After the outbreak of the international financial crisis, more and more countries have realizes that the key problem facing the world economy is not a short-term financial crisis, but a problem with its economic structure.
Developed countries pushed forward re-industrialization and developed high-end manufacturing in an attempt to keep their leading positions in a new round of industrial revolution. Some emerging economies, taking advantage of lower costs than China, are embracing a shift of international manufacturing and striving to build new "factories of the world.”
In the past, China's economic growth mainly relied on low costs, external demand and extensive development. These conditions are not sustainable for economic growth.
China needs to accelerate the optimization and upgrading of its economic structure, enhance its capacity for scientific and technological innovation, deepen reform and opening up, and accelerate green development in order to participate in the reform of the global economic governance system.
To complete the task of implementing a change in economic quality, efficiency and growth drivers, China needs to reform in three aspects:
Optimize factor structure, improve factor productivity
As China's working population decreases year by year, increasing labor productivity is a key to economic growth. Labor productivity is improved through automation, and a lot of heavy and boring work is replaced by machines and robots.
China need to foster new drivers through innovation, and build up the momentum of the new industrial revolution. As innovation may cause risks and challenges for employment, it is important to better equip workers with the capacity to adapt to technological transformation.
Optimize demand structure and expand domestic market
China's economic growth was highly dependent on exports. Now, only by expanding domestic demand, especially consumer demand, can China's economy maintain steady and rapid growth.
In 2 minutes and 5 seconds, the turnover of "double 11" in 2018 exceeded 10 billion yuan ($1.48 billion) while 10 years ago, the daily turnover of "double 11" was 50 million yuan. Last year, the volume of transaction of online shopping platform Tmall alone has exceeded 200 billion yuan, showing a strong purchasing power of Chinese residents. The contribution of consumer demand to China's economic growth has been on the rise, and become the primary engine of the Chinese economy. In 2018, final consumption spending contributed 76.2 percent to China’s economic growth, 18.6 percentage higher than the previous year.
The market increment brought by the upgrading of consumption creates market opportunities for domestic brands.
Optimize industrial structure and promote "made in China" products to high-end markets
Big data, cloud computing and the Internet of Things (IoT) have been widely used, and new energy vehicles, industrial robots and intelligent manufacturing have emerged as new forces. China's industry is accelerating its digital transformation and upgrading. Emerging industries and high-tech industries are growing at an annual average rate of more than 10 percent, of which new energy contributes more than one-third. "Made in China" products are expanding their market share in high-end products in the world.
With the advantages of industry, markets and human resources, China is capable of completing the reform of its economic structure.
First of all, China has an integrated industrial system.
China's independently-developed large amphibious aircraft AG600 completed its first water takeoff and landing in the city of Jingmen in the central province of Hubei on October 20, 2018, after its maiden flight in December 2017. The entire aircraft has more than 50,000 parts, 98 percent of which are from domestic suppliers.
China is the only country in the world that has all the industrial categories in the UN industrial classification. It can produce everything from heavy equipment such as aircraft carriers and high-speed railways to daily commodities such as needlework and thread. China leads the world in the output of more than 220 major industrial products. The complete industrial system gives China incomparable advantages over many other countries in the optimization and upgrading of industrial structure.
Secondly, China has huge potential in its domestic market.
China is the world's second-largest economy with a population of over 1.3 billion and a land area of over 9.6 million square kilometers. China's domestic market is huge.
On the supply side, China's large market will provide massive data bases, diverse application scenarios and enough growth opportunities for new technologies and new forms of business. Mobile payment, express delivery, online shopping and high-speed rail are the Chinese innovations that foreigners most want to bring back to their home countries, according to online voting. All of these areas are growing and expanding with the help of the huge market.
The big data market is still growing: China will account for 20 percent of the world's data by 2020. By 2022, China will account for 24.3 percent of the global IoT market. By 2025, more than 50 percent of the global new energy vehicle market will be in China.
From the demand side, the demand for volume and quality is increasing. People are moving from the countryside by the hundreds of millions. The size of the middle-income group is 400 million people, the largest in the world, and still expanding. The Engel's coefficient of national residents — which measures the percentage of income spent on food — has dropped to 28.4 percent.
Communication, education, tourism, leisure, fitness and other emerging areas of consumption are developing rapidly, and the demand for diversification, personalization and high-end products and services is increasing day by day.
Last but not least, China has abundant human resources.
"It is very difficult to recruit a semiconductor engineer in his 20s in developed countries, but easier in China," said Wang Peining, vice-president of Shenzhen Pango Microsystems Co Ltd. "The demographic dividend is still there, and a new talent dividend is emerging, " he added.
A skilled labor force has been cultivated in China. Of the nearly 900 million workers, more than 170 million have received higher education or possess various professional skills. Each year, the labor market has more than 8 million college graduates and nearly 5 million technical secondary school graduates. The improvement of education level and the quality of the labor force will effectively offset the impact of the decline of the proportion of the labor force in the total population and will contribute abundant human capital to the optimization and upgrading of economic structure. There is also a large amount of foreign talent flowing into China.
The acceleration of optimization and upgrading of economic structure is an opportunity but also a challenge to China.
Structural problems are intertwined with cyclical fluctuations, and short-term risks are superimposed with long-term problems. Structural reform will be a long-term battle of resilience.
According to the Report on the Work of the Government in 2018, China should continue to regard supply-side structural reform as a main task; coordinate all work to maintain stable growth, promote reform, make structural adjustments, improve living standards, and guard against risk; work hard to reform and open up further; explore new ideas on and improve macro regulation; and promote a change in quality, change in efficiency, and change in growth drivers.
The Central Economic Work Conference held at the end of 2018 made a conclusion that China has five major tasks to complete: cut excessive industrial capacity, reduce inventory, urbanize migrant workers, de-leverage, lower corporate costs, improve weak links.
The above targets are fitting given the fact that China's economy is transitioning from a phase of rapid growth to a stage of high-quality development.
China is on the way and has made some progress in many fields.
China has improved its business environment. Improving the vitality of micro businesses requires sound market rules and an ideal business environment. China's world ranking for its business environment in 2018 has jumped to 46th place, 32 places higher than the previous year.
China has also improved weak links. For example, Suntown Technology Group in Hunan Province has now become a global supplier of light gauge aluminum foil under 0.007 millimeters in thickness, one tenth the diameter of a human hair. The group has won bargaining power in the international market by making technical breakthroughs in light gauge aluminum foil, which is widely used in food packaging due to its unique advantage of being bacteria-free, moisture-proof, recyclable and able to keep food fresh.
The technological breakthrough has linked the aluminum industry and packaging industry, which is an essential part of the food industry. Suntown made this good example of upgrading the industrial chain, which will create new competitive advantages through technological innovations to upgrade the quality of Chinese manufacturing.
The conclusion is that it is both an opportunity and a challenge for China to accelerate the optimization and upgrading of its economic structure to participate in the reform of the global economic governance system. But China has the confidence and ability to seize the opportunity to complete its economic restructuring.
(Written by Tian Junrong, Lu Yanan, Liu Zhiqiang, Zhao Zhanhui, Li Xinping, Ding Yiting and Han Xin; Compiled by Chi Jingyi)