Liu Shijin

Economic restructuring involves many issues and the following opinions are hereby put forward with regard to the goals, the main theme and principles that need to be followed and the status of the government in economic restructuring.

I. The goals of the new round of structural adjustment are to obtain the driving force for economic growth and to establish a self-adjustment mechanism.

The structural adjustment is one of the basic factors facilitating economic growth. In a sense, economic development is realized through regular structural adjustment and transformation. The structural adjustment leads to the formation of a new point of economic growth on the one hand and downsizes backward production capacity on the other hand through technological progress, industrial transformation, as well as the innovation of the system and organization, thus providing a driving force for further economic growth. The structural adjustment is often characterized with distinct periodic features. A major economic restructuring is a catalyst for the formation of a new period of economic growth.

The new round of structural adjustment in the “Tenth Five-Year Plan” period has different characteristics from those of past periods.

First of all, it is a restructuring, which comes at the end of the period of scarcity-induced economy and an oversupply of traditional industries, aims at promoting industrial upgrading. In order to maintain a relatively high growth rate of the national economy over a fairly long period in the future, a number of new fast-growing industries must be cultivated through industrial upgrading after industries of former high growth showed signs of less dynamic development.

Second, it is a restructuring aimed at increasing international competitiveness when the trend of economic globalization has been accelerated and our country is set to join the WTO. The pros and cons of the entry into the WTO depend largely on reforms of systems and structural adjustment at home. Through structural adjustment with “advances and backing offs,” the comparative advantage of our country should be brought into full play so as to raise the overall international competitiveness.

Third, it is a restructuring aimed at promoting technological upgrading when technological progress has been accelerated and is currently exerting a revolutionary impact on the overall economy. The following issues must be resolved with much of our efforts in the next round of restructuring --- to develop new and hi-tech industries so as to narrow the technological gap with developed countries in some key areas; to transform traditional industries with new and high technology; and to establish a mechanism of technological renovation and application based on enterprises and market.

Fourth, it is a restructuring aimed at forming a new mechanism for structural adjustment when major progress has been achieved in establishing a mechanism of a socialist market economy and the reform has entered the most formidable period. The irrational economic structures of China and their constant deterioration stem largely from the deep-rooted contradictions and problems left over from the old system and those that have newly emerged during economic transformation. A remarkable feature of the new round of structural adjustment is to pay attention not only to the structural adjustment itself, but also to the formation of a new mechanism for structural adjustment.

Based on the above-mentioned characteristics, two basic goals should be set for the new round of structural adjustment: one is to realize structural adjustment through promoting industrial and technological upgrading as well as increasing international competitiveness, so as to maintain a relatively high growth rate (presumably 7-8%) over a fairly long period of time (presumably around 10 years), the other is to accelerate transformation and construction of systems during the readjustment, so as to establish a new self-adjusting mechanism that can respond actively to structural contradictions.

II. Industrial upgrading and urbanization is the main theme of the new round of structural adjustment.

The following are major structural contradictions existing in China’s economy at the present stage.

First, the contradictions between the three industries. The proportion of the secondary industry is excessively high in terms of output while that of the tertiary industry is too low. The primary industry has an excessively high proportion in terms of employment, while nearly half of the labor force remain in the area of agriculture.

Second, the contradictions between urban and rural areas. The urbanization process lags behind the process of industrialization. Some industrial enterprises (particularly those township enterprises that emerged in the 1980s by "departing from farm land without leaving the hometown") failed to take full advantage of the agglomerative effect of cities. The urban structures are not rational in terms of types and functions.

Third, the contradictions between different regions. The gap of development between coastal areas in southeastern China and central and western areas continues to widen, and there is a serious imbalance of development inside some provinces and regions. Products and market of production factors are separated in some industries and regions.

Fourth, the contradictions between products and production capacities. Low-tech and low value-added products are in oversupply with an excess of production capacities. High-tech and high-value-added products are in short supply with insufficient production capacities. Oversupply coexists with shortage of supply.

Fifth, the contradictions in industrial structure. The production capacities are excessively redundant and segmented at low levels, and most of them failed to meet the requirement of scale economy. The division of specialization and social coordination remains at a low level. A rational structure of enterprise groups has not yet taken shape.

Sixth, the contradictions in the consumption structure. The general demands for eating, clothing and daily consumption of urban residents have been basically satisfied. The upgrading of consumption structures with emphasis on housing, transportation and other service consumption aimed at improving the living standard has met system and policy barriers, which led to a “consumption fault”. In rural areas, some kind of consumption can hardly be realized due to lack of supportive infrastructure facilities.

Seventh, the contradictions in financial structure. Financial institutions and instruments failed to adapt themselves to the development of economy with diversified forms of ownership. The financial structure dominated by state-owned banks mainly provided services to traditional state-owned enterprises, particularly large-scaled SOEs. The non-state-owned enterprises, small and medium-sized enterprises and some fast-growing high and new-tech enterprises, which have played an increasingly important role in the economy, can hardly obtain effective financial services.

Eighth, the contradictions in the structure of ownership. The operation of the national economy is still overextended, and the adjustment tasks of “advances and backing offs” remain arduous. A mechanism of “effectively mobilizing social forces for investment” has yet to take shape. The organizational form of corporate assets has to be standardized and improved.

...

If you need the full context, please leave a message on the website.