Improving economic growth quality

While China has made historic leaps, further transformation is needed to further improve people's lives

China's economy has reached a key phase of transformation. The need to improve the quality of economic growth is increasingly urgent. To do that amid challenges and restrictions, China needs to depend on not only its own efforts, but also draw on international experience.

Although major economies have helped promote recovery since the global financial crisis, the world economy has not fully healed. It is key for humankind to foster new driving forces for growth, and to improve the quality of that growth.

China has achieved remarkable growth since its reform and opening-up that began in the late 1970s. Its economy keeps expanding and the quality of its growth steadily improves. There are at least four points worth emphasizing about China's economic growth quality.

First, economic efficiency has increased by a large margin. Economic reform promoted the free flow of production factors, and opening-up expanded resource distribution. Reform of state-owned enterprises boosted efficiency. Much research done at home and abroad on China's productivity says its rise has been one of the fastest in the world in the past three decades. According to research from the University of Pennsylvania, the 1980-2011 average annual growth rate of total factor productivity surpassed 3 percent.

Second, intensive use of resources and energy improved remarkably. From 1978 to 2013, China's energy consumption per unit of gross domestic product decreased by 4 percent on average each year. Without that, China would have used another 11.2 billion tons of standard coal last year based on its GDP, three times the actual consumption that year.

Third, the stability of growth improved markedly. From the late 1970s to the mid-1990s, China's growth fluctuated considerably. GDP grew at 11.7 percent in 1978. The pace dropped in the following three years to 5.2 percent in 1981. It picked up again and hit 15.2 percent in 1984, the highest in more than 30 years. Big fluctuations caused a huge waste of social wealth.

Since the mid-1990s, China has improved macro controls, stabilizing growth. Except for 2008, when the global crisis hit, the gap in China's growth between two connecting years is within 1.6 percentage points.

Fourth, more and more people benefit from China's growth. From 1981 to 2010, China lifted over 670 million people out of the daily $1.25 poverty line of the World Bank, contributing more than 93 percent to global poverty alleviation during that time. China's urbanization ratio rose from 17.9 percent in 1978 to 53.7 percent last year. The permanent urban resident population rose to 710 million from 130 million. Hundreds of millions of rural residents are sharing the fruits of modernization and industrialization.

However, there are many outstanding issues concerning the quality of China's economic growth.

First, some growth has not been intensive enough. Resources, labor and capital used for each unit of its GDP are comparatively higher than in developed countries. A 2012 World Bank report found China's labor productivity lower than in half of the countries of the Organization for Economic Cooperation and Development. China still has wide gaps among industries and regions. The labor productivity of Jiangsu province in East China is 3.2 times that of Yunnan province in Southwest China, for example. Second, China needs to make its growth more environmentally friendly. China's per unit GDP energy consumption is 2.1 times the world average and 2.9 times that of developed nations. Pollution is so serious that fresh air is regarded as a luxury for residents in Beijing, Tianjin and Hebei province.

Third, the foundation for steady economic growth is not solid enough. China built the basic framework of a market economy with more than 30 years of reform. But China still needs to deepen its understanding of market economies, improve its ability to play up the market's role, and cultivate its foresight of future trends. When the economy fluctuates, the Chinese government always tends to resort to administrative means to stabilize growth, which can meet short-term targets while aggravating structural conflicts, such as industrial overcapacity and risks in government debt and the financial sector.

Fourth, China should work to have more people enjoy the fruits of its growth fairly. The national wealth distribution structure is not rational yet. The proportion of labor compensation within the GDP is too low. It was only 47 percent in 2011, compared with more than 62 percent in the United States and France. At the micro level, there is a big income gap among different groups. According to the National Bureau of Statistics, the Gini coefficient, an index measuring income gaps, started falling slowly in China after 2008. But it still stands at a high level of 0.473, above the international warning line of 0.4.

Chinese leaders pay special attention to these issues. President Xi Jinping stressed that China needs to speed up improvements in people's livelihood, create jobs, increase productivity, improve economic vitality and adjust structures. It should be a kind of speed that will not cause negative aftereffects.

China has taken measures to improve its growth quality under Xi's direction. China will combine the market's "invisible hand" and the government's "visible hand" to let the market play a decisive role in allocating resources, and let the government fulfill its legal responsibilities. Many reform plans made by the Third Plenum and the Fourth Plenum of the 18th Communist Party of China Central Committee are relevant to growth quality.

We have taken the following measures to boost growth quality.

First, China's government reduced its direct distribution of resources. In the past two years, the State Council has abolished or delegated more than 600 administrative approvals. China created the China (Shanghai) Pilot Free Trade Zone to give foreign capital pre-entry national treatment and implement a "negative list" model. Xi stressed that experience gained in the Shanghai FTZ should be spread widely as soon as possible.

Second, the Chinese government has boosted environmental protection. The State Council issued the first Air Pollution Prevention and Control Action Plan in 2013, vowing to improve overall air quality, and cut heavy pollution days in five years. The central government has spent 15 billion yuan ($2.3 billion) addressing air pollution in Beijing, Tianjin and Hebei. Chinese leaders say China's carbon emissions would peak around 2030.

Third, China's government is paying more attention to playing up market mechanisms to respond to economic fluctuations, and making differentiated and precise adjustments to serve the healthy growth of economy. These new changes avoid the productivity losses caused by excessive government interference, and the loss in fairness caused by sweeping adjustments.

Fourth, the Chinese government is accelerating reforms on national wealth distribution and the household registration system or hukou. The government will deepen national wealth distribution reforms to let incomes increase at the same pace as economic growth, and so that labor compensation rises together with labor productivity. In response to unhappiness with the high earnings of state-owned enterprises' senior executives, the government also made plans to regulate them. To let more rural people enjoy the bonus of China's growth, the government also plans to reform the hukou system.

I would like to emphasize three points on improving growth quality.

First, China should continue its opening-up while globalizing. Second, China should regard innovation as the fundamental force to improve growth quality. The government needs to create new resource distribution systems, and concentrate its power in making technological breakthroughs relevant to growth quality, while mobilizing society to innovate. Third, the government needs to strengthen the rule of law. It should work according to the statement of the Fourth Plenum of the 18th CPC Central Committee, and use the laws to ensure the market plays a decisive role in allocating resources while making better use of the government's role, and guaranteeing efficient and fair operation of the market.

The author is director of the State Council Development Research Center. The views do not necessarily reflect those of China Daily.