Li Shantong, Hou Yongzhi & Zhai Fan

In order to facilitate the study and research on the 10th Five-Year Plan, our center, in collaboration with the relevant units, organized an international seminar on the growth potential of the Chinese economy, and made a computer simulation model estimation.The majority of experts believe that Chinese economy will continue to maintain its fast-growth potential in the medium and long term. The following is a summary of the seminar and could be used as reference for decision-making.

I. In the past 20 years, the fast growth of Chinese economy was stimulated mainly by rapid capital accumulation and fast improvement in economic efficiency.

From the long-term view, the potential driving force for economic growth is decided by the improvement, both in quality and quantity, of the productivity, capital and labor force and their utilization efficiency. In the past 20 years, the rapid accumulation of capital and the improvement in productivity accounted for the lion’s share in the contributions to the fast economic growth of China, the contribution by the aggregate of labor force was small, but the contribution made by the re-organization and distribution of labor force was noticeable. From 1978 to 1997, capital input contributed to nearly 60% of China’s economic growth, the contribution by the improvement in productivity was 30%, but the contribution by the expansion of the aggregate labor force accounted for merely about 12%.

1. Rapid growth of capital input

From 1978 to 1998, China’s investment rate had always maintained at about 35%, and during about half of this period, investment rate was close to or exceeded 40%. Rapid increase in residents’ income and a strong savings inclination among the residents were one of the reasons that gave rise to the high investment rate. From 1980 to 1998, the year-end outstanding amount of various savings of the financial institutions increased from 160 billion yuan to 9,569.8 billion yuan. Of this amount, the year-end savings balance of residents increased from 40 billion yuan to 5,340.7 billion yuan, its percentage in the total amount increased from 25% to 56%. The second reason was the large inflow of foreign capital lured by the preferential policies. From 1979 to 1998, the accumulated amount of foreign capital utilized totaled US$406.7 billion.

2. Improvement in productivity

The improvement in productivity in the past 20 years was first credited to the optimization of resources allocation advocated by the reform and opening up policy, and secondly credited to the contributions made by enterprises’ micro-efficiency improvement, technology advance, and premium effect of foreign capital and foreign trade caused by marketization. To be specific, the following factors contributed to the improvement of productivity: First, technology advance increased the technological content of capital and increased the output level of the same amount of capital; Second, the improvement in the national education level increased the technological content of labor and the output level of the same labor force; Third, reform promoted the reasonable flow of resources, particularly labor resources, among departments and regions, improved the allocation efficiency of resources and strengthened enterprises’ motives in seeking the maximum profits. Of the average annual growth rate of 9.8% from 1978 to 1997, the contribution by the transfer of rural laborers was one percentage point; Fourth, the inflow of foreign capital made up the deficiency of domestic capital supply, increased the aggregate capital input. Advanced foreign technologies and advanced management expertise also came with the inflow of foreign capital, which promoted the formation of a competitive mechanism and improved the competitiveness of domestic enterprises in both the domestic and international market.

II. In the medium and long term, Chinese economy will continue to maintain its momentum of fast growth.

In the past few years, the growth rate of Chinese economy slowed down year by year, from 14.2% in 1992 to 7.1% in 1999. Some people, based on this decline, consider that Chinese economy has driven out of the fast lane of fast growth and has entered a period of slow growth. The majority of experts believe that in the medium and long term, Chinese economy will continue to maintain its fast growth, but its growth rate will be lower than the average level in the past 20 years. Chinese economy has just bid farewell to supply shortage and a structural surplus of products, the long-term process of the economic growth is still affected by the supply and demand. However, research indicates that in the medium and long term, the fast growth of the Chinese economy still has great potential in both terms of supply and demand.

1. Supply

(1) It is estimated that the investment rate in the coming 10 years may continue to maintain at the present level – 35-40%. The continuing increase in residents’ income will lead to rapid increase in residents’ savings. Although influenced by the aging trend of population, the strong savings inclination among the residents will not undergo remarkable changes. The stable political and economic environment and the huge market are of great attraction to foreign investors, the standardization and transparency of foreign capital policies after the entry into the World Trade Organization will further build up confidence of foreign investors in the Chinese mainland. From the long-term point of view, the inflow of foreign capital will continue to maintain the momentum of rapid increase.

(2) Along with the development in education and urbanization, the quality of the labor force will constantly improve. In the coming decade, major contradiction in the field of supply and demand of labor is the fast increase of the labor force against the aggravated employment pressure caused by the adjustments of economic structure.

(3) The implementation of the “invigorating the nation through science and education” strategy will, at the time of improving the quality of the laborers, increase the state’s technological innovation capability. The opening-up policy will, at the time of introducing foreign capital into the country, also introduce advanced foreign technology and management expertise. As a developing and technologically backward country, China has a huge potential for technological advance. The contribution to the economic growth by technological advance is expected to maintain or surpass the performance in the past 20 years.

(4) China’s industrialization has not completed yet, the “dual structure” of the economy still exists widely, the reasonable transfer of resources, particularly labor resources, among departments such as the transfer of labor force from agriculture to the non-agricultural sectors, will lead to the further improvement in productivity and the growth in the gross national output.

(5) Along the improvement in the market economic structure and the expansion and deepening of the opening-up policy, competition among enterprises will intensify, and this will ultimately lead to the improvement in the efficiency of the overall economic activities.

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