China 2030

Background and Key Elements

Liu Shijin
Development Research Center of the State Council, China
November 2012

Background to China 2030:Building a Modern,

Harmonious and Creative High Income Society

Chinese and world bank leaders agreed to conduct a jointly research in 2010. First time to organize a joint team by a Chinese research institute and World Bank, which included more than 50 experts. Kicked off since Nov 2010, finally released in Feb 2012

Background to China 2030:Building a Modern,

Harmonious and Creative High Income Society

The research mainly focused on the development vision which is to build a modern, harmonious and creative high income society in China by 2030. Besides overall guidance, five supporting groups were set up , which correspond to five branches of the vision research: structural reform, innovation, green development, social development ,China and the rest of world.

Background to China 2030:Building a Modern, Harmonious and Creative High Income Society

A lot of field studies, seminars and background papers The preliminary report was discussed at a high-level international conference held in Sep 2011, though which we got comments and suggestions from many first-class experts as well as the Chinese ministries and local governments The final version, including an overview and six supporting reports, builds on the these comments and suggestions.

Background to China 2030:Building a Modern, Harmonious and Creative High Income Society

The joint research gave full play to the complementary advantages of China and World Banks experts. These experts from World Bank are skilled in international analysis and expertise, while Chinas counterparts know well about domestic issues as well as macro conditions.

Key Elements of Historical Experience

How to recognize the experience of Chinas development in the past? The so-called China Development Model has caused widespread concerns.

Five important characteristics:

Pragmatic and effective market-oriented reforms Finding the balance between growth, social and macroeconomic stability Promoting the competition across regions Promoting the integration of domestic market Steadily integration with the global economy

Challenges and Opportunities

In the next two decades, both international and domestic development environment would change a lot and will be much different from that during the past three decades.

International environment:

The process of globalization would not step back regardless of trade protectionism The balance of power in developed countries and emerging economies will change significantly New technological breakthroughs Structural reforms of the international monetary system and global governance

Challenges and Opportunities

Considerable advantages and opportunities: high savings, increasingly skilled labor and the potential for further urbanization. The risks and challenges to address at the same time: aging society, rise income inequality, environmental deficit and external imbalances. With reference to the development path of other successful catching-up economies, the annual potential growth rate of Chinas GDP output will be expected to decline to around 9% in 2010-2015, to about 7% 20152020, and then to 5%-6% during 2020-2030

Development Vision

The predicted results are not low when compared to the average growth rate of the whole world. Considering the challenges and opportunities mention above, the report proposed a vision of building a modern, harmonious and creative high-income society in China by 2030 By 2020, Chinas GDP at current prices will be close to or exceed that of the United States By 2020, Chinas GNI per capita will be close to or reach the threshold of high-income groups

Projected growth pattern assuming steady reforms and no major shock

GDP growth prospects: China Vs.US

200

GDP(Trillion $, at current price)

China

182

150

GDP

100

US
50 15 0 6 2010 2015 2020 2025 2030 2035 2040 2045 23 21 54 38

95

2050

GDP growth prospects: China Vs. major developed countries

80%

GDP per capita: China/the average of UK, France, GDP/GDP Germany and Japan

70%

60% 44% 40% 39%

60%

GDP/GDP

26%
20% 23%

GDP per capita: China/US

11%
10% 0%

2010

2015

2020

2025

2030

2035

2040

2045

2050

The core of new strategy is to transform the government roles

To achieve the vision, China needs to accelerate the adjustment of the existing development strategy. The core measure is to transform government roles and to redefine the relationship between the government and the market, enterprises and society. When a catching-up economy gradually close to technical frontiers, government should reduce or even exit from the directly intervention in the allocation of resources and play a greater role in providing public goods and services, partly because of increasing uncertainties. More important is to provide invisible public goods and services including institutions, regulations and policies.

Major characteristics of new strategy

More emphasis on improving the quality of growth while continuing to raise the income level To achieve a more balanced and sustainable growth To strengthen the innovation and creativity To fully exploit the potential of human resources To pay more attention to combined effects of market, the rule of law, values and moral

Therefore, the report proposed six pillars of the new strategy

Pilliar1:Structural reform for a market-based economy with sound foundations

State-owned capital should be used solely or mainly for the provision of public goods and services, which range from national defense at one end to infrastructure, reliable energy supply, postal service, social protection, and basic R&D at the other end The government should securitize its implicit equity in SOEs and strengthen the management and oversight on the state-owned capital and the use of its return. To reduce barriers against entering into the strategic industries for the private enterprises and enhance competition and efficiency

Pilliar1:Structural reform for a market-based economy with sound foundations

Financial sector: promoting the liberalization of interest rate step by step, regulating capital markets and reshaping the financial regulatory framework. Labor market: accelerating the reform of household registration system, improving labor force participation rate, and revising polices on employment, wage-setting, social security and tax. Land market: improving the agricultural land expropriation to protect farmers' interests, increasing the efficiency of land use, and reducing the reliance of local government on land-related income.

Pillar2: speeding up innovation

There is no significant impacts on boosting productivity purely through increasing the R&D expenditure share in GDP. Government should pay more attention to institutional reforms instead of the development of specific technologies. Encouraging large-scale private enterprises to play the leading role in the industrial innovation, while actively promoting the development of innovative SMEs. Attracting more multinationals to set up local R&D institutions, which will help to the upgrading of domestic industries

Pilliar2: speeding up innovation

Increasing the proportion of universities and research institutions which are engaged in basic research, and improving the research capacity of universities through further opening-up Strengthening vocational training and improving the quality of human capital Developing the innovative cities

Pillar3Seizing the Opportunity of Green Development

To recognize that green development can bring about new opportunities to accelerate technical breakthroughs and sustain growth, in stead of additional burden. Green sources of economic growth:

Traditional sectors grow greening New green industries Emerging service industry for green products and services

Pillar3Seizing the Opportunity of Green Development

Advantages: available technology, markets, advantage of backwardness, resources, industrialization The key is to play the role of government appropriately and form the long-term incentives to promote green development in accordance with market mechanism.

Pillar 4Equal Opportunity and Basic Security for All

Income inequality in China is attributed to both the human capital diversity and the inequality of opportunity related to employment, social security and other basic public services and social mobility. To implement social policy for development because each person is regarded not only as a consumer, but also as a producer and innovator

Pillar 4Equal Opportunity and Basic Security for All

Strengthening the development of human capita and the provision of basic social welfare (but avoiding welfare dependency); improving the opportunity equality related to education, social security, employment and business; giving full play to each person's potential. Most important is to improve institutions related to pension, health care, education, employment, etc.

Pillar5Establishment of the sustainable financial system compatible with the transformation of government functions

The share of China's fiscal revenue in GDP has been not low and the potential to increase further is limited Key reforms:

Adjusting the structure of fiscal expenditure to make it compatible with the transformation of government functions Addressing the mismatch between fiscal resources and expenditure responsibilities of local government Improving the efficiency of revenue mobilization Strengthening fiscal discipline

Pillar 6Achieving mutually beneficial relations with the rest of world

Key PrinciplesOpen markets, fairness and equity, mutually beneficial cooperation, global inclusiveness, and sustainable development Major fields to open up further
Upgrading industrial chains and opposing trade protectionism. Services liberalization to promote domestic competition Speeding up the outwards direct investment and promoting the development of transnational corporations in China Steadily liberalization of capital account and internationalization of the RMB Recognizing the importance, conditions, transparency and safeguards of foreign aid

Pillar 6Achieving mutually beneficial relations with the rest of world

With the improvement of national status and per capita income, China, as an important stakeholders among global governance arrangements, will be in line with the mutual interests of China and other economies

Participation in global governance will be an process of mutual adaptation between China and the rest of world. Large scale of economy but low per capita income Participating the rule-makings and reforms related to international trade and capital flows Promoting the global climate negotiations and the reform of the international financial system

Overcoming resistance and strengthening coordination to implementing reforms

Sequencing reforms: highest priority should be placed on the reforms in the fiscal, financial and enterprise sectors, which boost reforms in other fields. Overcoming opposition to reform: vested interests, those whose are likely to be hurt from reform, opinion makers. It is necessary to find a proper balance among various stakeholders in order to get full support to reform

Overcoming resistance and strengthening coordination to implementing reforms

To effectively promote the reforms and ensure the ultimately successful implementation of the new strategy, it is essential to not only have a strong leadership of the central government, but also to encourage local and grass-roots reform experiments. Focus on management of macroeconomic and other risks during the process of transition and maintain a proper balance between the solution to short-term problems and long-term strategy

Thank you!