The article is a speech by Li Wei, minister of the DRC, at the Franco-Chinese Workshop: Crossed Views on the Quality of Growth on Nov 24, 2014.

Director Jean Pisani-Ferry, distinguished guests, ladies and gentlemen:

Good morning. I'm delighted to have our French friends, old and new, join us for discussing how to improve the quality of economic growth as China and France celebrate their 50th anniversary of diplomatic relations. This is a significant event for exchanges between Chinese and French think tanks and, on behalf of the Development Research Center of the State Council, I would like to extend our congratulations to the Franco-Chinese Workshop: Crossed Views on the Quality of Growth, and a sincere welcome to the director, Jean Pisani-Ferry, and all of our guests.

We live in an age of great development, change and reform and, while we are creating a better life, we are also confronting more challenges. Since the global financial crisis, major economies have responded in a number of ways but the global economy remains sluggish. At the same time, there are social contradictions globally and the question of how to develop new economic power and improve the quality of economic growth has become a major problem for humans as a whole. The book of France's Thomas Piketty, Capital in the Twenty-First Century caused debate worldwide when it appeared in March, showing just how much our development has encountered structural contradictions and serious defects in the old mode of development. It is under these circumstances that the DRC and France Stratégie, in the spirit of the 2nd China-France High Level Economic and Financial Dialogue, are holding this workshop to assist economic progress in China and France.

A Soviet economist gave a systematic explanation of the quality of growth back in the 1970s and many other scholars and research institutes have reported on this, but, there is still no universally agreed approach. My own personal opinion, based on our research, is that we can approach the issue in four perspectives: the first being whether growth is intensive, meaning whether resources are efficiently allocated and utilized; the second is whether growth is environmentally friendly and whether growth meets or contradicts environmental protection demands; third is whether growth is steady, meaning whether there are sudden ups and downs and, as a result, a waste of wealth; and the fourth is whether growth is fair, that is, whether it benefits everyone.

From these perspectives, we can see that, since China began its reforms and opening-up, it has achieved a lot in enlarging its economy and in improving its quality in the following ways:

First, economic efficiency has changed, with reforms in its economic system facilitating productive factors. And, the opening-up policy has helped better allocate resources in different regions and sectors. It's worth noting that State-owned company reforms have dramatically increased microeconomic efficiency and the numerous studies on China's productivity mostly show it among the leading countries in this respect. The University of Pennsylvania's Pen World Table estimated that productivity in China grew more than 3 percent annually on average from 1980 to 2011.

Second, China has made greater progress in using resources more intensively, much more than many would have imagined. Its energy consumption per-unit of GDP fell 4 percent year-on-year from 1978 to 2013. Had there not been on increase in efficiency, China would have used another 11.2 billion tons of standard coal for its GDP, in 2013, or three times the actual figure for that year.

Third, there's been remarkable progress in ensuring steady economic growth, with China's economy experiencing many ups and downs from the beginning of the reforms and opening-up in the late '70s to the mid-'90s. Its GDP rose 11.7 percent in 1978, but a mere 5.2 percent in 1981. Then, in 1984, it rebounded to 15.2 percent, the highest in about three decades. These fluctuations were certain to result in huge losses. But, the economy's been growing steadily since the mid-'90s thanks to efforts to improve the economic system and macro-management. Apart from 2008, when the financial crisis hit, China's economic growth difference between any two subsequent years has been less than 1.6 percentage points.

Finally, economic growth is benefiting more people and China cut the number of people living on less than $1.25 per day, by 670 million between 1981 and 2010, or around 93 percent of the total worldwide. And, its urbanization drive is moving rapidly, with the rate going from 17.9 percent, in 1978, to 53.7 percent, in 2013, and its permanent urban population growing from 130 million to 710 million over the same period. Urbanization has helped hundreds of millions of rural people share in the achievement of modernization and industrialization.

Still, in spite of those achievements, it is clear that there are problems in China's quality of economic growth.

First, there needs to be a greater effort in resources allocation where China still lags behind developed countries. A 2012 World Bank report showed China's productivity at less than half the average for OECD countries and there's still a lot of room for China in the optimal allocation of resources. Productivity in the country's secondary sector is 4.6 times that in the primary sector. And, productivity in the East, in Jiangsu province, was 3.2 times that in the Southwest, in Yunnan province. In addition, productive factors are extensively used in micro-economic areas.

Second, China's growth needs to be more environmentally friendly, since its energy consumption per-unit of GDP is 2.1 times the world's average, and 2.9 times the average of high-income countries, and 2.6 times that of the US. Immense energy consumption brings huge amounts of emissions so that clean air has become a rarity for people in Beijing, Tianjin and neighboring Hebei province. The blue skies that appeared during the APEC conference were referred to as 'APEC Blue' by local people. This directly reflects the environmental costs of China's economic growth.

Third, China needs a more solid foundation for steady economic growth, even though, after more than 30 years of reforms, we've established a basic market economy framework, we've still not developed the ability to understand and follow the development pattern. And we need to improve the ability to predict economic development trends. When major economic fluctuations occurred, we tended to stabilize the economy administratively, which brought the desired results but also led to structural contradictions such as overcapacity and monetary and financial risks as well.

Fourth, we need to increase fairness, for example, from a macro perspective we've not come up with a reasonable income distribution. China's labor remunerations, in 2011, accounted for 47 percent of its GDP, whereas in the US and France, the figure was above 62 percent. From a micro perspective, China has a wide income gap, with the National Bureau of Statistics showing the Gini coefficient gradually falling, since 2008. It now stands at 0.47, but is still higher than the international warning line of 0.4.

China's leaders are well aware of these problems. In 2013, President Xi Jinping stressed at the Central Economic Work Conference that China wants greater speed on condition that it improves livelihoods and employment, increases productivity, enhances economic vitality, makes structural adjustments, and improves growth quality. And, thanks to this, China has come up with effective measures, with the guiding principle being the best use of both the invisible hand and the visible hand to let the market play a decisive role in resource allocation and let the government do what it is supposed to do, and to build a better system for economic growth. The ultimate goal is to allow the people to share the results of economic development in a fairer way and to make economic growth better use resources for steadier, more environmentally friendly growth.

More specifically, the following are methods that China has adopted or will adopt soon:

First, slashing the government's role in the direct allocation of resources, with the State Council devolving the power to examine and approve or abolishing procedures for some 600 items after the 18th CPC Congress. It also established the Shanghai Free Trade Zone and went looking for ways to manage foreign capital. President Xi emphasized at the Six Session of the Leading Group for Overall Reforms that any experience gained from the free trade zone should be promoted for broader results.

Second, China has increased its environmental protection efforts significantly, with the State Council announcing its Action plan for Air Pollution Prevention and Control, in September 2013, to generally improve China's air quality and cut the number of heavily polluted days within 5 years. The central government allocated 15 billion yuan, in 2013 and 2014, to improve air pollution in Beijing, Tianjin, Hebei province and neighboring areas, and China said at the recently concluded APEC meeting that its carbon emissions will reach a peak at around 2030.

Third, China is innovating in macroeconomic management, with the new administration emphasizing the role of the market in handling economic fluctuations and regulating economic growth with more accurate measures. These measures can prevent loss of efficiency from undue administrative intervention and problems with unfairness caused by 'one-size-fits-all' regulatory methods.

Fourth, China is speeding up the pace of income distribution and household registration reforms and the government will make income increases match the pace of economic development and raise the percentage of labor wages in relation to GDP. It has responded to public concerns about the pay of top management at State-owned companies and has come up with a plan for reforming the household registration system.

I want to emphasize three things that are crucial to the quality of China's economic growth: first, opening up to the outside world, by building a new system to improve the quality of growth in a globalized system; second, making innovation the driving force and the means to optimal resource allocation and by getting the public involved in innovation and solving technical problems that affect the quality of economic growth; and, third, by strengthening the rule of law as a fundamental guarantee that the market plays a decisive role while the government does what it is supposed to do while the market economy moves effectively and fairly, in line with the decisions at the Fourth Plenary Session of the 18th CPC Central Committee rulings on law.

Ladies and gentlemen, China's economy has entered into a crucial period and it urgently needs to improve its quality. This will require China's own efforts and international experience as well. And, France, with a modern economy and much experience, will be helpful to China. Of course, France is also encountering difficulties in its modernization, but, no matter what the conditions are, it is important for China and France to increase exchanges and cooperation especially since they have something in common in improving the quality of economic growth. And we, as one of China's most important think tanks, would like to join with France Stratégie in studies in this area as well as a joint effort in environmental protection, social equality, and other innovative approaches.

Think tanks, as open institutions, are becoming more important in this age of development, change and reform. And, the DRC, working in line with government needs, is developing into a new think tank model and would like to consult our French colleagues on institution building, internal management and personnel training.

In this, we sincerely hope that Chinese and French scholars will help improve the quality of economic growth in their respective countries with wisdom, hard work and insightful research.

I should like to conclude this speech by wishing the workshop all the success in the world.

Thank you.

Author: Li Wei, minister of the Development Research Center of the State Council (DRC)

Source: China Economic Times on Nov 25, 2014.