By Wang Mengkui

Thanks to more than two decades of reform and development, China's society and economy have undergone phasic changes of major historic significance. The main phasic features of such changes can be summarized in the following five basic aspects.

1. The economic system has undergone fundamental changes.

The socialist market economic system is by and large in place and the initial transition of economic system has been realized. An overall evaluation indicates that by the end of the 1990s, more than 50 percent of the Chinese economy had been marketized. In another word, China has turned from a planned economy into a market economy.

2. China has opened to the outside world in an all-round way and its economy has evolved from a closed or semi-closed one into an open one.

There have been three fundamental changes: the opening has covered all areas instead of limited areas, has been conducted in keeping with long-term development goals and international practices instead of short-term needs, and has been targeted to the entire world trade system instead of a limited number of countries. With its foreign trade ranking ninth in the world in 2000, the internationalization of the Chinese economy has become increasingly tangible.

3. The economic structure has undergone major adjustments, with the process of industrialization accelerating from the initial stage to the medium stage.

The facts are as follows:

First, the proportions of the primary, secondary and tertiary industries have demonstrated a visible change, from low level to high level and from serious imbalance to basic rationality. During the 1978-2000 period, while agriculture posted rapid growth and the supply of agricultural products realized a historic change characterized by a basic aggregate balance and a surplus in good years, the proportion of the added value of the primary industry dropped from 28.1 percent to 15.9 percent, that of the secondary industry rose from 48 percent to 50.9 percent and that of the tertiary industry went up from 23.7 percent to 33.2 percent. In addition, the "bottlenecks" that had long constrained China's economic development, such as raw materials, energy and transport, were basically eased, and modern service industries were growing vigorously.

Second, while the total population increased by 300 million during this period, the proportion of farm labor fell from 70.5 percent to less than 50 percent and that of the secondary and tertiary industries rose to more than 50 percent.

Third, a relatively comprehensive system of industries has been established. The manufacturing industry boasts of a fairly strong capacity, the contributions of structural adjustments and scientific advance have become more visible, the industries of high and new technologies have become a major driving force for the growth of industries and even the entire economy, and industrial production has been more adaptable to the changes of demand. Fourth, while the export of primary products such as agricultural products has expanded rapidly, they account for a drastically smaller proportion in export commodity composition.

From 1980 to 2000, the proportion of primary products dropped from 50.3 percent to 10.2 percent, while that of industrial products rose from 49.7 percent to 89.8 percent. Starting from scratch, the products of high and new technologies account for more than 15 percent of the total exports. Judging from China’s industrial structure, manufacturing capacity and export structure, we may say that China has realized initial industrialization. If the criteria for industrialization classification put forward in the 1960s by Channery, World Bank economist, are converted into the 1998 rates, the per capita GDP at the initial stage of industrialization should be 1,200-2,400 U.S. dollars. In that sense, China has not yet entered the initial stage of industrialization. If calculated on the basis of purchasing power parity, the per capita figure at the initial stage of industrialization should be 3,010-5,350 dollars.

In that sense, China has just entered the initial stage of industrialization. This obviously does not conform to China's actual conditions. China is a country whose development is grossly uneven. It has a population of more than one billion. It has unique historical and cultural traditions as well as a unique system background. All these factors must be taken into account when international comparison is conducted. While many indicators would be distorted, many aspects are not comparable.

4. The economic strength is visibly increased.

From 1981 to 2000, the Chinese economy grew at an average annual rate of more than 9 percent, the fastest in the world. Its GDP in 2000 was more than six times that in 1980. While its population increased by 300 million, its per capita GDP quadrupled during this period, which in fact surpassed the targeted GDP growth set at the beginning of the reform. The chronic shortage of commodity supply has become something of the past. This change in market demand-supply relationship is of fundamental significance. It indicates that economic growth has moved from the stage that supply was the main constraint to the stage that demand is the main constraint. This results from the development of productivity and system transition.

5. The people's livelihood has realized two historical transitions, namely from poverty to having enough to eat and clothe and further to being better off.

Overall, the Chinese people today can be classified as being better off. We say "overall" because China still has 30 million people who are not having enough to eat and clothe, a greater number of people have not been better off even though they have enough to eat and clothe, and the nationwide disparity in development is taken into account. In both rural and urban areas, a considerable number of people are still living in difficulty and deserve special care and attention.

To summarize the above five major changes, we may conclude that China has completed the first two of the "three steps" envisaged by development strategy for modernization. The country has started to take the third step. These phasic changes are characteristic of the specific development stages of the socialist period. Today, China is still in the initial stage of socialism. We should never forget this just because of the great achievements made in the past two decades. Completing the first two of the "three steps" does not mean we have covered two-thirds of the entire modernization process. Roughly we still need to work hard for half a century, or by the middle of this century, to basically realize modernization. We should be fully conscious of the long time and difficulties associated with our modernization drive.

When examining the Chinese economy, we should pay attention to two issues.

One is the relationship between "aggregate amount" and "per capita amount". In 2000, China’s GDP reached 8,900.4 billion yuan, which was equivalent to more than 1,000 billion U.S. dollars at current exchange rate. This ranked China the sixth largest economy in the world. The total amount of the economy was very impressive. But China has a population of more than 1.2 billion. As the "denominator" is too large, the per capita amount is less than 1,000 U.S. dollars, which places China at the lower end of the middle-income countries. China's economic aggregate is undervalued if calculated in the existing exchange rate-based method. However, if calculated in purchase power parity (international common price), the exchange rate of RMB against the U.S. dollar would be 2.5:1. Then the aggregate of China’s economy would be 3,500 billion U.S. dollars and the per capita amount would be 3,000 U.S. dollars. Even so, China should still be classified as a developing country. World Bank data indicate that if calculated on the basis of purchasing power parity, China has become the world’s second largest economy, next only to the United States and listed before India and Japan. As a matter of fact, the method based on the purchasing power parity is imperfect, too. The method based on exchange rate is still prevailing in the world. No matter what method is adopted, both "aggregate" and "per capita amount" are important indicators for examining a country’s economy. The fact that the economic aggregate of China ranks sixth in the world means the country has a considerable economic strength; the fact that the per capita amount is small means China is still a relatively poor country.

The other is the relationship between GDP and the actual social development and the people's actual living standard. Both the total amount of GDP and the per capita GDP are important, but they cannot be equated with the actual level of social development and the people’s living standard. In accordance with the recently-published report on "Human Development in 2001", China's human index reached 0.718, higher than the world’s average level and ranking the 87th in the world. Human development index is made up of three indicators: life expectancy, education and the per capita income calculated on the basis of the purchasing power parity. Index higher than 0.8 refers to the countries with a high level of human development, totaling 48 countries. Index ranging from 0.5 to 0.799 refers to the countries with a middle level of human development, totaling 78 countries. Index below 0.5 refers to the countries with a low level of human development, totaling 36 countries. Those with low and middle levels of human development are all developing countries and regions. According to this classification, China is a country with an upper middle level of human development. The fact that China's actual level of social development is higher than that represented by per capita GDP should be mainly explained in the perspective of social system. In some cases, natural environment also plays roles. Just like the case with south and north Europe, China's south and north also are subject to the impact of natural environment on their lifestyle and living standard.

Since 2001, China has entered a new development period, during which the country will strive to build a better-off society in an all-round way and accelerate the process of socialist modernization drive. In another word, the country has begun moving toward the "step three" strategic goals envisaged for modernization drive. In a nutshell, a better-off society will be built in an all-round way. This is a basic starting point for us to examine the current state of China’s economic reform and development.

Then how to understand "to build a better-off society in an all-round way"?

First, the regions that have not reached the level designed for a better-off society must reach that level. This of course means that the regions that have not solved the problem of having enough to eat and clothe should first manage to solve this problem and then try to meet the criteria set for a better-off society. This means that when we talk about a better-off society, we should omit the word "generally". Second, building a better-off society covers a fairly long period of time. Right now, China only has preliminarily reached the level of a better-off society, or just crossed the threshold of a better-off society. The level is still low. We must advance to a better-off society that will be richer and more comfortable. This is an issue of developing to the higher level. Third, building a better-off society in an all-round way is a phasic, general goal, which not only entails economic development and the improvement of the people's livelihood, but also an all-round advance of the society. How long will it take to build a better-off society in an all-round way? 10 years, 20 years or 50 years? Perhaps in the first 20 years, the emphasis will be on building a better-off society, while in the later years, the focus will be gradually shifted to modernization drive. This is a process of evolution.

In the next 5-10 years, China's economic growth is expected to be at about 7 percent annually. By the year 2010, the GDP will double that in 2000. Right now, the world's three economic blocs – the United States, Europe and Japan – are sliding down simultaneously. This is something unseen for many years and has considerable impacts on the Chinese economy. This year, China's economic growth will be lower than that of last year, but can still reach or be close to 7 percent through great efforts.

In the next 5-10 years, the general trend and policy orientation of China's economic development can be summarized in the following eight aspects:

First, upgrading industrial structure.

Economic restructuring will be the main theme for economic development for a fairly long period of time. In other words, economic development should highlight economic restructuring so as to optimize and upgrade industrial structure. Proceeding from this new level, China will continue to pursue industrialization and modernization and bring our economic development to a new level, not just to seek expansion of economic aggregate.

Industrial restructuring is the main content of the ongoing economic restructuring. Industrial restructuring is designed to optimize and upgrade industrial structure. This is an issue of fundamental significance if China is to increase its economic competitiveness. A huge population and the unevenness of economic and technological development are China's two basic national conditions. In industrial restructuring, therefore, two relationships should be properly handled. One is the relationship between the development of new industries and the upgrading of traditional industries with new technologies. The other is the relationship between the development of capital- and technology-intensive industries and the development of labor-intensive industries. In terms of development speed, new industries will surpass traditional industries. In terms of their proportions in China's economic aggregate, traditional industries will continue to be the main player for a fairly long period of time. Therefore, we should in no way neglect the development of traditional industries. As industrialization has not been completed in China, industrialization will go hand in hand with modernization. Promoting industrialization with information technology can bring about an “later-comer advantage” so that industrialization can leapfrog from higher starting points. Traditional industries are by no means technologically backward industries. Transformed with advanced technologies to increase their technological contents and to inject new vitality, traditional industries such as garment and machinery industries can both meet the demand of domestic market and enter international market more aggressively. In handling the relationship between the capital-intensive industries and the labor-intensive industries, we should place emphasis on the development of capital-intensive industries without neglecting the development of labor-intensive industries. With a large population and cheap labor, developing labor-intensive industries is where China enjoys advantages in international competition and is also an important way to boost employment. Therefore, when it comes to the question of developing technological and economic policies, it is not necessarily correct that the more advanced the technology is, the better. In many cases, it is necessary to give due consideration to employment and select only those technologies that are both advanced and suitable to China's reality. Labor-intensive industries can also have fairly high technological contents and become technology-intensive industries. They are not necessarily the technologically backward industries.

Second, accelerating the urbanization process.

Since the beginning of reform and opening up, the development of the rural economy has provided an important guarantee for the reform and development of the entire economy. At present, the rural economy is at a critical juncture, facing with new problems. First of all, the aggregate supply and demand of agricultural products are by and large in balance, with some products posting surplus. As the prices of many agricultural products are higher than those on the international market, there is little room for price increase. As a result, it is difficult to increase peasant income by raising the prices of agricultural products as what was done in the past. Since the 9th five-year plan, the growth of peasant income has been declining year after year. The absolute amount of the peasant income arising from farming dropped continuously in 1998 and 1999. The net income of peasants in nine provinces, especially in the three northeast provinces, dropped in absolute term. China’s unit farm output is not low. The fundamental reason for grain farmers to lose money is that there are too many people and too little land. When the economy of scale is not realized, farming alone can hardly make peasants rich. The gap between the farm productivity and the non-farm productivity widened from 4-fold to 5.4-fold during the 1990s. Expert studies indicated that since the prime time of the Qing Dynasty, the rate of land output has constantly increased but farm productivity has not. As per capita cultivated land has been shrinking and because of the seasonal factors of farm production, peasants only spend a limited amount of time on farming activity. In some places, the peasants spend "one month on enjoying the Spring Festival, three months on farming and eight months on gambling".

We used to say, "When you have grain in hand, you don’t worry." That was the case when the problem of having enough to eat and clothe was not solved. Now things have changed. We should use two sentences to describe the situation. One is that when you do not have grain in hand, you are bound to worry. This explains the importance of the grain issue. No one should neglect the importance of food security. Another sentence is that when you have grain in hand, you do not necessarily feel at ease in heart. This is because nowadays the task is not only to solve the problem of having enough to eat but also to increase farmers' income and modernize the rural areas. TVEs constitute an important source for the increase in the income of the peasants, and non-farm income is accounting for a growing proportion of their total income. However, many TVEs are faced with the problems of overproduction and marketing difficulties. Their growth has been slowing down. The low-level scale expansion characteristic of their initial stage can no longer cope with the changes in market demand. So when we talk about industrial restructuring and technological advance, TVEs should also be included. If we look into the issue more deeply, we should notice that with the development of capital-intensive industries and the improvement of technological equipment, the labor absorbed by unit capital is reducing and the organic composition of the capital of TVEs is increasing. Therefore, there are relatively less opportunities for peasants to leave their native places to do manual work elsewhere or to enter the TVEs. The past work-for-relief method is no longer applicable in many places, because the machine is cheaper than labor. In the perspective of social development, this is a kind of progress. However, this represents a serious problem to China’s rural areas where there is large amounts of labor surplus. A pressing issue at present is that the peasants’ burden is too heavy and has not been reduced despite repeated government orders. The reason is that the funds used for supporting staff and executing governance have surpassed the level of rural economic development and gone beyond the limit of the peasants' affordability. As a result, fiscal, tax and administrative systems need overhauling. At present, most grassroots governments at the county and township levels and the village organizations have financial difficulties. More than 50 percent of the counties nationwide are unable to pay salaries on a regular basis. The net debts at the township and village levels total more than 360 billion yuan, or 4 million yuan per township, 200,000 yuan per village. It is difficult for them to operate normally. Primary and middle school education accounts for 60-70 percent of the fiscal spending at or below the county and township levels. In the rural areas, consumption is low and market potential is great. Only when the hundreds of millions of peasants have more income and less burden can the entire national economy maintain a rapid development. In this respect, some policies with major implications are needed.

 
The three farm-related problems are in fact problems concerning the rural areas and peasants. The development of agriculture is fairly good. In the long run, a fundamental solution to the problems concerning the rural areas and peasants lies in industrialization and urbanization, or simply put, in the non-farm occupations of the rural population. As far as the process of China's industrialization and modernization is concerned, we may say that the most difficult task lies in the vast rural areas and not in the urban areas. China’s industrialization and modernization that started in the urban areas must complete in the rural areas. We often say that fundamental changes must be realized in two areas: economic system and the mode of economic growth. In fact, China needs to realize three fundamental changes, the third one being a transition from the "dualist economic structure" to industrialization and modernization. This is a social transformation, whose essence is a shift of hundreds of millions of farm population to non-farm industries. This is the most arduous task in the process of China’s modernization. We began pursuing industrialization in a unique historical background. Priority was given to the development of heavy industry and the labor absorbed by unit capital was relatively fewer. The movement of people's communes caused chronic shortages of food and other farm products. The policy option for a long time was strict state monopoly on purchase and marketing and the separation of the urban and rural areas. The fact that urbanization lagged behind industrialization is an inevitable result. During the 1957-1978 period, the rate of urbanization rose only by 2.5 percentage points. The pace of the rural population shifting to non-farm industries has accelerated since the beginning of reform and opening up. The 2000 national census indicated that the urban population accounted for 36 percent of China’s total population (the ratio was 18 percent in 1978, bearing in mind that there were incomparable factors in statistics). This ratio, which generally can be taken as the level of urbanization, is 10 percentage points lower than the world's average level. It is also lower than the countries that are at the same development stages as China is. In 2000, the proportion of total agricultural output in China’s GDP fell to 15.9 percent, while rural employment still accounted for 50 percent of the national total. Now that the problem of having enough to eat has been solved and urbanization has entered a period of more rapid development, more active approaches are needed. Urbanization is an issue of fundamental implications on China's economic development in the 21st century. Movement of peasants to non-farm industries and urbanization will eventually break up the closed state of the rural economy and bring about profound changes in the social production and lifestyle of hundreds of millions of peasants. When peasants' production and life become more socialized, market will expand. This is also the process of rural modernization and the modernization of the whole country. This process will take at least several decades, or even a hundred years.

Promoting urbanization involves the issues of understanding, policy management and development planning. As for understanding, the principal concern is social stability and urban administration. In the area of policy management, the main task is to reform the household registration system, the urban education system and the housing system as well as the education and management of the peasants who are working in the urban areas. On development planning, the tasks involve the unified planning of large, medium-sized and small cities and small towns as well as the issue of intra-city development planning. China is a big country with uneven development of economy and market. Population density and territory differ from one region to another. Therefore, pursuing urbanization should take into account local specific conditions and emphasize efficiency. We should not pursue urbanization just for the sake of urbanization. Large,