Copy Reference China’s commitment and efforts to continue reform to achieve sustainable and more inclusive growth have been widely recognized by countries around the world. The “Four Comprehensives” (a four-pronged strategy aiming to comprehensively accomplish a moderately prosperous society, deepen reform, advance the rule of law, and strengthen Party governance) has created new implications for the country’s development. Far from a lip-service initiative, the “Four Comprehensives” involves concrete measures.
The strategy of comprehensively accomplishing a moderately prosperous society in all respects makes China’s economic goals more tangible and real, with at a minimum the following economic implications:
First, China seeks environmentally friendly and inclusive growth. To this end, the share of service industries in the national economy should be increased, and environmentally friendly industries should be developed as a new economic growth point. The service sector requires more labor than industry, so development of the service sector is conducive to expanding employment and ensuring a high employment rate despite lower rates of economic growth.
Second, economic growth should benefit more people. Efforts are needed to improve the structure of income distribution, raise wages, increase consumption, and improve living standards. Increased consumption demand will enhance an economy’s resilience to external economic shocks.
Third, over the next few years, China should shift to innovation-driven economic development to improve the quality and sustainability of economic growth and avoid the “middle-income trap.”
Comprehensively deepening reform, a necessary step for China to effectively prevent various economic risks, demands new requirements for reform. Under the guidance of this policy, reform in many areas will rise on the agenda.
For example, China can roll out more preferential policies to encourage private companies to innovate, improve the financial market system to make it easier for small and medium-sized enterprises to obtain loan support, and reform the household registration system to enable an improved social security system to help stabilize domestic demand. It should also promote the internationalization of the RMB to align with its growing importance in the world economy, clarify fiscal powers and expenditure responsibilities between the central government and local governments, and implement policies to narrow the gaps between urban and rural areas and between different regions. Such measures will greatly promote economic restructuring, stimulate economic development, and provide institutional guarantees for sustained economic growth.
Comprehensively advancing the rule of law will create a positive environment for business investment. Laws and regulations, enforceability of contracts, and traceability and predictability of court decisions could all enhance the importance of the judiciary. Given its significant position in the global economy, China could do much better in these areas, and the current situation should be improved through reform. A sound legal environment is conducive to increasing investor confidence and creating a more business-friendly investment environment.
Comprehensively strengthening Party governance is an important guarantee for the healthy development of the economy. Corruption is often related to rent-seeking behavior. Wasted resources are inevitable when companies have to bribe officials to win public procurement contracts. Personal relationships between bankers, leaders of large state-owned enterprises, and policy makers can cause inefficiencies and lead to a sharp increase in both total volume and proportion of non-performing loans, which can be very harmful to financial markets. These problems can endanger economic growth and social stability. Therefore, strict governance of the Party is necessary to ensure sustainable and healthy economic development.
This article is based on an interview with China Review Studio.
Christian Dreger
About the author Christian Dreger is Research Director (International Economics) at German Institute for Economic Research (DIW Berlin).