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Changes of China's Mode of Economic Development: Achievements, Challenges and Strategies


By Liu Shijin, Hou Yongzhi & Shi Yaodong, Development Research Center of the State Council

Research Report No.184, 2008

Since China began to implement the policy of reform and opening up, its economic and social development has scored great achievements, which have attracted worldwide attention. Accordingly, its mode of economic development has also undergone historic changes. In the new historical period, China faces the opportunities arising from deepening economic globalization, the surging wave of a new worldwide industrialization and the continuous advance of the scientific and technological revolution. Therefore, in face of the challenges of the rising factor costs, greater resource and environment pressure, widening income gap, aggravating development unevenness and more world economic operational risks, it should further change the mode of economic development and strive for faster and better economic development through these changes.

I. Historical Changes Related to China's Mode of Economic Development

Economic development is a historical process, in which economic growth and the changes of economic and social structures both unite with each other and contain each other. In short, the mode of economic development refers to the total sum of the concepts, ideas, methods, systems and mechanisms that boost economic growth, structural changes and ensuing social progress. In a considerable degree, the mode of economic development reflects the characteristics and mutual links between productive forces, production relations, economic base and the superstructure. From the perspectives of analysis and research, its contents can be divided into three levels. The first is the level of guiding ideologies, which deals with the core concepts such as the goal of development, the basic factors of development and who enjoy development result. It also deals with the strategic ideas such as the long-term and phasal development goals, the development-driving forces and the main development roads. The second is the level of basic structural relations, which deals with the main structural relations in economic development, including the structural relations between input and output, industrial structure, urban-rural structure, regional structure, income distribution structure, economic and social development, man and nature, and domestic development and opening to the outside world. The third is the level of system guarantee, which deals with the systems and mechanism on economic development, including the basic economic system manifested in ownership structure, the modes of resource allocation and income distribution, and the government administration through rules and regulations as well as macro-economic regulatory mechanisms.

Since the beginning of reform and opening up, the change in China's mode of economic development has experienced three periods.

The first period ran from 1978 to early 1990s. The main indications are that the third plenary session of the 11th CPC Central Committee negated the ultra-leftist line that took class struggle as the key link and made a major strategic decision to shift the emphasis of the work of the whole party and the focus of attention of the people throughout the country onto the socialist modernization drive. After the founding of new China, the first generation of the central collective leadership made painstaking explorations about the road for China to pursue modernization and set the goal that China would basically realize four modernizations by the end of the 20th century. Due to various reasons such as the cognitive limitations and the approach to take class structure as the main social contradiction, China had followed a tortuous road in pursuing modernization. For this reason, the third plenary session of the 11th CPC Central Committee made a resolute decision to shift the emphasis of the party's work and formed the general principles and general policies for reform and opening up. This is both the key contents of and the basic precondition for the change in the mode of economic development.

Under this precondition and in light of China's basic national conditions and the international environment, the central government adjusted the targets and speed of economic and social development, changed the guiding ideologies on economic and social development, and led the people throughout the country in exploring for new models on economic and social development and blazed a new road for economic and social development. Specifically, they include:

—— In the area of overall planning for economic and social development, the central government put forward a realistic and visionary strategic concept that China's modernization drive would be completed in three steps1.

—— In the area of guiding ideologies on economic and social development, the central government was determined to find a new road that could bring about real development speed, better economic efficiency and more benefit to the people. To this end, it renewed the principles on industrialization and modernization, cast away the strategy that gave priority to the development of heavy industry, and emphasized the necessity of vigorously developing agriculture and consumer goods industry and making heavy industry closely serve agriculture and the consumer goods industry. In particular, it put forward the "six-priority" principle for light and textile industries2.

——In the rural areas, the central government popularized the household output-linked contracting responsibility system in an all-round way to mobilize the enthusiasm of hundreds of millions of farmers to develop agricultural production. It also vigorously supported the development of rural enterprises and small towns so that their growth could bring about rural economic prosperity and promote rural modernization.

——In the area of regional development, the central government introduced the concept of "two overall considerations"3. This concept offered a scientific reply to the questions on the relations between efficiency and equity, early richers and late richers, and coastal region and the hinterland. It conforms to the basic law governing regional development and coordinates with the overall arrangement for the country's modernization drive.

—— In the area of the micro-economic mechanism and structure of economic performance, the central government began with an expansion of decision-making power for enterprises and launched various reform experiments on the state-owned enterprises, including the contracting system, the leasing system and the shareholding system. While reforming and developing the state-owned economy, the central government allowed and encouraged the development of the individual economy, private economy, collective economy and many other forms of non-state-owned economies.

—— In the area of internal and external economic relations, the central government took opening to the outside world as a basic national policy. Taking advantage of the favorable conditions of the coastal region, China created special economic zones, gradually promoted the opening of a host of cities, actively carried out foreign trade, constantly broadened the scope of foreign capital utilization, and effectively used the two types of markets and two types of resources to accelerate the growth of the domestic economy.

The second period ran from 1992 to the turn of the century. The main indication was that the 9th Five-Year Plan explicitly called for "two fundamental transitions" and formed the important idea of using economic restructuring to promote the change in the mode of growth.


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1The first step was to double the 1980 GDP and ensure the people would have sufficient food and clothing; the second step was to double the GDP again by the end of the 20thcentury and ensure the people would lead a well-to-do life; the third step was to ensure the per capita GDP would reach the level of the moderately developed countries by the middle of the next century, the people would lead a wealthy life and modernization would be basically realized.

2The six-priority principle means to give priority to the supply of raw materials, fuels and power; to the measures for potential tapping, renovation and transformation; to capital construction; to bank loans; to the earning of foreign exchanges and the introduction of new technologies; as well as to transport and transportation.

3The coastal region should speed up its opening up so that this vast region with a population of 200 million can develop first and then stimulate the hinterland to develop better. This is an issue of overall significance, and the hinterland should give due consideration to this overall consideration. Conversely, the coastal region should contribute more resources to helping the hinterland to develop when the former develops to a certain level. This is also an issue of overall significance and the coastal region must also adhere to this overall consideration.