Major Issues Concerning China's Strategies for Mid-to-Long-Term Economic and Social Development

Xi Jinping

Since the outbreak of the novel coronavirus disease (Covid-19), I have chaired many meetings and issued many instructions on containing the virus and advancing economic and social development. I have also given a lot of thought to the major issues affecting China's mid-to-long-term economic and social development in light of Covid-19.

The world is undergoing momentous changes not seen in a century. The Covid-19 epidemic, the worst of its kind for a century, is both a crisis and a test. China has now passed the turning point in containing the virus, but globally the virus continues to spread. Given this severe external situation, we must work hard to guard against inbound cases and a domestic resurgence. We must not allow Covid-19 to resurge again. Meanwhile, we should draw inferences, think hard of our current situation in view of China's long-term development and improve our strategy in order to turn crises into opportunities and achieve high-quality development. Here, I want to talk about several issues, with the focus on development strategies.

First, we must steadfastly pursue the strategy of expanding domestic demand. Building a complete domestic demand system has a direct bearing on China's long-term development and stability. Since the adoption of the reform and opening up policy and especially after our entry into the WTO, China has integrated itself into the international economic flow and developed a growth model whereby China serves as the "world's factory," while the two ends of the economic process – markets and resources (such as mineral resources) – continue to be located abroad. This has enabled China to seize opportunities in economic globalization to rapidly increase its economic strength and improve its people's standards of living. In recent years, however, economic globalization has encountered headwinds, and the global spread of Covid-19 may exacerbate the anti-globalization trend as countries become more insular. As such, the external environment for China's development may change profoundly. Expanding domestic demand is thus necessary to cushion the impact of Covid-19, to sustain our country's sound economic development, and to meet our people's growing desire for a better life.

One of the advantages of being a major economy is that we can achieve complete domestic circulation. China has 1.4 billion people and per capita GDP in excess of US$ 10,000, which makes it the world's biggest consumer market with the greatest potential. Upgrading consumer spending by aligning it with modern technologies and production models can produce great potential for growth. We must regard expanding domestic consumption as the basis of our national development strategy to ensure sound dynamics among production, distribution, exchange, and consumption that are more focused on the domestic market. We must set a strategic course for supply-side structural reform and work toward a dynamic balance between aggregate supply and demand at a higher level. Growing domestic demand and opening up further are not contradictory. The fewer impediments to domestic economic flow, the more global resources will gravitate toward China, the easier it will be for us to develop a new pattern of development that focuses on domestic circulation and features positive interplay between domestic and international economy, and the greater China's ability to compete and cooperate internationally will be enhanced.

Consumption is a key driver of China's growth, and the middle-income group is the cornerstone of consumption. At present, our country has around 400 million middle-income earners, the largest in the world in absolute terms. To further expand our middle-income group, we need to introduce policies to optimize the income distribution structure by allowing the market to evaluate and award the contributions of knowledge, technology, management, data, and other factors of production. We should increase investment in human resources to enable more working people to become middle-income earners through their own efforts.

Second, we must improve and stabilize our industrial and supply chains. Industrial and supply chains must hold at critical moments – this is an essential feature of a major economy. The Covid-19 epidemic is a pressure test under real-life conditions. China's sound industrial system, strong mobilization and organization capabilities, and exceptional ability to shift the focus of its industrial operations as needed have been important material guarantees in our effective response to the epidemic. Our mask production capacity has increased from 10 million pieces per day at the end of January to 500 million at present. At the same time, the impact of the virus also revealed latent risks in our industrial and supply chains. To safeguard our country's industrial and national security, we must strive to develop our own industrial and supply chains that are controllable, secure, and reliable and ensure we have an industrial backup system with at least one substitute for each major product and supply channel.

Now, as work and production resume across the country, we should not and cannot simply repeat our past model; rather, we need to reshape our industrial chains by stepping up technological innovation and import substitution across the board. This is crucial to achieving high-quality development and should be a focus in furthering supply-side structural reform. First, we must play to our strengths. We need to consolidate and enhance our international edge in competitive industries; develop technologies that will give us a decisive advantage; continue to strengthen the complete-industrial-chain edge we have in areas such as high-speed rail, electric power equipment, new energy, and communications equipment; improve industrial quality; and deepen China's involvement in global industrial chains. By doing so, we will develop effective deterrent against attempts by other countries to sever our supply chains. Second, we must shore up our weaknesses. We must build homegrown, controllable, secure, and reliable domestic production and supply chains in areas and links vital to our national security, so that they are self-sufficient at critical moments. This will ensure the economy functions normally in extreme circumstances.

China has the world's largest internet economy, which played a positive role in our response to Covid-19. Our online work, online shopping, online education, and online medical services are flourishing and have become deeply integrated with the offline economy. We should ride this momentum to accelerate the development of the digital economy, digital society, and digital government, move ahead with digital upgrading across sectors, and actively participate in the formulation of international rules for digital currencies and digital taxation so as to develop new competitive strengths. We must also be clear, however, that the real economy is the foundation of our economy and manufacturing industries must not be neglected. As a large country with a population of 1.4 billion, China must be basically self-sufficient in food production and industrial development. We must never forget this.

To ensure the economy operates as normal, we must enhance our awareness of disaster prevention and preparedness. As the saying goes, "Weather changes wildly, and fortunes change in a day." We must greatly improve our systems and capacity for disaster prevention and preparedness, sparing no expense or effort to ensure readiness for all possible disasters, even if most of them never happen. In some sectors, we must be prepared for once-in-a-century disasters. We must follow the principle of "walking on two legs," having both central and local, both state and commercial, and both military and civilian stockpiles, and both stockpiles of goods and production capacity. We must optimize the types and locations of stockpiled emergency supplies, rationally determine the size of stockpiles needed, and comprehensively increase investment and construction in this area.

State-owned enterprises (SOEs) have led the charge and played a vital role in containing Covid-19, and have been instrumental in stimulating industrial circulation. They are an important material and political foundation of socialism with Chinese characteristics and a pillar supporting our Party's efforts to govern and rejuvenate the country; we must help them grow stronger and bigger and do better. SOEs should be reformed, but must never be rejected or weakened. We must adhere to and improve the new nationwide mobilization system and constantly improve leadership, organization, and implementation.

This battle against Covid-19 has made us realize that we must safeguard industrial and supply chains as global public goods and resolutely oppose their politicization and weaponization. We need to formulate in the course of international trade and economic negotiations an international consensus and norms on protecting global industrial and supply chains and eliminating the influence of non-economic factors, and we must strive through international cooperation to foil attempts to undermine global industrial and supply chains.