New Subject of Growth Pattern

Economist Wu Jinglian

Wu Jinglian is vice chairman of the Academic Committee of the State Council Development Research Center.
He also serves as professor of economics at the graduate school of the Chinese Academy of Social Sciences.

The year 2004 was one of macroeconomic regulation. However, what is a point of concern for many people is that since the reform and opening up initiated at the end of 1978, China has had to slow its growth and make adjustments due to its shortage of resources and pressure from inflation. We have witnessed this situation many times. Will it occur again? Can we realize the goal of industrialization and modernization only through an economic growth pattern of high input and low efficiency? Wu Jinglian, an eminent Chinese economist, explains that China must think in a sober-headed manner in order to resolve the problems concerning the road to industrialization and its growth pattern.

Since November 2002, China has called for a new road to industrialization. But to date, there has been a great difference in the understanding of the new road, making it a difficult task to carry out.

The new road to industrialization refers to the road industrialized countries take after the second industrial revolution. A distinctive feature of modern economic growth is that economic growth is mainly dependent on the accumulation of human capital (capital and capability of human beings) and improvement of efficiency, rather than the input of capital and other resources.

According to the studies made by many economists since the 1950s, there are three main sources to raise efficiency in modern economic growth.

First, the extensive application of science and technology. Prior to this, technological progress was made mainly based on small reforms. After the second industrial revolution, the innovation mechanism of science and technology greatly stimulated the creation of high quality personnel and the enthusiasm of employing new technologies in the production of enterprises. Therefore, new technologies, new materials, new energy and new products were emerging continuously and they have been widely used, thus accelerating technological progress.

Second, the rapid development of the service sector. Since the early 20th century, the fastest developing industry in the economic growth of Britain and the United States was the service sector, in particular the productive service sector. The development of the productive service sector played an important role in reducing costs, especially transaction costs. At that time, industry had been integrated into the service sector.

Third, the application of modern information technology. In all sectors it helped raise the overall efficiency of the economy. Those countries that had not yet accomplished their industrialization, of course, found opportunities to apply this technology to raise efficiency and “propel industrialization with information technology.”

CUTTING EDGE: A technician of the Shoudu Iron and Steel Corp. works with photoetching technology. Scientific reform is vital for a healthy economy

Since the late 1970s, China repeatedly stressed the necessity of raising economic efficiency and changing its growth pattern. However, in reality, it still needs great efforts to achieve a tangible result. This is mainly due to major obstacles from unsuitable systems and policies. For example, governments and government officials at all levels still have many resource-allocation powers that are not suitable to a market economy. The current financial system continues to allow various levels of government officials to put their emphasis on the development of heavy industries that can gain great profits. So, it is easy to deviate from the road to industrialization with the existence of these conditions, whenever there is an appropriate opportunity.

China stressed economic restructuring in its 10th Five-Year Plan (2001-05). No doubt, it is correct in proceeding from raising the efficiency of resource allocation. The problem is whether the economic structure should be readjusted by market through price mechanism or by the government through administrative orders, and where it should be directed. Under the above system and policy environment, many government officials comprehend the optimization of industrial structure as the development of heavy industry that has high output value and returns. Therefore, they used their resource allocation power to expand heavy industry disregarding natural resources. They lack momentum and loosen their efforts in knowledge accumulation, efficiency improvement, technological innovation and increase of added value.

The current economic growth of China, which relies on high input, high energy consumption and high capital accumulation, has resulted in grave negative effects on sustained and stable growth of the national economy. This growth pattern has given rise to a series of social and economic problems. Actually, we haven’t got many benefits from such growth patterns. As some knowledgeable personnel put it: We have consumed a great amount of resources that cannot be regenerated and we were stuck with the label of environmental polluters. Despite all this, there were few big profits.

At the same time, some provinces and municipalities with the advantage of developing hi-tech industries or services for heavy industries are blinkered in their chase of heavy industry and high output value. As a result, some regions and industries seriously lack resources, leaving their environment decimated and unemployment rising, which contain great risks.

China has great potential in resource conservation and improvement of efficiency and can take a new road to industrialization as long as clear guidelines and proper methods are applied. Currently, efforts should be made in the following aspects:

First of all, we should do away with the stereotyped thinking formed under traditional industrialization and set up scientific development concepts, making resources conservation, efficiency improvement and sustainable growth the starting point of our work.

Second, we should vigorously promote science and technology. The most important thing is to institutionalize the policy in order to stimulate scientific discovery and technological innovation. At the same time, we should promote the reform and development in education to realize the accumulation of human capital.

Third, we should energetically develop the service industry and pursue the process of biggest value with least resource consumption. Industrial enterprises should extend from simple processing industry to independent research and development and other service sectors, so as to increase the added value of products. The government should also provide a better environment for the development of productive service sectors.

Fourth, we should reverse the tendency to emphasize “hardware” and production but neglect “software” and service in the development of China’s IT sector, enhance the service functions of the IT industry and promote IT application in various sectors, so as to promote the overall efficiency of the national economy.

Lastly, we should speed up reform of the economic system, eliminate price distortion, weaken government’s power in resources allocation, and bring market’s fundamental role into play in allocating resources.