Understanding Economic Operations under the New Normal
Author： Source： Date：2017-09-01
What I would like to share with you today is my understanding of the economic operations in China under the New Normal mode. The Q3 statistics released by State Statistics Bureau (SSB) this year attractour attention. The share of the output from the tertiary industry in GDP has reached 51%. This is a key signal, as the development of society usually experiences three stages: 1. Agricultural society where the primary industry plays the major role; 2. Industrial society where the share of secondary industry is growing up, and the industrial output is playing a key role; 3. Post-industrial society where the tertiary industry’s output rises to over half of the GDP. In developed western countries, this share is around 60%-70%. In the third stage, the economic growth is bound to slide in western countries, as they used to enjoy a rapid growth in the 2nd stage. Therefore, when the share of tertiary industry reaches 60-70%, the growth remains at around 3%, which is nice, while a 4% growth is usually considered quite rare.
What about China now? The current share of the tertiary industry has reached 51%, which indicates China’s transition from industrial to an early post-industrial stage. However, China has its own special situations. The country’s industrialization has not completed yet. The signal of such completion is generally the established and advanced set equipment for manufacturing industry which China has not yet reached. Thus though the share has reached 51% and will continue to grow up, we shall not forget the industrialization has not finished yet, and have to promote the advanced manufacturing in order to reach the goal.
Therefore, we would like to propose followingthree key points:
First, to accelerate the structural adjustment; such adjustment can ensure our industrialization strategy:We may deviate from being more advanced in manufacturing if the adjustment is not done.
Second, the tertiary industry will continue to develop: Because China will not see a big progress in postindustrial stage if the tertiary industries grows slow: An issue needs to consider is that we have to narrowthe income gap between urban and rural areas, turning consumption to a driving force for higher GDP.
Third, promising future for China’s agriculture: China’s agriculture has not reached the peak as developed countries: It is not. Rural areas in China need poverty alleviation and development. We have to bridgethe gap between rural and urban areas, and drive the agriculture to the path of industrialization.
The survey team of the CPPCC Economic Committee and I traveled to Hanzhong, Shaanxi for study this April. Hanjiang River is a long river crossing Hanzhong city and Ankang city. The river runs to the reservoir of Danjing River, which transports water to Beijing and Tianjin. The government has demanded that certain facilities in Hanzhong must be removed, and some shall not cause pollution to local environment. In addition, rules regarding agriculture include no chemical fertilizer to be used to the farmland of Hanzhong area, and no pesticide is allowed. This demand makes the local areas nervous—what shall be done to support both poverty alleviationand outputincrease? There is a limitation now. What shall we do with the limitation? That is why they started to find new solution since last year.
Our conclusion drawn from the study is that poverty alleviation shall be undertaken based on China’s situation. For example, Xixiang County in Hanzhongcity used to have large area of farmland, where tea trees are planted now. Because Se-enriched tea is a sort of special local productthat needs neither pesticide nor fertilizer. The county sees things being changed after tea trees were planted. Farmyard manure is used as fertilizer. As a result, the area don’t need great amount of farmlabors. They, instead, turn to plant, nurture, process and sell teas, and receive better income. Migrants are coming back to hometown and work as tea workers. The local economy is changing as well.
Another county we visited is Yangxian County where agriculture is the dominant industry. The place allows no fertilizer nor pesticide neither. One of the key reasons is that the area is the Crested Ibis Protection Area. The crested ibis is a kind of bird facingdanger of extinction. By far, over 2,000 crested ibis have been bred thanks to the area. The bird has a feature: it has only one mate all its life. If one dies, the other will never mate again. Because of this, the newly married travel to the place for wedding or celebrate their anniversaries and take pictures. They tend to learn from the bird to enjoy a loyal marriage. Then local industries started to grow.
Liuba County in Hanzhong city got its name because Zhang Liang, the counselor of Liu Bang, the founder of the Han Dynasty, was awarded as the lord of Liu. There is also Zhang Liang Temple. The county is the place where Liu Bang tried to pass across Chencang by pretending to build plank road. Souvenirs made like plank road are sold today, attracting tourists. Reservoirs provide fishes. A famous local dish is known as the ‘reservoir fish’.
Mianxian County of Hanzhong city, drives its economic growthwith tourism. A historic site named Dingjunshan is the place where the General Huangzhong of the Shu State killed the General Xiahou Yuan of the Wei State during the period of Three Kingdoms. In addition, the tomb of Zhuge Liang, one of the most famous strategistsin ancient China, was built there. The Temple of Wuhou (Zhuge Liang was awarded as the Wuhou), and the Tomb of Wuhou are the well-known sites attracting tourists.
Hanzhong city proves to us that it develops cultural and tourism industry in counties based on its unique features and advantages. By doing so, local farmers are having better life.
We discovered two issues regarding poverty alleviation during the study. First, farmers leave for working in urban areas. It is estimated that tens of millions of migrant couples live separately. Some murder cases in rural area are found to be related to such issue. The family broke, and the man killed his wife’s whole family. Family conflicts need to be solved. Second, a corrupt custom in rural areas is to give money when people in the same village are born, marry or die. 3 to 5 Yuan was OK in the past, and now 100 or 200 Yuan are required. Villagers dislike the burden, as they give out what they earned from hard work and save nothing. It is a common issue seen in both Hanzhong and other provinces, and shall be removed. The two issues worth the governments and the public attention, and is better to be solved soon.
We need to further develop the tertiary industry under the New Normal mode and continue to carry forward industrialization to drive the growth of advanced manufacturing. We have to do poverty alleviation development and let farmers to protect their environment better and ensure the environment quality. The key is to change the growth mode, which shall be put as the top priority. After the Financial Crisis broke out in 2008, western developed countries have been focusing on rebalancing and technical innovation. What were we doing then? We made investment to drive up the GDP. The data seemed to be excellent after a huge amount of investment was made, which resulted in damaged ecological environment, exhausted resources, outdated technology, low efficiency, overcapacity, and delayed timing for rebalancing and innovation. Therefore, we have to do the rebalancing right now.
Now the share of tertiary industry takes up over 51% of China’s GDP. What shall we do to further drive the industry now? Some businessmen came to me when I went to Hebei for study this spring and asked me to share views and cheer them up. Here is what I said:
First, to make your products personalized; products today have to be personalized, or buyers will not buy them in department store. Why is that? You can check out your wardrobe: Some clothes bought years ago are new yet out of fashion. The material is not innovated and the style is outdated. Thus being personalized is the way to win the consumer market.
Second, make services more human-oriented: how to improve and expand service, if waiters sit there without smile as they were? Asking them to serve is more like begging. Service providers have to be more caring and human-oriented.
Third, do branding overseas: why some Chinese businesses have to borrow reputation of foreign brands? Because they do not build their own’s.
Suning County in Hebei is a place where a lot of leather providers operate here. Vendors said that we have leather history of hundreds of years, and our products used to be sold to Russia and other foreign countries. But now our products cannot be sold. The reputable brands are now Italian brands, and ours are less competitive. The best Italian leather is worth 100 thousand Euros, while ours is less than 10 thousand, and usually sold at around thousands, as we don’t have our own brand. Brand is built on advanced techniques. Doing branding overseas is now a pressing issue.
Fourth, keep consumers (customers) within the country: why consumers go abroad for shopping? It is estimated that Chinese people traveling abroad spend 1 trillion a year overseas. Why such a huge amount of money was spent outside China? Some said products aremuch cheaper outside China, and there are no inferior things. I said these can be fixed in a while. The key, however, is branding. Brand can keep consumers within the country.
This year many Chinese travelers went to Japan and bought schoolbags. I asked them why to buy bags in Japan. They answered that the Japan-made schoolbags have the new functions: 1. It has the device built inside to trace the kids using the bag, and this will make parents more reassured and know where their kids are; 2. It helps prevent tumbling; when kids fall over, the bag opens immediately protecting the head and back; 3. It can be used as umbrella; 4. It becomes a lifesaver when kids fall into water and help float. The new products we talk about include the newly launched product and the old one with new functions. We shall encourage corporations hometo provide such things. The key is to innovate, and the relevant policy shall be offered to promote such innovation. Businesses receive no tax credit when their product is still in experiment. Such grant is only offered when the product proves to be a success and has been launched and sold in market. However, the most difficult stage is the experiment one, during which no subsidy is provided currently. It is an issue that may affect the invention and innovation of business.
The industrialization shall go on when the tertiary industry is fast growing. We shall make effort to be leading in advanced manufacturing. In addition we need to further develop agriculture, improve the income of farmers, and reduce the income gap between rural and urban areas. By doing this, China is expected to maintain a growth rate of 6%-7% during the economic rebalance, development mode transition and technical innovation.
Today our entire economy is moving to the post-industrial stage. In midst of this we must reconsider the issue: what would the GDP growth rate be after a while, say by 2020. It would be all right if it goes down a bit as by then our economic foundation should be much solid and enlarged. A growth rate of around 5-6% would have little negative effect. We find it OK to have the rate be at around 6%-7% and then to be 5%-6% in the future. The key is quality and efficiency. Growth is not the sole goal of our development, or otherwise we may go back to the old track. A growth as high as 8% is hardly sustainable, for it does not meet the principle of economy.
We must get know the importance of streamlining the administration and delegating power to the lower levels. What we are doing right now is to make the three lists.
The first is the negative list, which set bottom lines for businesses to prevent them from violating laws. Legal restrictions require approval as well. Things not specified in the negative list are deemed allowable. This would be a good solution to China’s private companies. There is a saying known as ‘private companies shall operate under the law’. It is not wrong, but difficult to execute. The better practice shall be ‘private companies shall not violate the law when operating’. Nobody will evidence when a private company operates under the law, as there are countless proof in this case. However, it is reasonable to provide proof when a certain practice is against a specific provision. We think this practice will help encourage the sound development of these companies.
The second is the powerlist. For governments, things not permitted by law shall not be done. Permission by law is the premise. This is how power list works. It helps reassure both investors and private businessmen.
The third is the duty list. Things to do and how to do them shall be clearly stated on the list for governments and their subordinates. How long a reply shall be given is specified as well. The power list is to prevent power abuse by government, and the duty list is to both limit its power and define the duties. Either abuse or negligence is allowed. Documents shall be replied within days and delay without reason shall be banned. This helps motivate innovators, entrepreneurs and make them more active in business.
That is all. Thank you!
Li Yining, a well-known economist, Director of Social Science Dept., Peking University, Honorary Dean of Guanghua School of Management, Peking University, and doctoral supervisor. He was the standing committee member of the 7th, 8th and 9th NPC, Deputy Director of Law Committee of the 7th NPC, the Deputy Director of the 8th and 9th Financial and Economic Committee, and the standing committee member and the Deputy Director of Economic Committee of the 10th and 11th CPPCC.
What about China now? The current share of the tertiary industry has reached 51%, which indicates China’s transition from industrial to an early post-industrial stage. However, China has its own special situations. The country’s industrialization has not completed yet. The signal of such completion is generally the established and advanced set equipment for manufacturing industry which China has not yet reached. Thus though the share has reached 51% and will continue to grow up, we shall not forget the industrialization has not finished yet, and have to promote the advanced manufacturing in order to reach the goal.
Therefore, we would like to propose followingthree key points:
First, to accelerate the structural adjustment; such adjustment can ensure our industrialization strategy:We may deviate from being more advanced in manufacturing if the adjustment is not done.
Second, the tertiary industry will continue to develop: Because China will not see a big progress in postindustrial stage if the tertiary industries grows slow: An issue needs to consider is that we have to narrowthe income gap between urban and rural areas, turning consumption to a driving force for higher GDP.
Third, promising future for China’s agriculture: China’s agriculture has not reached the peak as developed countries: It is not. Rural areas in China need poverty alleviation and development. We have to bridgethe gap between rural and urban areas, and drive the agriculture to the path of industrialization.
The survey team of the CPPCC Economic Committee and I traveled to Hanzhong, Shaanxi for study this April. Hanjiang River is a long river crossing Hanzhong city and Ankang city. The river runs to the reservoir of Danjing River, which transports water to Beijing and Tianjin. The government has demanded that certain facilities in Hanzhong must be removed, and some shall not cause pollution to local environment. In addition, rules regarding agriculture include no chemical fertilizer to be used to the farmland of Hanzhong area, and no pesticide is allowed. This demand makes the local areas nervous—what shall be done to support both poverty alleviationand outputincrease? There is a limitation now. What shall we do with the limitation? That is why they started to find new solution since last year.
Our conclusion drawn from the study is that poverty alleviation shall be undertaken based on China’s situation. For example, Xixiang County in Hanzhongcity used to have large area of farmland, where tea trees are planted now. Because Se-enriched tea is a sort of special local productthat needs neither pesticide nor fertilizer. The county sees things being changed after tea trees were planted. Farmyard manure is used as fertilizer. As a result, the area don’t need great amount of farmlabors. They, instead, turn to plant, nurture, process and sell teas, and receive better income. Migrants are coming back to hometown and work as tea workers. The local economy is changing as well.
Another county we visited is Yangxian County where agriculture is the dominant industry. The place allows no fertilizer nor pesticide neither. One of the key reasons is that the area is the Crested Ibis Protection Area. The crested ibis is a kind of bird facingdanger of extinction. By far, over 2,000 crested ibis have been bred thanks to the area. The bird has a feature: it has only one mate all its life. If one dies, the other will never mate again. Because of this, the newly married travel to the place for wedding or celebrate their anniversaries and take pictures. They tend to learn from the bird to enjoy a loyal marriage. Then local industries started to grow.
Liuba County in Hanzhong city got its name because Zhang Liang, the counselor of Liu Bang, the founder of the Han Dynasty, was awarded as the lord of Liu. There is also Zhang Liang Temple. The county is the place where Liu Bang tried to pass across Chencang by pretending to build plank road. Souvenirs made like plank road are sold today, attracting tourists. Reservoirs provide fishes. A famous local dish is known as the ‘reservoir fish’.
Mianxian County of Hanzhong city, drives its economic growthwith tourism. A historic site named Dingjunshan is the place where the General Huangzhong of the Shu State killed the General Xiahou Yuan of the Wei State during the period of Three Kingdoms. In addition, the tomb of Zhuge Liang, one of the most famous strategistsin ancient China, was built there. The Temple of Wuhou (Zhuge Liang was awarded as the Wuhou), and the Tomb of Wuhou are the well-known sites attracting tourists.
Hanzhong city proves to us that it develops cultural and tourism industry in counties based on its unique features and advantages. By doing so, local farmers are having better life.
We discovered two issues regarding poverty alleviation during the study. First, farmers leave for working in urban areas. It is estimated that tens of millions of migrant couples live separately. Some murder cases in rural area are found to be related to such issue. The family broke, and the man killed his wife’s whole family. Family conflicts need to be solved. Second, a corrupt custom in rural areas is to give money when people in the same village are born, marry or die. 3 to 5 Yuan was OK in the past, and now 100 or 200 Yuan are required. Villagers dislike the burden, as they give out what they earned from hard work and save nothing. It is a common issue seen in both Hanzhong and other provinces, and shall be removed. The two issues worth the governments and the public attention, and is better to be solved soon.
We need to further develop the tertiary industry under the New Normal mode and continue to carry forward industrialization to drive the growth of advanced manufacturing. We have to do poverty alleviation development and let farmers to protect their environment better and ensure the environment quality. The key is to change the growth mode, which shall be put as the top priority. After the Financial Crisis broke out in 2008, western developed countries have been focusing on rebalancing and technical innovation. What were we doing then? We made investment to drive up the GDP. The data seemed to be excellent after a huge amount of investment was made, which resulted in damaged ecological environment, exhausted resources, outdated technology, low efficiency, overcapacity, and delayed timing for rebalancing and innovation. Therefore, we have to do the rebalancing right now.
Now the share of tertiary industry takes up over 51% of China’s GDP. What shall we do to further drive the industry now? Some businessmen came to me when I went to Hebei for study this spring and asked me to share views and cheer them up. Here is what I said:
First, to make your products personalized; products today have to be personalized, or buyers will not buy them in department store. Why is that? You can check out your wardrobe: Some clothes bought years ago are new yet out of fashion. The material is not innovated and the style is outdated. Thus being personalized is the way to win the consumer market.
Second, make services more human-oriented: how to improve and expand service, if waiters sit there without smile as they were? Asking them to serve is more like begging. Service providers have to be more caring and human-oriented.
Third, do branding overseas: why some Chinese businesses have to borrow reputation of foreign brands? Because they do not build their own’s.
Suning County in Hebei is a place where a lot of leather providers operate here. Vendors said that we have leather history of hundreds of years, and our products used to be sold to Russia and other foreign countries. But now our products cannot be sold. The reputable brands are now Italian brands, and ours are less competitive. The best Italian leather is worth 100 thousand Euros, while ours is less than 10 thousand, and usually sold at around thousands, as we don’t have our own brand. Brand is built on advanced techniques. Doing branding overseas is now a pressing issue.
Fourth, keep consumers (customers) within the country: why consumers go abroad for shopping? It is estimated that Chinese people traveling abroad spend 1 trillion a year overseas. Why such a huge amount of money was spent outside China? Some said products aremuch cheaper outside China, and there are no inferior things. I said these can be fixed in a while. The key, however, is branding. Brand can keep consumers within the country.
This year many Chinese travelers went to Japan and bought schoolbags. I asked them why to buy bags in Japan. They answered that the Japan-made schoolbags have the new functions: 1. It has the device built inside to trace the kids using the bag, and this will make parents more reassured and know where their kids are; 2. It helps prevent tumbling; when kids fall over, the bag opens immediately protecting the head and back; 3. It can be used as umbrella; 4. It becomes a lifesaver when kids fall into water and help float. The new products we talk about include the newly launched product and the old one with new functions. We shall encourage corporations hometo provide such things. The key is to innovate, and the relevant policy shall be offered to promote such innovation. Businesses receive no tax credit when their product is still in experiment. Such grant is only offered when the product proves to be a success and has been launched and sold in market. However, the most difficult stage is the experiment one, during which no subsidy is provided currently. It is an issue that may affect the invention and innovation of business.
The industrialization shall go on when the tertiary industry is fast growing. We shall make effort to be leading in advanced manufacturing. In addition we need to further develop agriculture, improve the income of farmers, and reduce the income gap between rural and urban areas. By doing this, China is expected to maintain a growth rate of 6%-7% during the economic rebalance, development mode transition and technical innovation.
Today our entire economy is moving to the post-industrial stage. In midst of this we must reconsider the issue: what would the GDP growth rate be after a while, say by 2020. It would be all right if it goes down a bit as by then our economic foundation should be much solid and enlarged. A growth rate of around 5-6% would have little negative effect. We find it OK to have the rate be at around 6%-7% and then to be 5%-6% in the future. The key is quality and efficiency. Growth is not the sole goal of our development, or otherwise we may go back to the old track. A growth as high as 8% is hardly sustainable, for it does not meet the principle of economy.
We must get know the importance of streamlining the administration and delegating power to the lower levels. What we are doing right now is to make the three lists.
The first is the negative list, which set bottom lines for businesses to prevent them from violating laws. Legal restrictions require approval as well. Things not specified in the negative list are deemed allowable. This would be a good solution to China’s private companies. There is a saying known as ‘private companies shall operate under the law’. It is not wrong, but difficult to execute. The better practice shall be ‘private companies shall not violate the law when operating’. Nobody will evidence when a private company operates under the law, as there are countless proof in this case. However, it is reasonable to provide proof when a certain practice is against a specific provision. We think this practice will help encourage the sound development of these companies.
The second is the powerlist. For governments, things not permitted by law shall not be done. Permission by law is the premise. This is how power list works. It helps reassure both investors and private businessmen.
The third is the duty list. Things to do and how to do them shall be clearly stated on the list for governments and their subordinates. How long a reply shall be given is specified as well. The power list is to prevent power abuse by government, and the duty list is to both limit its power and define the duties. Either abuse or negligence is allowed. Documents shall be replied within days and delay without reason shall be banned. This helps motivate innovators, entrepreneurs and make them more active in business.
That is all. Thank you!
Li Yining, a well-known economist, Director of Social Science Dept., Peking University, Honorary Dean of Guanghua School of Management, Peking University, and doctoral supervisor. He was the standing committee member of the 7th, 8th and 9th NPC, Deputy Director of Law Committee of the 7th NPC, the Deputy Director of the 8th and 9th Financial and Economic Committee, and the standing committee member and the Deputy Director of Economic Committee of the 10th and 11th CPPCC.
