By Li Wei

Research Report Vol.21 No.1, 2019

I. To Grasp the Current Economic Situation, We should deeply Understand “Stability”, “Change” and “Concern”

The CPC Central Committee has made a general judgment of the current macroeconomic situation - “generally stable with changes and concerns”. This is an objective and accurate judgment, and the key lies in how we should understand and grasp three keywords - “stability”, “change” and “concern”.

1. Correctly grasp the general “stability”. As far as the transformation process is concerned, the Chinese economy is steadily moving from the stage of high-speed growth to the stage of high-quality development. Our GDP has remained in the 6.5%-7% range for 15 consecutive quarters since 2015, total factor productivity (TFP) keeps rising back and economic transformation is in stable process. In terms of indicators, the actual and potential growth rates of Chinese economy are basically consistent and key economic indicators are matching. Employment is stable in general. The surveyed urban unemployment rate at the end of 2018 was around 4.8%, and the surveyed unemployment rate of the main working group aged 25-29 was 4.4%, both on a rather low level. In 2018, the CPI increased 2.1% from a year earlier, a mild increase of consumer price. Regarding structural adjustment, the central government has resolutely pushed the supply-side structural reform and the three tough battles in recent years in order to tackle the structural contradictions in our economic development. Obvious progress has been made in reducing excess capacity, deleveraging, debt control, real estate control and environmental protection. Despite the short-term pains and contraction, our economy has realized stable growth nonetheless and laid the foundation for high-quality development.

2. Deeply understand the main connotations of “change”. Profound changes are taking place in the world economic landscape, global economic and trade environment, industry transfer and risk characteristics. The changes in world economic landscape are manifested in the fact that the comparison of global economic forces is undergoing fundamental changes and the global economic governance system is in the key period of restructuring. According to data from the International Monetary Fund (IMF), emerging markets and developing economies accounted for 40% of global economy in 2017 and more than 50% if calculated as per purchasing power parity, showing that the world economic landscape is seeing profound adjustment. At the same time, trade protectionism and populism are rising, and global economic governance system is facing deep-going reform and reshaping in concept, rules and institutions. The global economic reform is never isolated, but would exert and is exerting tremendous influence on geopolitics, international power balance and ideology. The world is seeing changes that were never seen in the past century. The change in global economic and trade environment is reflected in the reduced economic and trade expansion worldwide and the growing economic and trade frictions among main economies. America’s tax-cutting policy is less effective, the capital market is under massive adjustment, long-term interest rate is lower than the short-term rate, economic growth momentum is weakening, and economic growth rate in the Euro zone and Japan is slowing down. The general growth of emerging economies is sluggish, and the global economic recovery cycle seems to have come to an end. The external environment of China’s economic development has changed significantly.

The change in industry transfer is embodied in the fact that technological innovation and industrial reform have come to a period of high activity, and supply chain adjustment and transfer is displaying new features. Cutting-edge technologies are integrated, many areas are at the critical point of industrial breakthrough, and a new round of technological revolution and industrial reform is fundamentally reshaping our way of production and life and economic and technological paradigms. These pose both opportunities and challenges to China's participation in the global division of work and to its long-term development. Meanwhile, China's labor cost advantage is waning, the America-provoked trade disputes are having growing impacts, and labor-intensive industries are moving to Southeast Asia and other regions at a faster pace, even with the sign that supply chains may move as a whole. Changes in risk characteristics include the co-existence of old and new risks and the growing difficulty and complexity in dealing with them. China is still in the transition period of economic development, adjusting its economic structure, shifting from old to new economic drivers, and old risks are not eradicated while new ones are gradually coming to the fore, especially those across markets, sectors and regions. Given the weakening general demand, it is harder to coordinate the relation of stabilizing growth, adjusting structure and preventing risks.

3. Pay full attention to the potential effect of “concern”. At present, profound changes are taking place both internationally and domestically, which result in new issues and challenges. Now we have both old and new problems, long-term problems and short-term ones. In particular, as we push for high-quality development and cope with the changes in global economic governance system, some problems and difficulties happened before and we have experience in resolving them, but more issues never happened and are more difficult to solve. As a result, the market and the public are more “concerned” about the socioeconomic development in China. To be more specific, their concerns are focused on the following issues: (1) The China-US economic and trade friction will change our course of development and China will be marginalized while international economic and trade rules are being reshaped; (2) The real economy will have a hard time, enterprises will make fewer profits, jobs will be harder to find and domestic demand will be insufficient; (3) National policies cannot be well coordinated and implemented and the vitality of market players cannot be unleashed; and (4) Key technologies concerning the nation’s economic artery are controlled by other countries and industrial upgrade will be obstructed. These “concerns” must be solved as we march toward high-quality development.

II. To Understand the Current Economic Situation, We must look at the Internal-external Relation, Supply-demand Relation and the Relation between Short-term Growth and Long-term Development Dialectically

Various opinions have appeared regarding the new situations and new issues in current economic development. Some people wonder, under the dual pressure from inside and outside, whether the period of strategic opportunities for China’s development still exists, whether the fast and stable economic growth will be maintained, and how to stabilize and strengthen the people’s and the enterprises’ confidence. To answer these questions, we should first adopt the right epistemology. The first issue of Qiushi magazine this year published an important article by President Xi Jinping titled “Dialectical Materialism Is the World Outlook and Methodology of CPC Members”， which deeply illustrates the basic principles of Marxist philosophy and their guidance on our works in the new era. The CPC always attaches great importance to philosophical thinking and looks at things in a dialectical way. I personally believe that to correctly understand the current situation, we must take a dialectical view of three important relations - the relation between internal and external situations, the relation between supply and demand, and the relation between short-term growth and long-term development. 1. Balance the internal-external relation. When reform and opening-up was just launched, China seized the opportunity of globalization and resolutely carried out opening-up. After China’s entry to the WTO, the 16th CPC National Congress in 2002 made the judgment that China was in an important period of strategic opportunities when much could be done. It was exactly thanks to the CPC’s insight to the overall situation and its correct judgment of international situations that we were able to overcome one obstacle after another during the reform and opening-up and proceed from one victory to the next. In the past few years, the international environment we are in has changed dramatically.

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