A national policy consultation work conference was held on Feb 9 in Changsha, Hunan province, where Li Wei, President of the Development Research Center of the State Council (DRC), made a work report on striving to start a new chapter of policy consultation and research in the economy's new normal.

Talking about the general thinking for work in 2015, Li said the DRC will stick to the fundamental direction of providing consultation services for central decision-making; increasing efforts to improve its professionalism and research quality; and speeding up cultivation of more talented people to strengthen its comprehensive ability of studying, judging and planning, by fully implementing the spirit of the 18th National Congress of the Communist Party of China (CPC) and the Third and Fourth Plenary Sessions of the 18th CPC Central Committee and the Central Economic Working Conference. It will be guided by Deng Xiaoping Theory, the Theory of Three Represents and the Scientific Outlook on Development. More efforts will be made to improve policy research perceptiveness, effectiveness and pertinence to increase policy interpretation accuracy, influence and social effect and to make policy evaluation more scientific, standard and professional. The DRC will abide by the discipline of policy-making consultation, innovate systems and distribute resources in a rational way. It will build a high-end think tank and offer high-quality consulting service for central decision-making.

Li said the DRC's work in 2015 will be focused on eight aspects: pushing forward the pilot work of national high-end think tanks; improving policy research perceptiveness, effectiveness and pertinence; making policy evaluation more scientific, standard and professional; increasing policy interpretation accuracy, influence and social effects; building a team of high-level specialists and talented people; strengthening efforts to conduct international exchange and cooperation; speeding up information construction; and expanding the ability of resource integration and investigation network.

Li stressed that the DRC will pay special attention to four aspects concerning policy consultation in 2015.

I. Opportunities and challenges in the new normal

Understanding the new normal, adapting to the new normal and leading the new normal will be the general thinking for China's economic development at present and in the future. Understanding the new normal is the basis for thought. Adapting to the new normal calls for accelerating the transformation of old concepts and ways; while leading the new normal is where the shoe pinches. Only by doing well in leading the new normal can China complete the historical task of upgrading its economy into a higher stage with more complicated division of labor and a reasonable structure. This comes after the accomplishment of missions in China's economic system reform, substantial progress in restructuring and development mode transformation, and the formation of new economic powerhouses for economic growth. During the years from 1978 to 2013, China's GDP grew by 9.8 percent annually on average. Compared with the previous high economic growth, what will the economic growth be in the new normal? This will definitely vary in the future, but is likely to stay between 6-7 percent taking the international environment and domestic supply and demand situation into account. The figure is not for a specific year but for a stage of development.

China's economy in the new normal won't take speed as its core. However, it attaches significant importance to improved quality and efficiency. Some contradictions and risks in the extensive growth mode were hidden and absorbed during the stage of high-speed economic growth because of a strong potential demand and continuous rise in asset prices. As economic growth slows down and structural adjustment continues in the new normal, the hidden contradictions and risks will come out gradually because the risk-solving mechanisms may no longer be effective. In addition, market players may be unable to adjust their behaviors timely. There will be severe overcapacity in manufacturing. Reorganization and structural adjustment will lead to industrial change, elimination of enterprises and job transfer. In addition, many risks also exist in the fields of local government debts, shadow banking, real estate, and enterprise connection and guaranty. They interweave and influence each other with a greater possibility of fast diffusion and aggravation. Chinese people have higher demands for justice and fairness as the country makes it middle income. People's political appeals will rise as well. Long-lasting problems such as the income gap, corruption, environmental pollution, food safety and lack of social credit stand a chance to become incentives for social turmoil. These are the risks and challenges that China is confronted with and needs to properly deal with in the new normal.

The new normal brings about new opportunities as well. The process of restructuring is inevitably painful, but its success improves quality of assets and industrial structure as well as creates new jobs and greater value. The demand for some traditional industries is saturated, while new technologies, products, businesses and demands are springing up, with the space for creation and innovation demand infinite. Though export growth is slowing down, China is embracing a historical opportunity to enter into the high-end of the industrial chain in a new round of international division of labor by making the most of its equipment, industrial support and capital export. Protecting environment and controlling pollution increase cost, while the ecological products that have a rapidly growing demand and a path of low-carbon and green development will also stimulate new business opportunities. Meanwhile, China's per capita GDP at the exchange rate is only one-eighth of that in the United States. There is a huge gap between the two countries in terms of such indicators as resident final consumption rate, the proportion of tertiary industry's value added in GDP and the proportion of agricultural labor. This means there is wide space in China for expanding the domestic market, developing the service industry and pushing forward the urbanization drive.

II. Fostering the new technological innovation-driven powers for economic growth

Innovation is the key to fostering new powers for economic growth, which is crucial to adapting to the new normal. China has to innovate products and expand the market to enable domestic demand, especially consumption demand, to play a bigger role in economic growth. This is also important to innovating the way production and process is organized to enhance efficiency of resources, as well as innovating systems and mechanisms to better allocate resources. Technological innovation, for sure, is the most important and the foundation for all. Efforts should be made to create a new driving force for economic growth and to adapt to the environmental and condition changes in and outside of China. In addition, the country needs to seize the general trend of global technological progress, mobilize all resources and shift from a big innovation power into a strong one in a bid to make innovation become a powerful engine leading transformation and development

III. Economic and social development strategies and major tasks in the 13th Five-Year Plan (2016-2020)

The 13th Five-Year Plan is the first of its kind after the economy has entered the new normal. It should be studied following the logic of "understanding the new normal, adapting to the new normal and leading the new normal". Many factors in and outside of China must be taken into account when analyzing and understanding the development environment and conditions during the period. The topics and mainline of the plan need to be decided by coordinating different development goals to make them interdependent and inter-constrained. The strategic task system should be designed to maximize the overall effect.

Major economic and social development tasks during the 13th Five-Year Plan (2016-2020) include the following aspects:

First, the agricultural development mode needs to be transformed with some issues requiring in-depth study, including how to realize inner-quality development in agriculture through restructuring, how to remove agricultural production that exceeds the carrying capacity of resources and environment, and how to guide the management rights transfer of farmland to develop agricultural moderate scale management.

Second, industrial restructuring, transformation and upgrading will be continued with focus on dealing with overcapacity, intelligent manufacturing, producer services development and innovative industrial policies.

Third, advantages of an open economy will be strengthened with focused research on the Belt and Road Initiative and policy promotion system; open innovation of free trade pilot zones; reforms in the foreign investment access system and in the management system of investment in foreign countries; and change in the development mode of foreign trade.

Fourth, social management system reform will be conducted with special attention paid to social security system reform and public service system reform, especially in education, medicine and health.

Fifth, with regard to State-owned enterprise reform as well as small and medium-sized enterprises transformation and upgrading, many provinces have released the guidelines about local State-owned enterprise reform, and the following issues should be given adequate attention. One, local governments need to come up with specific rules in accordance with the guidelines; two, they could conduct pilot reforms according to local conditions to accumulate experiences when the central State-owned assets management system reform is up in the air; and three, reform is also needed in the local financing platform. Small and medium-sized enterprise development calls for change in government functions, including streamlining administration and delegating more power to lower levels, optimizing the environment for business operations, reducing the taxes and fees charged on them, speeding up financial reform and alleviating the financing cost for enterprises, and improving service system for small and medium-sized enterprises.

Sixth, resources and environmental policies need to be improved focusing on building a natural resource property right system and a management system, reforming the ecological protection compensation system and the environmental supervision system, handling ecological problems in the new urbanization drive, improving the legal system for ecological progress, and studying evaluation and accountability system reform.

IV. Risks in current economic operation

Fiscal risks

It is an irresistible trend that the fiscal revenue will drop in the future against the background of China's slower economic growth. Meanwhile, the current development stage along with the population structure ensures that China's expenditures in medical treatment and pension for the elderly will continue to grow, resulting in a sharp contradiction between income and expenses.

In 2015, the government's land income from adjustment of the real estate market will shrink largely. This, accompanied with paying local government debts, removing overcapacity and maintaining investment in infrastructure construction, will increase financial pressure, especially pressure on local government. If this is not properly dealt with, it is likely to trigger regional risks.

Financial risks

Attention should be paid to dealing with risks of local financial institutions, government debts, decreasing enterprise revenue, and the increase in bank non-performing loan ratios as well as enterprise connection and guaranty issues.

Real estate market risks

The downward trend in the real estate market as a whole will continue, and the task of de-stocking remains arduous. The market will become more differentiated with real estate developers facing risks in business.

Employment risks

As China's population structure changes, the working-age population fell in 2012 for the first time. The labor force working in cities from rural areas is obviously decreasing, alleviating the pressure of urban employment. However, the employment structural contradiction is still prominent in the new normal. As economic structural adjustment speeds up, some traditional excess industries will inevitably be eliminated or transformed, forcing quite a number of workers to leave or change their jobs. This will contribute to an increase in frictional unemployment because these people cannot adapt to new jobs or meet the need of new businesses for a short period of time. In addition, about seven million university students will join the labor force annually, leading to the continuous stress of college student employment for a time. Second-generation migrant workers ask for jobs and remuneration markedly different from their predecessors, so they will not go back to the rural areas even when the job market fluctuates due to a sluggish economic situation. This means that the role of land as a buffer to alleviate employment fluctuation will obviously weaken.

The author is Li Wei, President of the Development Research Center of the State Council (DRC). This article appeared in China Economic Times on Feb 10, 2015.