Opinion

Growth quality not quantity

By Zhang Monan (China Daily)
Updated: 2011-03-22 17:37

Next five years should focus on new economic pattern based on balanced development of consumption, investment and exports

The average 7 percent growth target set by the Chinese government in the recently published 12th Five-Year Plan (2011-2015) demonstrates its determination to achieve normal and sustainable economic development after the previous pursuit of fast-track growth.

China has experienced a 10.48 percent growth rate year-on-year over the past decade, with its economic share in the world's total increasing to 8.5 percent in 2009 from 1.8 percent in 1978. The country replaced Japan to become the world's second largest economy in 2010, with its economic aggregate nearing 40 trillion yuan ($6.1 trillion).

China's vigorous economic development has provided strong support for global economic growth, especially after the outbreak of the global financial crisis. Even as the world suffered a 0.6 percent decline in total demand, China realized a 13 percent increase in its domestic demand in 2009, contributing 1.6 percentage points to global economic growth. According to the World Bank, the country's contribution to world economic growth in 2010 is likely to reach 25 percent, which will make it the world's No 1 economic locomotive for two consecutive years.

However, the country's ever-expanding economic might has failed to eradicate an increasing number of structural economic problems, highlighting the urgent need for the country to shift from pursuing quantity-obsessed growth to prioritizing quality and efficiency.

Despite its noticeable economic growth in scale during the 11th Five-Year Plan period (2006-2010), China failed to achieve its much-anticipated progress in economic restructuring, with imbalances still remaining between its external and internal demand and between investment and consumption. The country has not fundamentally changed its reliance on investment, and overcapacity in some fields still remains outstanding, while the service sector lags far behind the industrial value. The GDP-obsessed development model has also resulted in environmental degradation and resources depletion.

All this demonstrates that the country's extensive economic growth model has come to an end and calls for accelerated efforts for economic restructuring to promote its economic transformation and industrial upgrading.

In recent years, investment and exports have contributed more to China's economic growth than consumption. With the gradual exit of the country's policies and measures aimed at encouraging investment and export, the previous economic growth momentum driven by investment and exports is expected to weaken. That, together with the slow progress in raising people's incomes and improving the country's social security network - two factors that will affect domestic consumption - will put a drag on the country's sustainable economic growth.

To change this situation, the country should try to extricate itself from its excessive dependence on external demand and turn to domestic demand to develop a new economic growth pattern based on a balanced development between consumption, investment and export.

A diversified and balanced industrial structure should be set up to promote coordinated development between the first, second and tertiary sectors. Also, innovation and high-tech industries should be encouraged.

China's high-paced economic growth has benefited from the low cost of labor, people's high saving ratio and the country's excessive investment.

However, the global financial crisis, together with the gradual disappearance of its demographic dividend and the low-cost use of land, energy and resources, means it will be difficult to sustain a development model based on the increased use of labor and capital. This will necessitate the country pushing forward its industrial structural upgrading, accelerating the creation of a labor capital market and promoting technological progress in a bid to realize economic transformation from an extensive to intensive basis.

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The country's long-controversial income distribution pattern should be optimized to people's advantage. To implement the income distribution blueprint mapped out by the 12th Five-Year Plan, effective and concrete measures should be taken to build a reasonable and well-developed primary income distribution system that covers people's wages, social security and welfare. Measures should also be taken to adjust the income distribution between the government, enterprises and individuals and to steer the nation's wealth more toward individuals. The current earnings ratio between capital and labor should also be adjusted to change the unreasonable capital-dominant earning distribution structure.

Active measures should be taken to adjust the country's current energy structure. According to the current development model, a one-percentage point increase of GDP will need an additional 0.8 to one percentage point of energy consumption.

In 2009, the Chinese government promised to reduce its carbon dioxide emissions for every unit of its GDP by 40-45 percent in 2020 from the 2005 level, a commitment that will force the country to slow its economic pace. External pressures and internal demands will also prompt the country to improve the efficiency of its energy use and develop new and clean energy to optimize its energy structure.

What the country should try to do is develop a quality and efficiency-based economic development model.

The author is an economics researcher with the State Information Center.