There is still much work to be done to promote sustainable growth in China.
First, great peaks and valleys in economic development should be prevented.
Recently, there has been a lot of discussion over whether or not China's macro-economy is overheated. The spectacular growth rate by itself is not enough to justify such a conclusion. We also must check whether the current rate of economic development can be maintained.
China's economy is still investment-driven. But the increase in fixed-asset investment, which greatly promoted economic development over the past few years, cannot maintain the 26.7 per cent growth rate it achieved last year. The potential for such a growth rate in fixed investment has been almost exhausted. Research shows that some industries and regions are actually haunted by excessive investment.
Thus, action should be taken to stem this unhealthy trend. Irrational investment aided by those in administrative positions and redundant investment should be reined in.
Fast, stable and sustainable development is the basic characteristic of the new economic trend we are trying to sustain. The central bank has carried out a series of measures, such as issuing new policies on mortgage loans and raising commercial banks' required reserve ratio by 1 percentage point to 7 per cent, in recent years. The effect of these policies has helped restrain overheated growth and the effects of the revised bank credit system are gradually being felt as well.
Macro-adjustment should not be a rigid uniformity, or taken as the single solution for all problems. The relationship between supply and demand and the overall balance of regional economies should be considered.
An existing problem is that "achievement projects" and "image projects" ran rampant as local governments competed for a nominal share of the increase of gross domestic product (GDP) numbers, leading directly to administrative intervention in economic activities for no good. A scientific concept of development is expected to replace such GDP-guided achievement assessment before long.
China's economy is continuing to gather strength. Yet past experience shows that when a new administration takes charge, the economy will go up first and then come down. What we need to do now is to minimize such an impact and prolong the climbing curve. Therefore, the market should replace administrative actions in guiding investment, and consumption should replace investment as the major driving force for economic growth.
Second, natural resources should be developed in a sustainable way.
Entering the era of heavy chemical industry, the Chinese economy is standing at a critical point. The rapid economic growth in some regions has been accompanied by high energy consumption and serious pollution. Such a mode of development should be strictly restrained.
Shortage of resources and a deteriorating ecological environment pose great threats to the long-term development of the national economy.
The manufacturing industry has managed robust growth in this country in past decades. But such development relies on imports of energy sources and mineral resources more and more, which is a potential crisis in our economic growth. Thus the current zeal to build the "world's manufacturing base" in some eastern regions should be watched. And more importance should be attached to environmental protection and pollution control nationwide.
Third, a new efficiency-fairness doctrine should be developed.
Today the gap between the rich and the poor as well as between urban and rural areas is widening. Chinese figure of the Gini coefficient, which measures income inequality, is also close to the internationally recognized danger level.
Undoubtedly, this is connected with the principle of giving priority to efficiency with less consideration to fairness that we have been following for a number of years. For a period, such a principle played an important role in curbing equality in income distribution and stimulating the market economy. But it must be gradually phased out as China's economy and society develop. Effective economic and social policies should be developed to prevent further polarization of the rich and the poor and widening of the urban-rural gap.
In 1992, Deng Xiaoping pointed out that the problem of the widening gap between the rich and the poor should be dealt with when the country's economic development reaches the well-off, or xiaokang, level.
And it is obvious now that the growing income gap has gone beyond the range of curbing equality and no longer contributes to the improvement of efficiency. Rural labourers working in urban areas are badly paid. And their pay is often withheld. Such unfairness will only lower efficiency. And the low purchasing power of low-income-earners has seriously limited the expansion of consumer demand. Meanwhile, the widening income gap has become a major cause of social instability.
An important purpose of building a xiaokang society in an all-round way is to realize common prosperity and bring benefit to the entire Chinese population. Thus we should now lay equal stress on both efficiency and fairness.
Governments at all levels should work to benefit the people through expanding employment, increasing incomes and lowering housing expenditures at the present stage.
When we solve the problems of overheated investment, shortage of natural resources and the widening social gap, we can expect to see a realization of the sustainable development of the country's economy.
(China Daily March 30, 2004)