By Li Wei

Research Report Vol.20 No.2, 2018

The Central Economic Work Conference stressed that “As socialism with Chinese characteristics is entering a new era, so is China’s economic development”. This is a major judgment on the change in the stage of China’s economic development – a fundamental starting point for determining the approach to economic development, formulating economic policies and exercising macro-control at present and in a period to come. I have the following points to make regarding how to understand and perceive the entry of China’s economic development into a new era.

I. The Judgment that China’s Economic Development Has Entered a New Era Is Based on the Evolution of the Principal Social Contradiction

The Report to the 19th CPC National Congress points out that with protracted efforts, socialism with Chinese characteristics has entered a New Era. The assertion is primarily based on the fact that the principal contradiction facing Chinese society has evolved into the contradiction between unbalanced and inadequate development and the people’s ever-growing needs for a better life.

The principal contradiction determines the basic direction of the development of things. Tackling the principal direction is the primary methodology of Historical Materialism, as well as an important lesson our Party has learnt in governing and invigorating China. Whether we can accurately identify and tackle the principal contradiction is related to the success of the cause of building socialism. In this aspect we have both successful experiences and profound lessons.

In the early years of new China, our Party set itself the task of “steadily transforming from an agricultural country to an industrial country.” As was the case, China was still a typical backward agricultural country. Its modern industrial economy accounted for about one-tenth of the GDP, the per-capita GDP was approximately USD 30, the per-capita electricity generation was 7.9 kWh, the per-capita steel production was 0.29kg, the enrolment rate of school-age children was only 20% and the per-capita life expectancy was around 35. In these circumstances, the priority of economic development was to meet the people’s basic material need of existence. In view of this, the 8th CPC National Congress pointed out clearly that “our principal contradiction at home is already the contradiction between the people’s demand of building an advanced industrial country and the reality of being a backward agricultural country; and the contradiction between the people’s need for rapid economic and cultural development and the current inability of economy and culture to satisfy the people’s need.” The judgment was in accord with the actual circumstances and thus promoted the progress of economic construction. Later, there were once some misperceptions and distorted views of the principal social contradiction, which had negative impact on national construction and development.

After the end of the Cultural Revolution, the CPC resolutely made the decision to shift the focus of the Party and the government’s work onto socialist modernization and the implementation of Reform and Opening up. The historic shift resulted from the Party’s calibrated perception of the principal social contradiction. In 1981, the Sixth Plenary Session of the 11th CPC Central Committee officially summarized the principal social contradiction as “the contradiction between the ever-growing material and cultural needs of the people and the backwardness of social production”. Taking note of the strategy of prioritizing the heavy industry and neglecting the light industry formed in the circumstances of planned economy and the issues such as long-term negligence of developing consumer industry, institutional rigidity, material shortage and scarcity in the people’s life, the state swiftly adjusted the priorities of economic development and launched the reform of socialist market-oriented economy; moreover, taking advantage of the opportunities in the new round of global industrial restructuring in the late 1970s and early 1980s, it resolutely implemented the opening-up policy, thereby stimulating the vitality and vigor of Chinese and economy and creating miracles of economic growth rare at home and abroad in all times.

Reform and Opening up has won universal support of the masses of the people. After four decades’ development, the problems of scarcity, poverty and shortage facing China’s economic development, namely the “have-not” problem, has generally been resolved. With its GPD securing the second place in the world, the people’s life improved significantly and the per-capita GDP approaching USD 9,000, China has fundamentally shattered the wrong assertion that “shortage economy is the main feature of socialist economy” and greatly raised its status in the world. However, as Deng Xiaoping said in his late years, “The issues China will face after it is developed will not be less than when it is developing.” China’s economic and social development has gradually shown many new historical features. On the basis of summarizing these features, the 19th CPC National Congress has revised the statement on the principal contraction facing Chinese society, stressing that the principal contradiction facing Chinese society has gradually evolved into one between unbalanced and inadequate development and the people’s ever-growing needs for a better life. This is the first official revision of the statement of the principal social contradiction, hence it has epoch-making significance and adequate practical and theoretical basis. To understand the new contradiction, it is essential to understand “unbalanced” and “inadequate”.

“Unbalanced” is about the issues of the economic and social system or structure, mainly including unreasonable proportional relations, insufficient inclusiveness and inadequate sustainability, which have constrained the overall improvement of productivity. Major manifestations of being “unbalanced” include: an imbalance between real and virtual economies – the added value of China’s financial sector has accounted for the highest percentage of the total GPD among main economies, exceeding the United States and Britain where finance is highly developed and showing a distinctive tendency of investing more funds on virtual economy but ignoring real economy; an imbalance of regional development – the gap between different regions had gradually shrunk after 2006 but has been widening in the past two to three years; an imbalance of urban and rural development – in 2017, the per-capital disposable income of urban residents was 2.71 times more than that of rural residents; an imbalance of income and distribution – the year 2017 saw China’s Gini coefficient at a relatively high level of 0.4677 and still on the rise in recent years; an imbalance of economic and social development – there have been quite a few troubling and concerning issues for the people in health care, education and elderly care; and an imbalance of economic and ecological development—China is faced with adverse challenges in air, water and soil pollution.

“Inadequate” is about the aggregate and level of development, chiefly referring to the issues of underdevelopment, inadequately tapped potential, numerous weaknesses in development, and considerably lower level, particularly per-capital level, of development, than world advanced countries. Inadequacy manifests itself in many ways: competition is not fully competitive—there are restrictions on market access and occasional cases of administrative monopoly and ownership discrimination; efficiency is not perfect – the efficiency of capital investment decreases year by year and the total factor productivity is only about 43% that of the United States; potential is not fully unleashed – China’s per-capita GDP is only 14% that of the United States and 25% that of the EU countries and there is still huge room for improvement; effective supply is inadequate – as the upgrade of the resident consumption structure accelerates, the supply capacity of new products and new services cannot catch up; dynamic transformation is inadequate – the pattern of innovation-driven growth has not truly come into being; and institutional innovation is inadequate – an institutional environment beneficial to innovation, coordination, greenness, openness and sharing is still in the making.

The primary contradiction concerns the overall situation. The change to the primary contradiction determines the direction and priorities of China’s economic work. All work should revolve around how to resolve the main contradiction properly.

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