CEWC ensures stability and prioritizes high-quality development

2023 has witnessed the commencement of the principles outlined in the 20th National Congress of the Communist Party of China. Notwithstanding various challenges, China was able to achieve a year-on-year real GDP growth rate of 5.2 percent during the first three quarters. It is expected that the growth target of 5 percent mentioned in the Government Work Report will be successfully realized. In light of these developments, the annual Central Economic Work Conference (CEWC), which was held in Beijing from December 11 to 12, has strategically crafted the economic work for the upcoming year, with a steadfast emphasis on ensuring stability and prioritizing high-quality development.

In the past decade, China has demonstrated its capability to ensure high-quality economic development while maintaining consistent productivity growth. One of the core indicators to capture the quality of economic development is the growth rate of total factor productivity, which research findings indicate has remained stable in China, hovering at around 2 percent in the last decade, even with a slight decrease in GDP growth rates. The continuous advancement of total factor productivity echoes the tenets posited during the CEWC that affirm the unwavering long-term economic progression of China, thereby instilling us with confidence about sustained growth.

Centered on the objectives of consolidating stability and fostering high-quality economic development, the conference underscored several crucial facets of economic work, including innovation-driven development towards a modern industrial system, deepening reforms in key areas, and the ongoing and effective prevention and diffusion of risks.

The first aspect outlined in the nine priorities listed in the CEWC underscores the pivotal role of innovation in the pursuit of a modern industrial system. Innovation has increasingly become a determining factor for sustained and high-quality economic development, marking a notable departure from China’s previous investment-driven growth pattern. Research based on above-scale manufacturing firms in China reveals that by increasing the proportion of firms participating in research and development investment from 12.2 percent to 20 percent, the corresponding aggregate total factor productivity growth rate would rise by 0.86 percentage points. Given the consistent 2 percent total factor productivity growth rate in China over the past decade, an unyielding commitment to deepening innovation will significantly enhance China’s productivity.

While the CEWC mainly emphasized the importance of innovation in the manufacturing and industrial sectors, it is noteworthy that implicit innovation requirements towards services can also be discerned. For instance, in the pursuit of a modern industrial system, producer services, which are responsible for providing inputs to the industrial sector, necessitate corresponding innovation. Studies have documented an impressed growth of producer services over the past decade, and the total factor productivity growth in producer services is even higher than that of the industrial sectors, thereby indicating the high-quality development within producer services. Besides, the conference also implicitly presented certain requirements for the innovation of consumer services, which include industries that can enhance consumers’ access to goods, such as retailers or restaurants, or provide services that are directly consumed by households, including recreational, healthcare, and community services. For example, the CEWC placed emphasis on fostering new engines of growth in areas such as cultural tourism and sports events, all of which bear close relevance to consumer services.

Innovations should not only be limited to enterprises. Government reforms should also be recognized as important innovations that act as powerful drivers for promoting high-quality development. The emphasis of the CEWC on deepening reforms in various areas precisely captures the ongoing innovative work that needs to be carried out by governments. The reform of the commercial system serves as an illustrative example for quantifying the effect of reforms on economic growth. Studies show that the reform of the commercial system facilitates the entry of small and medium-sized enterprises, especially into tertiary sectors, by reducing market entry barriers. Specifically, each reduction in the number of licenses required to establish a firm led to an approximate 0.5 percentage point increase in the share of new entrants in the tertiary sector. The reduction in the time spent on licenses and registration also exhibits similar effects. Moreover, the reform of the commercial system still needs to be further deepened to more effectively bolster the sustained growth of these entrants.

Achieving high-quality development and ensuring stability not only requires innovations by firms and governments to maintain a long-term growth trend but also necessitates proactively preventing and resolving risks in key areas through macroeconomic regulations. Notably, addressing the risk of local government debt is an important task highlighted in the CEWC. Research reveals that while the size of central government debt in China remained relatively stable over the past decade, the size of local government debt grew rapidly, impeding high-quality development. Quantitative analysis conducted in the aforementioned research suggests that imposing more prudential measures on local government debt can result in a 20 percent increase in long-term output in China.

In conclusion, ensuring a continuously stable growth rate and consolidating the high quality of developments are key objectives outlined in the CEWC for the year 2024. It is plausible to expect China to achieve the above goals through strengthening innovation, deepening reforms and guarding against risks, thereby laying a solid foundation for the Chinese path to modernization.

(The writer Chen Xilu, a special commentator on current affairs for CGTN, is an assistant professor at Lingnan College, Sun Yat-sen University in China. His research mainly centers on macroeconomics and Chinese economy.)