By Ma Jiantang

Research Report Vol.20 No.6, 2018

As stated in the report delivered by President Xi at the 19th National Congress of the Communist Party of China (CPC), China’s economy has been transitioning from a phase of rapid growth to a stage of high-quality development. The report also stresses that “We must put quality first and give priority to performance. We should pursue supply-side structural reform as our main task, and work hard for better quality, higher efficiency, and more robust drivers of economic growth through reform.” Propelling China’s economy toward high-quality development holds the key to achieving the first centenary goal and putting in place the foundations for the delivery on the second centenary goal. We must take the concept of high-quality development as the overarching principle of our economic undertakings and firmly pursue a high-quality supply system as our main task.

I. What is High-quality Development?

High-quality development is to deliver products and services of good quality. In the socialist market economy, almost all economic entities produce for exchange. Products and services are made to meet the material and cultural needs of consumers and other producers. Therefore, the top priority of high-quality development is to continuously improve the quality of products and services. It has been proved by both history and reality that every economically strong entity, either as large as a country or as small as a long-established business, cherishes the quality of their products and services more than anything else. They focus on quality and create their brand to roll out superior products and services, while at the same time having established their own brand reputation and value. Obviously to promote economic growth toward the high-quality direction, we must fully implement the strategy of building China’s strength in product quality by refining quality standards, cracking down on counterfeit and substandard commodities, carrying forward quality workmanship, strictly controlling quality, encouraging product innovation, and ensuring the survival of the fittest.

High-quality development is to make supply well adapt to demand. In a modern market economy, supplies come out where there is a demand. It is the consumer and market’s call to decide whether a product or service is good or not. In the real world, there are massive, diversified types of demands that are also complicated and ever changing, which means that any supply is impossible to fit anything, anywhere, anytime forever. Pursuing high-quality development requires a supply-side structure that not only closely matches the demand side but also becomes adaptive to change with it as fast as possible to meet the growing, changing and diversifying demands. What’s more, we must also take advantage of technology innovation to bring about new supplies for new demands, to make supply and demand evolve with each other and eventually boost high-quality economic growth.

High-quality development is to use resources and factors of production efficiently. Creating superior products and services and other supplies that meet demands requires the consumption of multiple resources and the input of factors of production. In a modern market economy, both quality and cost matter. If a business wants to survive and gain a footing in the fierce market competition, it must provide products and services of high quality in a cost-effective manner. It is the outlook on efficiency in a market economy that a supply system must meet the corresponding demands with as few resources and factors of production as possible. As such, the key to promoting high-quality economic growth in China is to ensure better economic performance, more efficient resource allocation, and higher productivity of factors, including labor, capital, and land. In short, we should focus on the quality of outcomes while minimizing inputs. To achieve this, we must continue to push forward cleaner production, establish a circular economy, eliminate institutional and systemic barriers to effective resource allocation, and raise the resource allocation efficiency and total factor productivity.

High-quality development is to prevent systemic risks strictly. As the modern market economy is a complex system with extremely sophisticated environments, its uncertainty is inevitable. It is also common in the real world that components of an economic system do not go well with each other time and again, or its control portion malfunctions in operation. For any modern economic system, putting an end to all risks is just an ideal state which is very difficult to achieve in reality. What we should focus on is to take care of small risks before they escalate into big problems and to prevent systemic risks, which otherwise will result in a seriously disrupted, deteriorating economy and infringe on the interests of the people. Therefore, to act upon the new concepts of development and promote high-quality economic growth, we must put in place sound systems and mechanisms for risk identification, monitoring, control, prevention and handling.

II. What is the Impetus for High-quality Development?

The fundamental forces that drive high-quality development lie in technological innovation and institutional reform. To do this, we must fully implement the innovation-driven development strategy established by the Party Central Committee to provide new driving forces for high-quality development. We must also deepen the supply-side structural reform in all areas to continuously stimulate the vitality and creativity of various market entities.
There is no doubt that technological innovation is the fundamental driving force for the transformation and progress of human society. It comes down to those scientific theory-based technological innovations that have made human beings evolve from the Stone Age to the Bronze Age and the Iron Age, then to the steam-powered and electricity-powered ages, and into the post-industrial society. Thanks to the three great technological revolutions in human history, we are now ushering in the modern information society represented by computers, the Internet, artificial intelligence, and digital economy.

There are two ways to drive high-quality development by technological innovation.
First, create new products and services of better quality. The emergence and application of new technologies always bring about new materials, powers, processes, and products. In telecommunications, generations of devices used for communication have come into being over the years, the new replacing the old, from the beeper to the first handheld mobile phone, and from the feature phone to the smartphone. Smartphones have also become the terminator of color films, ordinary cameras, tape recorders, and mp4 players. Examples of this change are seen everywhere. Online retailers are bringing challenges to brick-and-mortar stores. People are turning to use WeChat rather than SMS to communicate. Online financial product platforms are taking customers away from banks. Horsepower became the substitute for human power, and was then substituted by electric power. Fossil fuels are giving way to renewable energy. Besides stone and wood, breakthroughs in materials science have given birth to various types of materials from steel and cement to new nanomaterials, flexible materials, and magnetic materials. All these are the outcomes of technological change. New products come together to establish new industries and new services to create new forms of business, both of which have facilitated the transformation and upgrading of industries and the optimization of industrial structures.

Second, improve the productivity of factors of production and the efficiency of resource allocation. The increase in labor productivity relies on the evolution of motive power and the utilization of machines, robots, and processing centers in production. The increase in land productivity comes from the cultivation of improved varieties, the improvement in soil, the popularization of irrigation techniques, and the precision of fertilization. In the economic sense, resource allocation mainly focuses on how to allocate productive resources among sectors, regions, and organizations, and works on questions like what and how much to produce, and where and whom to produce for. This is not only a matter of designing the guiding mechanism and dynamic mechanism for resource allocation, but also a matter of solving information uncertainty and asymmetry. With the advancement and transformation of information technology, innovative technologies, especially the Internet, big data, and cloud computing, are connecting massive demands with diversified supplies to continuously minimize the uncertainty of economic activities and greatly improve the efficiency of resource allocation.

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