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From Speed to Quality

China’s annual two sessions reaffirmed the central leadership’s vision for a new high-quality path for the country’s economy, but change at the local level may face entrenched attitudes

By NewsChina Updated Apr.8

The global media, gathered in Beijing in early March for China’s annual legislative meetings, known as the two sessions, put their spotlight on political issues like the amendment to the Chinese Constitution that removed presidential term limits.

Yet other vital issues were largely sidelined, like the adoption of “high-quality” development as China’s new economic strategy, which indicates a new round of ambitious reforms in the economic field.

Delegates at the two sessions, annual meetings of the National People’s Congress (NPC) and Chinese People’s Political Consultative Conference (CPPCC), convened on March 5, and were the latest group of lawmakers to underline China’s change in economic strategy, following a series of reports released after several high-level government meetings at the end of 2017.

In October 2017, during the 19th National Congress of the Communist Party of China (CPC) in Beijing, the Party’s blueprint declared that “China’s economy has been transitioning from a phase of rapid growth to a stage of high-quality growth,” and that it is “a pivotal stage for transforming our growth model, improving our economic structure, and fostering new drivers of growth.”

And in December, after the Central Economic Work Conference, at which economic strategy is mapped out for the following year, the central leadership stated that promoting high-quality growth would underpin China’s development strategies, economic policies and macroeconomic regulations.

Chinese Premier Li Keqiang, giving his annual government report to the NPC on March 5, devoted a large part of the report to the issue of promoting high-quality growth and building a “modern economic system.”　

The definition of high-quality growth, said He Lifeng, director of the National Development and Reform Commission, China’s top economic planning body, is development that is more efficient, fairer and more sustainable, at a press conference on March 6. 　

According to Zhang Zhanbin, an economist from the Chinese Academy of Governance and a CPPCC member, the emphasis on quality is a response to the fact that after decades of rapid economic development, people’s aspirations have transformed from more homogeneous material benefits to more comprehensive, personalised and dynamic ones.

This is something that was also recognised by the central leadership in its report at the 19th CPC National Congress.

“As socialism with Chinese characteristics has entered a new era, the principal contradiction facing Chinese society has evolved. What we now face is the contradiction between unbalanced and inadequate development and the people’s ever-growing needs for a better life,” which “represents a historic shift that affects the whole landscape and that creates many new demands for the work of the Party and the country,” it said. 　

“More specifically, China’s major economic imbalance is between supply and demand, and between the financial and real estate sector and the real economy. To solve these problems, China must shift from a speed-oriented approach [to economic growth] to a quality-centreed one,” Zhang said.

Yang Weimin, a deputy director at the Office of the Central Leading Group on Financial and Economic Affairs, told ChinaReport that after decades of high-speech economic growth, China’s economy has reached a tipping point. It is only by shifting the focus from speed to quality that economic development will become sustainable.

The economic growth rate was set at 6.5 percent for 2018 in the government report delivered at the NPC, lower than the 6.9 percent target in 2017.

During the March 6 press conference, Yang told media that a slowdown of China’s economic growth is “inevitable,” and this gradual slowdown will be “the norm” for a long time.

“We should take it easy, and work forward to achieve high-quality growth,” said Yang. 　

Cool Heads?　

This may sound clichéd: In the past couple of years, Chinese leaders have repeatedly warned of the prospect of a continued economic slowdown and called for keeping a cool head over China’s GDP growth. It is also not the first time the Chinese government has emphasized the importance of changing its investment-driven growth model into an innovation-driven one, upgrading its economy and seeking economic restructuring.

But to declare “high-quality” development as a pivotal guideline of China’s economic strategy in the coming years suggests a major escalation in both the political will and potential scope of reform in what authorities are calling a “new path” for China’s economy.

The year of 2018 marks the 40th anniversary of China’s reform and opening-up policy, and in the past four decades, China experienced phenomenal growth. China achieved double-digit GDP growth for five consecutive years from 2003 to 2007, and in 15 years altogether during this period. Even during the global financial crisis, China’s GDP growth held steady at around nine percent from 2008-2011.

But given the various internal problems accumulated over the period and a more challenging international environment, China’s growth rate has gradually slowed since 2012. In the following five years, China adopted a more prudent approach that focused on maintaining economic stability, while balancing the need for growth and reform.

In the past two years, the Chinese government launched its supply-side structural reform policy, targeting overcapacity mainly in industrial sectors like iron and steel, as well as acting to curb the overheated property market. 　

While supply-side reform tends to focus on specific sectors, the release of the new high-quality growth doctrine in 2018 suggests that the central leadership will take more systematic measures in the coming years. This is also indicated by the juxtaposition of achieving high-quality growth and creating a “modern economic system” in Premier Li’s government report.

According to Yang Weimin, a key issue with the high-quality agenda is the protection of private property and intellectual property, as well as a need to improve what he calls “the marketisation of production factors,” which means allowing the market to decide the price of various production factors, including raw materials, capital and labour, a goal the central leadership under President Xi Jinping pledged shortly after he assumed power in 2013.

China has also been promoting mixed-ownership reform to change the corporate governance structure of major State-owned enterprises (SOEs), and has launched a public-private partnership initiative. Both are aimed at allowing private capital to enter sectors previously monopolised by SOEs. But so far, all these reforms tend to be either technical or to focus on certain sectors.

Yang said the central government is now contemplating a reform package of coordinated policies in a variety of fields, including labour policy, the household registration policy (which designates where someone lives and receives social benefits), foreign exchange and land policies in the following years. 　

“Though it will be a long-term process,” he said. 　

Central vs Local　

Local officials have also vowed to follow the central leadership in promoting high-quality growth. In interviews with local officials attending the two sessions, innovation was one of the most mentioned words regarding economic growth at the provincial level. Lan Shaomin, deputy Party secretary and mayor of Nanjing, capital of Jiangsu Province, told ChinaReport that Nanjing will promote innovation as a top priority to become a “globally recognisable innovative city” by 2025.

Shangguan Jiqing, mayor of Xi’an, capital of western China’s Shaanxi Province, told ChinaReport that the city will focus on a variety of innovative-driven industries, including telecoms, new energy cars and the aerospace industry. Zhang Geng, a senior official from East China’s Zhejiang Province, said the province will strive to build an economic system that centres on the “digital economy.”

But despite these ambitious goals, experts warn that after four decades of prioritising speed of growth as both the top economic priority, and as the main criterion to evaluate the job performance of local officials, the transformation from a high-speed mentality to a high-quality mentality among officialdom may not be that easy.

“The preference for rapid growth has a long history, and it will take a long time to change,” Liu Shangxi, Vice Director of Research Institute for Fiscal Science at the Ministry of Finance of China, told ChinaReport. Liu said that the scope of the high-quality growth strategy is so comprehensive that it has to be dealt with systematically.

But according to Zhang Zhanbin, the change in mentality is already happening. “In the past, governments at various levels strove to surpass the national GDP growth target set by the central government, but now, it is considered acceptable to achieve a growth rate lower than the national target,” he said.

The fact that in 2017, governments of three provinces and regions, including Liaoning, Inner Mongolia and Tianjin, admitted that they had fabricated and exaggerated their economic data in past years also helped to cool down the obsession with the growth rate at the local level. Yang Limin said that to cope with the new high-quality strategy, the central government is now making a new set of standards and criteria to assess both the quality of the economy and officials’ work.

With stronger political will at the central level, authorities now envision a new path of economic development. But as detailed policies are yet to be released, it remains to be seen whether this top-down approach under a more consolidated central leadership can tip China’s economy in a healthier direction.

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From Speed to Quality