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Accelerating the Construction of New Bases for Economic Growth


Zhang Liqun

China's economic growth is estimated to continue a downturn performance in 2012. For this reason, we should no longer seek growth upturn through aggregate and-policy-based expansion. We should, by taking the downturn of the economic growth and the intensifying pressure of market competition as the turning point, accelerate the economic restructuring and transformation of the mode of economic development and deepen the reform. We should lay emphasis on the resolution of the deep-going problems, such as the unstable demand in the real estate market, the delay of the process of urbanization, obstacles against industrial restructuring, unclear property rights, interests and responsibilities and defective fulfillment of government duties, and put forth effort to construct new bases for economic growth.

I. Stabilize the Development of Consumption Upgrading Focused on Housing and Transportation as Soon as Possible

1. Consumption upgrading focused on housing and transportation will last for a long period of time and is a leading force for expanding consumption and domestic demand

At the present time and for a long period of time in the future, improving living conditions of the Chinese people will still be focused on the improvement of housing and transport conditions. By 2010, car stock per thousand persons had reached about 52 in China, while the figure stood at 950 and 625 respectively in the United States and Japan. The comparison shows that household car consumption has just begun in China, thus leaving a huge room for the development of auto industry. By the end of 2010, the urban per-capita housing area had reached 21.8 square meters1(floor space) in China, while that of Japan and the United States amounted to 42 square meters (in 2008) and 74 square meters (in 2000) respectively. The space for housing improvement is enormous as well. The consumption upgrading focused on housing and transportation, inclusive of urbanization progress, will last at least more than 10 years2.

2. Stabilizing housing and transportation demand at an accelerated pace is of vital importance to improving the ability to combat external impact and stabilizing economic growth

Since 2002, the consumption upgrading focused on housing and transportation has become the leading force for consumption growth. The ratio of the sales of products related to automobiles and homes to the total retail sales of consumer goods has exceeded 50%. After 2009, growth of domestic demand has relied to a large extent on government investment especially on infrastructure investment. Such investment has reduced dramatically due to withdrawal of stimulus policies. The market-oriented domestic demand, particularly the ever-improving capability for the growth of consumption demand, has played a more and more crucial part. The fluctuation of housing and auto demand has evidently decreased the rate of consumption growth since this year3, which is estimated to continue for a longer period of time. Even if the upturn of auto demand increases consumption in 2012, it is predicted that the consumption won't grow easily to the average level of recent 5 years. The world economy may encounter a worse decay in the following year, uncertainties may increase evidently and the instability of the growth of overseas market demand may intensify. We must seize the present opportunity to guide the consumption growth focused on housing and transportation onto a track of stable and sustainable development and cement the bases for the growth of domestic demand.

3. Policy options

(1) Link institutional building closely with policy readjustment and guide housing demand to a stable and sustainable growth

We must adopt different approaches toward housing demand. Homes are for both residential and investment purposes. The main reason for the fluctuation of the real estate market since 2002 is the investment purpose has incurred the ups and downs of the housing demand. To stabilize the housing demand is for the most part to weaken the investment purpose. The fundamental policy is to expedite the improvement of relevant systems and, the most important is to levy housing property tax and the capital gains tax4, that is, to levy taxes on those who possess too many homes and on those who gain profits from sales of homes. We should increase the cost for the possession of too many homes and reduce the space of profits for home sales and purchase. While accelerating the establishment of relevant systems, we should actively support and reasonably guide the purchase of homes to be used as their owners' residences. We should loosen or even cancel purchase restriction policies and administrative control over mortgage loans so as to gradually turn the rigid purchase of homes to be used as their owners' residences or for improving home owners' housing conditions into a leading force behind the real estate market demand and to enhance the stability and sustainability of the growth of the real estate market demand.

(2) Actively create conditions for entry of cars into households

Endeavoring to enter cars into households is on the whole in line with urban construction and improvement of car-consuming environment. By observing the principle of encouraging car purchase, restricting displacement and exhaust emissions and limiting use of cars, we should improve and stabilize policies toward household car use and purchases and guide the stable and sustainable growth of demand for cars.

II. Accelerate the Resolution of the Bottleneck Issues Hampering Urbanization

1. A great potential for China's urbanization

Urbanization provides the widest space for supporting China's economic development in the future. According to the 6th census data, by October 2010, China's urban population (permanent resident population) had totaled 667 million, with the urbanization rate reaching 49.68%. International comparisons suggest that China's urbanization rate needs to increase by at least 20 percentage points. It signifies that about 300 million people will continue to migrate from rural areas to cities and towns. In addition, what merits attention is that, according to household registers, China's non-agricultural population reached 450 million in 2009, meaning that about 200 million urban inhabitants had no urban household registers. Providing urban household registers to these people is a still more urgent task in urbanization process. Taking these factors into overall consideration, we will give urban household registers to about 500 million register-free urban and rural populations in China's future urbanization. According to register-based statistics, in 31 years from 1978 to 2009, the number of people with urban household registers increased by a total of 280 million or so. Therefore, we should by no means underestimate China's future urbanization task and the potential for economic development brought about by it.

2. Household registration system, government public service and long-term plan for urban development are three bottleneck issues restricting urbanization process

(1) Accelerate the reform of household registration system

Pilot practice has been made for about ten years for the reform of household registration system. Currently, the main problems exist in the openness of the public welfare and employment chances that are closely linked with the household register, and these problems are conspicuous in big cities. Resolution of these problems is of vital importance to accelerating the reform of the household registration system.

(2) Emphasis should be laid on provincial capitals and municipalities with independent planning status to expedite the enhancement of urban governments' ability to offer public services

To open up urban household registration, we must expedite the enhancement of urban governments' ability to offer public services. We could consider conducting the reform of the urban household registration system together with the accelerated enhancement of governments' ability to offer public services with breakthroughs made in big cities. In 2009, province-level municipalities, provincial capitals and municipalities with independent planning status (with the number of the cities totaling 35 and accounting for 12.2% of cities above the prefectural level and for 5.3% of all cities) accommodated 32% of the people with household registers5. It can be reasoned from available data that these cities concentrated more than one third of inhabitants without urban household registers. It is more favorable and effective to focus on these cities to advance the reform of the household registration system as well as construction of governments' ability to offer public services. By targeting the supply of urban household registers to inhabitants without registers in these cities, we could expedite the enhancement of the public service capabilities of governments of these cities under the support of the central government. We should, on this basis, integrate and standardize the content and criteria for the government public service system and legalize it. Municipal governments should formulate regular plans for the development of the public service system according to urban population growth after the household registration limitation has been loosened so as to match the improvement of the urban government public service capabilities to the need for population transfer to urban areas and to guarantee the gradual overall openness of the urban household registration system.

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1 Calculated based on total area of urban homes and on the urban population in the 6th census.

2 The area of nationwide urban homes reached 14.5 billion square meters at the end of 2010. Another 14 billion square meters of homes are needed for China’s urban-population-based per-capita housing area to reach the level of Japan. If the factor of urbanization is taken into account and the calculation is based on the urbanization rate of 70%, another 12.8 billion square meters of homes are needed for an additional increase of 300 million people to catch up with the present housing average of Japan. The two calculations add up to 26.8 billion square meters. In recent years, the annual average area of completed homes has been around 800 million square meters. It will take over 20 years to increase the average annual completion area to 1 billion square meters.

3 From January to September 2011, the year-on-year growth rate of the comparable prices of the total retail sales of consumer goods went down by 3.9 percentage points.

4 Capital Gains Tax,abbreviated to CGT,is a tax levied on capital gains (profits earned through purchases at low prices and sales at high prices). The mostly seen capital gains include gains earned from sales and purchase of shares, bonds, noble metals and real properties. China should firstly levy taxes on profits earned from home sales and purchases.

5 Calculated according to China Statistical Yearbook 2010 and statistical data provided by province-level municipalities, provincial capitals and municipalities with independent planning status.