New pattern driver of high-quality development

The dual-circulation development strategy, which takes the domestic market as the mainstay while letting domestic and foreign markets reinforce each other, was devised amid China's uneven development－not only between eastern, central and western regions, but also between north and south as well as between city and country.

We have made great achievements since reform and opening-up, but China is still a developing country, with obvious unbalanced and inadequate development inherent in a developing country.

How to solve this? Dual-circulation development is a very effective strategy. We must take the domestic cycle as the mainstay and let the domestic and international cycles promote each other to build a new development pattern. For the domestic cycle, the key task is to increase domestic demand, especially household consumption. But this cannot happen overnight.

To boost consumption, we must first ensure employment. To stabilize employment, we need to energize market players to ensure enterprises survive COVID-19. Facing a once-in-a-century pandemic, we must use a prudent monetary policy to help enterprises, and provide them diversified financing channels so that enterprises can operate normally to guarantee employment.

There are two measures. One is using a prudent monetary policy to help protect market entities and stabilize employment so as to stimulate household consumption slowly over the long haul. The other is to increase disposable incomes. Only when the proportion of after-tax income to total income increases can residents truly enjoy the dividends of reform to further stimulate domestic demand. To achieve this requires the government to reduce taxes and fees, and reduce operating and living costs of businesses and residents.

Moreover, tax cuts and fee reductions require the government to make up the difference via proactive fiscal policy. Therefore, proactive fiscal policy is used in conjunction with a stable monetary policy to work together to stimulate domestic demand and increase consumption.

In 2007, exports accounted for about 32 percent of the nation's gross domestic product, the highest level ever recorded. The ratio has declined to about 18 percent currently. As China's GDP grows, the proportion of exports to GDP will decline until reaching an equilibrium point wherein imports and exports together account for about one fourth of the GDP.

In other words, China will remain the world's largest exporter, with the amount of exports increasing. As labor costs rise in China, its comparative advantages in labor-intensive industries is weaker, but that doesn't mean the role of exports in the economy is declining. Meanwhile, exports from capital-intensive industries such as mechanical equipment and electric devices are growing and have replaced labor-intensive exports to become the most important components of exports.

China's exports have performed well with good growth momentum. If you look at things from a longer term perspective, what are the comparative advantages of China's exports?

Before 2008, China's labor costs were relatively cheap, and the proportion of exports to GDP remained at high levels for an extended period.

However, since 2008, China's labor costs have been rising, and wages are no longer low.

If compared with the United States, China's labor costs are of course cheaper. However, China and the US export different products to each other, and it is not the US that is competing with us for the markets in the US or other developed countries, but instead other emerging industrial countries, mainly in Southeast Asia.