profits became apparent in some areas of our economy. This requires us to regulate capital, draw on its strengths, and manage its deficiencies. We must not allow financial magnates to act unscrupulously. Meanwhile, we should ensure that capital functions properly as a production factor. This is a major political and economic issue that must be addressed. 

In our work, we should do a good job in the following:

We must set up “traffic lights” for capital flows. Traffic on the road needs to be controlled with traffic lights. Likewise, capital also needs to be regulated. No capital of any type can be allowed to run out of control.

We must prevent unchecked growth of capital and combat monopolies, exorbitant profits, sky-high prices, destructive speculation, and unfair competition.

We must reinforce effective regulation of capital in accordance with the law. The socialist market economy is law-based, and capital must operate in accordance with the law. Curbing the disorderly expansion of capital is not intended to deny its worth, but to ensure its orderly growth. To regulate capital, we should strictly enforce the relevant laws and regulations and improve those that are incomplete.

We must support the healthy growth of capital through regulation and guidance. We should uphold and improve the basic socialist economic system, and remain committed to consolidating and developing the public sector and to encouraging, supporting and guiding the non-public sector. We should promote healthy development in the non-public sector and of all those working in the sector.

Third, we must understand how to ensure the supply of primary products.

Guaranteeing the supply of primary products is a major strategic issue for a large country like ours. We should strengthen strategic planning and make timely adjustments when necessary to ensure that supplies are secure.

We should give priority to resource conservation. “Utilized with restraint, resources will be abundant; otherwise, they will be scarce.” We should implement a comprehensive resource conservation strategy and promote conservation campaigns in all fields.

In manufacturing, we should promote efficient, economical use and recycling of resources, reduce energy and material consumption per unit of product, accelerate technological transformation, and raise productive efficiency.

In consumption, we should heighten public awareness of conservation and encourage simple, moderate, green and low-carbon ways of life. We should oppose waste, extravagance, and excessive consumption, continue the “Clear Your Plate” and other campaigns that aim to reduce food waste, and launch initiatives to make Party and government institutions more conservation-conscious, families and residential communities more environmentally conscious, and transport and commutes more eco-friendly.

We should increase our capacity in domestic production and supply of resources. We should invest more effort in exploring for resources, carry out a new round of strategic mineral prospecting, and better develop and conserve marine and mineral resources. We must hold to the principle of producing and supplying key energy resources at home, make use of the buttressing role of state-owned enterprises (SOEs), and speed up the development and application of advanced technologies for oil and gas exploitation. We should improve the national system for strategic reserves to ensure supply during critical periods. We should promote domestic waste sorting and recycling, increase the utilization of solid waste, and move faster to establish an overall waste recycling system.

We should secure our supply of resources from overseas. We should fully utilize domestic and international markets and resources in a mutually beneficial way. While guarding against investment risks, we should strengthen cooperation with energy producing countries and increase our holdings and access to high-quality resources overseas.

Here, I would like to draw your special attention to the issue of agricultural products supply and security. The latest national land survey shows that the area of arable land in our country is still falling. In some places, basic cropland is no longer used for growing grain crops, but for fruit trees or other high value-added crops. I have consistently emphasized that we in China must always have control over our own food supply and that we should mainly rely on domestic food supplies. We should continue to prioritize increasing overall agricultural production capacity, creating high-quality cropland, revitalizing our seed industry, and upgrading agricultural machinery and equipment. We must guarantee reasonable returns for grain farmers, ensure absolute security in staple foods and basic self-sufficiency in grains, and raise our production capacity and self-sufficiency rate in soybeans and other oil crops.

Fourth, we must understand how to prevent and defuse major risks.

Since the 1990s, our country has dealt effectively with the 1997 Asian financial crisis, the 2008 international financial crisis, and the Covid-19 pandemic. Currently, we see many potential risks in our economy and finance, but for the most part they are manageable.

We should have plans in place for worst-case scenarios. A 13th-century Chinese scholar said, “We must nip troubles in the bud and eliminate illnesses at their earliest stage.” We should give full play to Party leadership and other strengths of Chinese socialism, be quick and sharp in perceiving potential risks, identify problems early and correct them while they are nascent, and preempt major risks and crises.

Recently, we have defused the risks of shadow banking and those in internet finance. However, we need to note that new risks keep emerging. “Black swan” and “gray rhino” events occur from time to time. There are several important causes of these phenomena:

The first is a long-term cumulative effect. Our economy is still facing a complex situation which involves a shift in the growth rate, a painful structural adjustment, and a need to absorb the fallout of previous stimulus policies. Risks from earlier stages remain to be resolved.

The second is insufficient regulatory capacity and institutional deficiencies. There is serious negligence in supervision of corporate governance in financial institutions, and financial regulatory capabilities fall short of actual needs. The management of local government debt is slack. Some local governments raise funds in an illegal and clandestine manner, leading to rising debts.

The third is irrational borrowing. Some large enterprises have been impulsive and irrational in diversifying their business, relying too much on financial leverage. As a result, an excessive amount of industrial capital passes from the real economy into the financial sector. Some shareholders and de facto controllers run financial enterprises in ways that violate laws and regulations. These enterprises are controlled by insiders and manipulated by large shareholders, who engage in financial fraud and misappropriation of funds.

The fourth is corruption and collusion between officials and businesspeople. Some government officials and heads of financial institutions commit dereliction of duty or engage in corruption; they line their pockets with public funds and cause huge losses to the country.

The fifth is the changing economic cycle. A slowing growth rate has exposed various hidden risks. The possibility of systemic risks triggered by local risks is rising. The risk posed by insolvency is high.

As our next step, we should continue to properly handle risks in accordance with the principles of maintaining overall stability, ensuring coordination, applying differentiated measures, and defusing risks through targeted efforts.

We must improve the legal framework of the financial sector in accordance with laws and regulations, and establish a system for regularly updating the law.

Responsibilities should be clearly defined, and we should ensure that local Party committees and governments address the need to maintain social stability and mitigate or eliminate risks in the areas under their jurisdiction. We should urge financial regulatory departments, authorities in charge of specific sectors, and discipline inspection and supervision commissions to fulfill their respective responsibilities for dealing with risks. We should ensure that enterprises assume the principal responsibility for working out feasible plans to address their own risks.

We should strengthen our regulatory capacity, upgrade our regulation technology, strengthen areas of weakness, and build a competent contingent of financial regulatory officials.

We should ensure sufficient resources, and move faster to set up a financial stability fund, give play to the role of the deposit insurance system and the protection funds of industries in risk disposal. We will consider and formulate policies that facilitate mergers and acquisitions of financial institutions and support their efforts to deal with nonperforming assets.

Local governments should take action to put idle assets to use and eliminate related risks. Enterprise shareholders should be the first to bear risks and losses, to the full value of their equity if necessary.

All parties in the financial sector should cooperate extensively, and establish an integrated risk-response mechanism with adequate authorization and coordination, to improve the sector’s capacity for dealing with risks through cross-market and cross-industry coordination.

We should pay special attention to the risks in some real estate developments. Local governments must shoulder their responsibilities, strengthen regulation, forestall systemic risks, and maintain healthy and steady development of the real estate market.

Fifth, we must understand how to achieve peak carbon dioxide emissions by 2030 and carbon neutrality by 2060.

The Party’s central leadership gave careful consideration before deciding to pursue these goals as a key national strategy. It is our solemn commitment to the international community and an essential requirement for promoting high-quality development.

Yet some problems have become apparent recently. Some local authorities have attempted to fast track energy-intensive and high-emission projects ahead of the carbon peak; some have imposed uniform restrictions and launched impulsive or arbitrary carbon reduction actions; some have even resorted to power rationing. None of this conforms to the requirements of the central authorities.

Green and low-carbon development is a complex and long-term project involving the full-scale transition of economic and social development. Adjusting the energy mix and the industrial structure cannot be accomplished overnight or without consideration of our realities. If the phaseout of conventional energy is not accompanied by a substitution with safe and reliable new energy, it will have an impact on economic development and social stability. Reducing pollution and carbon emissions is integral to economic restructuring. We need to establish the new before getting rid of the old and make holistic plans.

At the ninth meeting of the Central Commission for Financial and Economic Affairs, I outlined our agenda for realizing peak carbon and carbon neutrality and highlighted the principles that we should follow – to coordinate efforts nationwide, prioritize conservation, give play to the role of both the government and the market, ensure smooth domestic and international supply, and prevent risks. The central authorities have issued guidelines for achieving peak carbon and carbon neutrality and approved an action plan for the former.

While we must be resolute in pursuing our carbon goals, we should also be aware that they cannot be realized overnight. Therefore, we must make steady progress, striving to reach these goals step by step.

We must base our policies and actions on our national conditions, recognizing the fact that coal has long been our primary source of energy. We must take this into consideration when pursuing our peak carbon goal. While promoting the clean and efficient use of coal, we should expedite the adaptation of coal-fired power plants to fluctuating demand, develop renewable energy, promote an optimal combination of coal and new energy, and increase our new energy accommodation capacity.

We must make every effort to achieve breakthroughs in green and low-carbon technologies and to promote and apply advanced technologies.

We should be more objective in the assessment of carbon control work, improve the system for dual control over the volume and intensity of energy use, create conditions for a subsequent transition to dual control over the volume and intensity of carbon emissions, and accelerate the formation of a mechanism providing incentives and disincentives in order to reduce pollutants and carbon emissions. All local authorities and relevant departments should take a holistic approach to their work on these controls and on the peak carbon and carbon neutrality goals, and avoid a simplistic tasking of every lower level with targeted quotas.

We must ensure the nation’s energy supply, balance multiple goals, and increase energy supply via more channels. Large enterprises, and SOEs in particular, should take the lead in guaranteeing supply and maintaining stable prices. Serious incidents like extensive power cuts will not be accepted.

We should promote the energy revolution, push forward reform in energy use, supply, technology, and institutions, strengthen international cooperation, and build up our strength in energy.

* Part of the speech at the Central Conference on Economic Work.

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