1. Introduction
China’s economic development has reached a turning point, and the question of whether the country’s economy can shift smoothly from high-speed growth to sustained high-quality development, or whether it will fall into a prolonged recession, has triggered controversy. A range of views and ideas on this topic has emerged both in China and abroad. Various types of misinformation concerning China’s economic prospects need to be refuted if the trends during this new stage of development are to be correctly grasped.
China’s annual rate of economic growth fell continuously from 10.6% in 2010 to 7% in 2015 and 6.8% in 2016 (see Figure 1), and ultimately missed the target of 6.5% average yearly growth set for the 13th Five-Year Plan period (2016–2020). This decline aroused a high degree of concern, and much heated discussion. Since 2015 the questions of why China’s economic growth rate has remained on a general downward trend, of how this decline should be viewed, and of what to do about it have been the topics of persistent debates (Jian 2018, 257–287; Yu and Jian 2017).
In 2017 the growth rate ceased falling and rose to 6.9% (up from 6.8% in 2016), but then declined to 6.7% in 2018 and 6% in 2019. In 2020 it plummeted to 2.2% due to the severe impact of the COVID-19 pandemic, reaching the lowest point of the 2000–2020 period. Exacerbated by the three-year pandemic from 2020 to 2022, the slower growth has now essentially lasted for ten years. Although the growth figure rose sharply to 8.4% in 2021, this was due to recovery from the low level in 2020 and to a large increase in imports and exports reflecting China’s effective response to the pandemic. After the pandemic peaked and then eased considerably around the end of 2022, China’s economy was expected to return quickly to growth in 2023, as it had in 2021. The economy began to accelerate, from 3% growth in 2022 to 5.2% in 2023. Conditions, however, were not ideal, especially when viewed in terms of quarter-on-quarter (QOQ) growth. The latter reached 2.2% in the first quarter of 2023, followed by 0.8% in the second, 1.3% in the third, and 1% in the fourth quarter, indicating a trend of slow recovery (see Figure 2). Furthermore, the total value of exports and imports in 2023 grew by only 0.2% year-on-year, which was unusually low.
China’s Economic Growth in the 21st Century (2000–2023)
Source: The 2000–2022 data were obtained from China Statistical Yearbook 2023. 1 The 2023 data were obtained from the National Bureau of Statistics, https://www.stats.gov.cn/sj/zxfb/202401/t20240117_1946624.html.
Note: The bold horizontal line in the middle indicates a growth rate of 6.5%.
China’s GDP Growth Rate, 2021–2023 (QOQ)
Source: National Bureau of Statistics. For data from the first two quarters of 2021–2023, see https://www.gov.cn/govweb/lianbo/bumen/202307/content_6892680.htm, and for data from the third and fourth quarters of 2023, https://www.stats.gov.cn/sj/zxfb/202401/t20240117_1946624.html.
Consequently, China’s future economic trends have become a hot topic of discussion both in China and abroad, especially since the second quarter of 2023. So too have the causes and mechanisms behind the slowed growth, and the actions now required. Disputes have arisen over China’s economic prospects, with a variety of pessimistic opinions and downbeat arguments. On August 10, 2023, US President Joe Biden stated that China was trapped in high unemployment, with an aging labor force, and had become a “time bomb” of the global economy (Long 2023). Accompanying these judgments has been a wide range of misinformation on China’s economic trends in the new development phase. Among the assertions are that China’s economy is in a prolonged recession; that China’s slackened growth is due to the suppression of private enterprises and to preferential treatment given to state-owned firms; that the China–US economic gap is beginning to widen rather than to narrow; and that the only way China can achieve sustained high-quality development is through further privatization, marketization, and liberalization. The present authors believe that these views are not in line with the actual situation in China, that they can have a negative impact on people’s confidence, and that they have the potential to mislead China’s economic development. This study aims to debunk the misinformation; to throw light on the reasons for the downward trend in China’s growth over the past ten years, and explain how this trend can be correctly understood; and to set forward ideas on how to deal with it rationally and effectively.
2. Is China’s Economy in a Prolonged Recession?
Both in China and abroad there are people who depict China’s economic situation as somber and chaotic. According to this view, China’s economy is in a continuous downward spiral, with a significant drop in the growth rate of exports, difficulties in the operation of enterprises, obstacles in the way of raising employment and incomes (which at times are said to be decreasing), a continuous downturn in stock prices, shrinkage of the real estate industry, a constant stream of bankruptcies, and heavy local debt burdens. As described by this school of thought, China is beset by financial risks, while also suffering from capital flight, excessive disparity between rich and poor, serious corruption, an aging population, negative population growth, and a prolonged recession. The present authors argue that this view is one-sided, and that it does not provide an accurate reflection of China’s reality, but instead focuses exclusively on the problems and difficulties of China’s economic development. Intentionally or unintentionally, the above view overlooks the many advantages and favorable conditions that the Chinese economy enjoys, at the same time as it pays no heed to the recovery in the most recent period, to the optimization of policy approaches, to the economy’s renewed momentum, or to the overall trend of sustained growth.
A more meaningful account would concentrate on the stage-specific characteristics of China’s economic development; on the country’s growth potential, along with its broadly favorable conditions and factors; on the current responses to economic challenges; and on the actual degree of economic development. The truth is that the generally promising trends of China’s long-term economic development have not changed, and that a serious economic recession, involving negative growth, is unlikely.
In terms of its development characteristics and growth potential, China is now at a new stage in which it is comprehensively building a strong, modernized socialist country. Nevertheless, the tasks of industrial and agricultural modernization, of advanced urbanization, of informatization and digitalization, of the national restructuring of land use, of environmental optimization, and of various types of infrastructure construction have not yet been completed. People’s lives have not yet been upgraded from being comprehensively prosperous to the level of full modernization, and the needs of the general public for a better life remain far from satisfied. The “three rural issues” are still relatively prominent; in rural areas only absolute poverty has been eliminated, whereas in both urban and rural areas the task of eliminating relative poverty continues to be challenging. The degree and quality of China’s urbanization both remain low. In 2021 the urbanization rates of China’s resident and household populations were 64.72% and 46.7% respectively, some 10–30% below the urbanization figure of approximately 80% in developed countries. 2 Hundreds of millions of rural migrant workers have not yet obtained urban residence rights, hundreds of millions of farmers still need to be resettled in cities and towns, many shanty-towns and old urban areas need to be rebuilt, and better and bigger cities, along with beautiful villages, must be constructed. All this will generate a vast requirement for good-quality products, and huge quantities of investment will be needed to satisfy the new consumption demands. It is demand that is the basic driving force for the development of a market economy, and the scope of this future demand not only indicates China’s vast potential for further economic growth, but is also sure to promote China’s economic development, particularly high-quality development, in the long term.
At the new stage of development, China’s economy features many advantageous conditions and factors that point to stable, high-quality future growth. The leadership of the Communist Party of China (CPC), the guidance provided by Marxism, the superiority of socialism, and the hard work of the entire nation have allowed China to “complete in just a few decades the course of industrialization that the developed countries have undergone over several hundred years, and to create two miracles of rapid economic development and long-term social stability” (Xinhua News Agency 2021). During the new stage of development these basic factors not only remain in place, but are also being improved and strengthened. China also possesses another key factor for the development of production in the form of adequate capital, and the labor supply as well is likely to be sufficient. Although the population is aging, and the total number has begun to decline (in 2022 China experienced its first negative population growth in 61 years), the working-age population over the next 10–20 years is projected to remain at 800–900 million, which is expected to be adequate. 3 It should also be noted that the rapid development of education has greatly improved the quality of the labor force. Meanwhile, investment in scientific research and new technology has been increasing rapidly, and the progress in this sphere is accelerating. With complete national economic and industrial systems, and the world’s largest and most comprehensive manufacturing complexes and industrial chains, China’s manufacturing industry acts as a particularly strong support for the economy as a whole. More than a few of the emerging industries are in world-leading positions, buoyed by the advantages of a large national market and rich human resources. These are important factors helping to ensure that during the new stage of development, China’s economy will grow in a steady and healthy manner.
The Chinese economy does, to varying degrees, suffer from the problems and difficulties mentioned earlier, but these obstacles are not insurmountable, and China is making efforts to resolve and overcome them. The country has now implemented a series of appropriate and effective policy measures to transform its approach, adjust its structure, stabilize growth, preserve employment, and promote high-quality development. The main problems and difficulties faced by the Chinese economy in recent years reflect disproportions, weaknesses, and outside pressures that can be summed up as follows. The economic structure is not optimal, with an excessive ineffective supply and an insufficient effective supply. The income gap is excessively wide, and labor income is low, leading to a situation in which purchasing power is unable to exercise sufficient demand. The momentum of economic growth is slackening, indicating a need to cultivate and strengthen new motive forces. Unilateralism, protectionism, and hegemony are intensifying the threat to the world and to China, and economic globalization faces counter-currents, with a sustained downturn in the world economy. The effects of the COVID-19 pandemic have led to a substantial recession in the global economy, with a decline in international trade and investment and disruptions to world industrial supply chains. Moreover, the pandemic created pressures for individual countries to pursue self-sufficiency. Countries have focused on constructing independent domestic industrial chains, in some cases introducing regulations and incentives designed to bring manufacturing industry back within national borders. Global industrial chains have shown a tendency to localization and regionalization, with some countries even erecting high fences around their small national “yards,” decoupling trade and breaking the chains altogether. Meanwhile, China’s entry into the middle and late stages of industrialization has had the effect of weakening its latecomer advantage. The development strategy based primarily on the introduction of foreign capital and technology, and oriented toward export markets, has proven difficult to sustain. The COVID-19 pandemic not only forced large increases in spending on pandemic prevention and treatment, but also had a serious effect on normal socio-economic activities, creating the potential for a “shutdown.” In response to problems with supply and demand, China has adjusted and optimized its economic structure, deepening supply-side structural reform. At the same time, it has insisted on the need to expand domestic demand in order to strengthen the effect of “demand-pull” forces on economic growth. The strategy of expanding domestic demand is being organically combined with a deepening of supply-side structural reform so as to achieve stable and high-quality development. In response to the new problems that are appearing worldwide, China has proposed the new development concepts of innovation, coordination, greenness, openness, and sharing, and of making timely adjustments to economic development strategies. The country has proposed a new dual-circulation development paradigm that takes the domestic market as the mainstay and allows the domestic and international markets to reinforce each other. This has the effect of shifting economic growth from being driven mainly by investment and exports to being driven by innovation. The new paradigm thus makes scientific and technological self-reliance and self-improvement the strategic basis for national development, at the same time as it expands high-level opening to the outside world in order to ensure stable, high-quality development. In response to the difficulties caused by the COVID-19 pandemic, China has adopted a unique series of measures, which have been effective in coping with the pandemic and stabilizing economic growth.
Although China’s economic growth rate has continued to decline for more than ten years, this is in no sense a long-term recession, but reflects a transition from more than 30 years of high growth to a phase of medium growth. During the economic downturn, China’s economy did not contract but saw continued positive growth. Moreover, this growth was among the fastest experienced by the world’s major economies, and made a massive contribution to growth in the world economy as a whole. In 2023 China’s economy grew at a rate of 5.2%, much higher than the projected global figure of about 3%. The United States recorded growth of 2.5%, compared to less than 0.8% for the European Union, while the Japanese government predicted growth in that country of 1.5%. 4 Moreover, China is now continuously adjusting and optimizing its economic structure and mode of development. In 2023, added value in the service sector accounted for 54.6% of GDP. Final consumption expenditure contributed 82.5% to economic growth, re-emerging as the main driving force of the economy. Technological progress continued to accelerate, with the fastest-growing investment found in high-tech R&D and innovation. The growth rate of high-tech industry in 2023 was 10.3% (Dong 2024). High-end, intelligent, and green “new pillar” industries have appeared and are expanding rapidly. In a range of key manufacturing areas, such as new energy vehicles, lithium batteries, photovoltaic products, high-speed railways, ships, aerospace vehicles, deep submersibles, and high-voltage power transmission equipment, China now figures prominently in the front ranks of world production. The Belt and Road Initiative has achieved remarkable results, and care for the natural environment has been improved and optimized, while economic efficiency and the quality of economic development have shown an upward trend. As Xi (2023) stated recently, “The Chinese economy has strong resilience, great potential and vitality, and its sound long-term fundamentals remain unchanged.” It follows that China’s economy has not fallen into the predicament of a prolonged recession.
3. Is China’s Economic Downturn due to Restrictions on Private Enterprises and Preferential Treatment to State-Owned Enterprises?
Especially in the West, it is often believed that efficiency is relatively low in China’s public sector economy, and particularly in state-owned enterprises. At the same time, efficiency in the non-public sector, and particularly in private enterprises, is commonly held to be much higher. Moreover, the belief is widespread that China’s economy since the reform and opening up has been able to grow at a high rate due to vigorous development of the private sector economy and a substantial reduction in the number of state-owned enterprises, resulting in a dramatic fall in the proportion of the Chinese economy included in the public sector, and particularly the state-owned economy. According to this discourse, China’s ten years of slowing growth have resulted from state-owned enterprises enjoying preferential treatment and protection in many areas such as fiscal policy, finance, resources, and various business fields, while also benefiting from administrative monopolies. Furthermore, restrictions on the private economy have supposedly made it difficult for private enterprises to operate. China’s private economy is said to be restricted and over-regulated, and to suffer from operational difficulties. Private entrepreneurs are claimed to have a low social status, to feel unsure about the future, and to be reluctant to invest in order to grow their businesses, with the result that capital is said to be fleeing abroad. The main reason suggested for this situation is that China continues to adhere to such tenets of Marxist political economy as the labor theory of value and the concept of surplus value, while insisting on the dominance of public property as the main body of the economic system and looking toward the ultimate elimination of private property. For the Chinese economy to rebound and achieve sustained high-quality development, the above-noted discourse holds, the country needs to abandon these traditional positions. Some of the people who espouse these views even argue that China should amend the relevant provisions of its constitution so as to break down the ideological, theoretical, and institutional barriers to the development of the private economy; that it should embrace private ownership as the main body and dominant form of the economic system; and that it should promote the unfettered development of private capital. This, such people believe, is the only method through which sustained high-quality development of the entire national economy can be realized. The authors, however, argue that this view is unrealistic and highly questionable.
First, the publicly owned economy is not necessarily inefficient, and still less is this true of state-owned enterprises. Equally, it is not necessarily the case that the private enterprises of the non-publicly owned economy are efficiently run. Here as elsewhere, the only criterion for testing the truth is practice. Empirical evidence has shown convincingly that since the reform and opening up, numerous state-owned enterprises have functioned successfully and improved their operating efficiency amid fierce international and domestic market competition. At the same time, large numbers of private enterprises and individual operators go bankrupt daily in China and abroad. Although state-owned enterprises control large quantities of various resources and are protected by the state to a certain extent, this is commensurate with the contribution they make. State-owned enterprises are the main embodiment of China’s economic strength and competitiveness, the main subjects of R&D, and providers of nationally important high-tech goods and equipment, particularly in key areas and difficult times. These enterprises play a dominant role that cannot be replaced by the private economy. When China was forced to cope with the global financial and economic crisis that originated in the United States in 2008, and later with the COVID-19 pandemic, it relied mainly on its state-owned sector.
Second, the CPC and the government since the reform and opening up have encouraged, supported, and guided the development of the private economy rather than restricting or suppressing it, particularly in the new era of socialism with Chinese characteristics. If this had not been the case, private enterprises could not have achieved such rapid and substantial development.
Third, the lower growth rates of China’s economy over the past ten years and the current operating difficulties of private enterprises have not been the result of the private economy being suppressed or restricted. This is apparent whether or not the significant impact of the pandemic is taken into account. Rather, the slowed growth has directly reflected the deterioration of the international environment, marked by hegemonism, unilateralism, trade protectionism, anti-globalization, and attempts by external forces to contain China. Domestically, problems with ineffective supply, insufficient levels of effective demand, and overproduction have added to the difficulties. Furthermore, and as previously elaborated or as summarized below, a range of deep-seated institutional reasons have contributed indirectly to this situation (Yu and Jian 2019, 138–158). Insufficient development of private enterprises is not the main cause, as is shown by the fact that against the backdrop of a general economic slowdown, not only private enterprises but also state-owned enterprises have experienced operational difficulties. Meanwhile, the view that high-quality development can be sustained within the national economy as a whole provided that the leading, dominant role is played by private business is unrealistic and untenable. According to the logic of this view, the United States, which is dominated by the private ownership economy (also known as the private economy), would not have experienced the financial and economic crisis of 2008, and nor would the European Union have undergone an economic recession.
Fourth, it must be remembered that the theories mentioned above, that some schools of thought urge should be discarded, embody the basic principles of Marxist political economy. Fundamentally rejecting them would cause Marxism and socialism to become nothing more than an empty shell, a label that might be applied casually but that would lack any substance and would not need to be adhered to. Marxism must keep pace with the times, and should constantly be updated and developed. In Marxist political economy, for instance, numerous innovations and developments have been made since China’s reform and opening up. These innovations include the concepts of the primary stage of socialism, the socialist market economy, and public capital; the coexistence of various modes of ownership and methods of distribution, service, and management; and the creation of value by labor expended in scientific research. The authors agree that further research is required on the question of whether the labor of entrepreneurial managers creates value, and on whether the income of enterprise leaders is obtained exclusively from the surplus value created by employees, or includes value created by the leaders’ own managerial labor (referred to as command labor by Marx); in the latter case, it should not be viewed as pure exploitation income. However, if the labor theory of value is fundamentally rejected, along with the Marxist concepts of surplus value, ownership, and exploitation, and if the scientific conclusions that Marx drew from these ideas are viewed as erroneous, including specifically the “two inevitabilities,” “two nevers,” and “two most radical ruptures,” 5 then we should no longer claim to adhere to Marxism, and socialism and communism should not be our long-term goals.
4. Has the Economic Gap between China and the United States Begun to Widen?
After many years of continuous narrowing (see Figure 3 and Table 1), the gap between the Chinese and US economies has, according to some measures, appeared to widen in the past two years. In raw terms, China’s GDP reached 76.43% of the US figure in 2021, fell to 70.61% in 2022, and then declined again to 65.36% in 2023. Consequently, it has been suggested that the gap between China and the United States will continue to grow, and the question has been posed of whether China can ever catch up with the United States. 6 The authors argue that conclusions regarding this gap cannot be drawn at this point. The most important indicator used to judge whether the gap between the Chinese and US economies is widening should be the economic growth rate. If China’s economy grows faster than the United States, the gap between the two economies will narrow, and vice versa. China’s economic growth may not be faster than that of the United States every year, and in some years it may be slower. Nevertheless, as long as the former is faster than the latter in most years, the China–US economic gap can be expected to narrow overall.
Comparison of Economic Aggregates of China and the United States in the 21st Century (2000–2023)
Source: The 2000–2022 data were obtained from the World Bank database (https://data.worldbank.org.cn/). The 2023 data were obtained from Financial Talk Series (2024).
Comparison of Economic Aggregates of China and the United States in the 21st Century (2000–2023)
Source: The 2000–2022 data were obtained from the World Bank database (https://data.worldbank.org.cn/). The 2023 data were obtained from Financial Talk Series (2024).
In 2021, the respective economic growth rates in China and the United States were 8.1% and 5.7%; in 2022 they were 3.0% and 2.1%, and in 2023 they were 5.2% and 2.5%. 7 According to the basic principle that the change in the gap between countries’ economic aggregates depends mainly on the difference in the economic growth rates, the difference in the total economic output of China and the United States should narrow further. The reason why the difference appears to be widening is in fact due to exchange rate shifts, specifically, the rise in the exchange rate of the US dollar against the yuan. For instance, the yuan depreciated by approximately 4.5% compared to the US dollar in 2023, 8 at the same time as the United States has experienced relatively serious inflation in the last two years, whereas China has not. Unless the calculations are made strictly in terms of purchasing power parity and comparable prices, then accurately judging the actual economic growth and the gap between the economic aggregates is impossible.
From the perspective of development trends, the United States possesses scientific and technological superiority and strong economic power. It holds a leading position in the Fourth Industrial Revolution, which is characterized by the digital economy and artificial intelligence. However, the United States faces difficulty in ending a prolonged trend of low growth. This is for various reasons, including the basic contradiction between the socialization of production and capitalist private ownership; the shrinking numbers of the US middle class; the widening gap in the United States between rich and poor; enormous government and private debts; the gradual decline of the hegemonic status of the US dollar; the decreasing share of the United States in the world economy; over-virtualization and over-financialization of the economy; issues of immigration and race; the aggravation of communal contradictions; and political polarization and ineffective governance. China faces a range of problems such as containment and suppression by external forces, primarily the United States; failure to master many new and advanced technologies, or finding these technologies “strangled”; a non-optimal industrial structure; a wide gap between rich and poor; difficulty with increasing domestic demand; a weakening momentum of economic growth; and persistent corruption. After maintaining average economic expansion of 10% per year for more than 30 years after the beginning of the reform and opening-up process, China has therefore been unable to maintain these growth rates. As mentioned earlier, however, the fact that China has not yet completed its modernization means that it still has vast potential for development, and remains in an ascendant phase. Aided by the leadership of the CPC, the superiority of the socialist system, and the guidance provided by a new scientific development concept, China has “the institutional advantages of a socialist market economy, the demand advantages of a mega-market, the supply advantages of a complete and fully-fledged industrial system, and the talent advantages provided by a large number of high-quality workers” (Xi 2023). Moreover, the US attempts at suppression have forced China to strengthen its independent innovation and accelerate its scientific and technological progress. Further, China possesses notable strengths in the areas of its national governance, mobilization, organizational capacity, and social stability. The projects of building a community with a shared future for mankind and constructing the Belt and Road are in line with the general trend of development of human society, and since they promote peaceful development and mutually beneficial outcomes for countries worldwide, are popular globally. Consequently, the authors believe firmly that the general economic trend for China to grow faster than the United States will be maintained, that the China–US economic gap will continue to narrow, and that China will inevitably catch up with the United States.
However, the authors do not claim absolute accuracy. The US economy might gradually accelerate if the United States were to enact appropriate economic and political reforms, improve its democratic system, narrow the gap between rich and poor, alleviate various social contradictions, utilize the advantages of science and technology, focus on economic development, and implement a foreign policy of peaceful coexistence, equality and mutual benefit. Conversely, China’s economy could plunge into a prolonged recession if the country fails to adhere to appropriate Party leadership, improve the socialist system, comprehensively deepen the reforms, establish an advanced socialist market economic system, open further to the outside world, effectively overcome market and governmental failures, optimize the economic structure, change the development mode, innovate and strengthen self-reliance and self-improvement, strengthen and optimize state-owned enterprises, support and promote the healthy development of the non-public economic sector, utilize the positive role of capital while overcoming capital’s negative impacts, effectively narrow the gap between rich and poor, and create an effective, enduring mechanism for combating corruption and privileges. Above all, if China does not hold fast to socialism, reform, and opening up, the result “can only be a dead-end” (Deng 1993).
5. Is Further Privatization, Marketization, and Liberalization the Only Way for China to Achieve Sustained High-Quality Development?
In China and abroad, a certain current of opinion holds that China’s economic growth has experienced a downward trend not only because private enterprises have been restricted and state-owned enterprises have enjoyed privileges. Adherents of this view argue that China’s reform and opening up is incomplete, that the government continues to strictly control the economy, that state-owned enterprises control excessive quantities of resources and exercise administrative monopolies, that competition in the market is unfair, that the market does not play its role adequately, and that economic activities are not free. Therefore, the argument proceeds, China must conduct a more thorough reform and opening up, and further privatize, marketize, and liberalize its economy. In the opinion of the authors, this view as well fails to reflect China’s reality, and represents an extremely harmful proposition.
As noted above, the direct reasons why growth in China’s economy has trended downward for the past ten years include difficulties in increasing imports and exports; problems with importing foreign capital and advanced technology and equipment, particularly cutting-edge technology; insufficient effective domestic supply, and an excess of ineffective supply; inadequate effective demand; and overall overproduction. The sources of these phenomena and the deep-rooted causes behind the slowing of growth need careful exploration. These reasons do not appear to include any shortage of resolve in pursuing the privatization, marketization, and liberalization of China’s economy.
First, the main reason for China’s current difficulties with import and export trade and with introducing foreign capital and advanced technology and equipment is not a lack of opening up, or toughness and so-called “wolf warrior diplomacy” on China’s part. The main reason is that Western countries, led by the United States, are afraid of China’s rapid development and revitalization, which they consider a threat to their hegemonic position that cannot be tolerated, and that must be curbed and suppressed. Infused with the “zero-sum game” mentality of the Cold War, these countries adopt the policies of hegemonism, unilateralism, trade protectionism, and anti-globalization. Breaking chains and decoupling from established relationships, they seek “a small yard with high fences.” Former US President Donald Trump stated publicly that it was necessary to restrict China in order for the “America First” policy to be maintained. In contrast, China through its philosophy and policies supports economic globalization; the democratization of international relations; free trade and multilateralism; openness and inclusiveness; equal cooperation and mutual benefits; and building a community of a shared future for mankind. China opposes hegemonic behavior and power politics, and through its actions, seeks to carry forward and continuously expand its opening up to the outside world. The deterioration of the international environment has been an important factor contributing to China’s current slower growth. This change in the environment, however, has not for the most part been caused by China itself, but rather by external forces.
Second, the main reason for the weakness of effective supply and excess of ineffective supply in China is not any lack of privatization, marketization, and liberalization of the economy. Rather, it has to do with shortcomings in the economic structure, particularly the industrial structure. This inadequacy, in turn, is mainly due to the low level of science and technology, a weak capacity for independent innovation, and an insufficiently qualified workforce. It also reflects the lack of a fundamental shift away from the crude, extensive mode of economic development that pursues quantitative expansion, scale enlargement, and rapid growth accompanied by high consumption and low efficiency. In addition to the characteristics inherent in China’s present stage of development and the limitations imposed by existing development conditions, the main underlying reasons for this situation are inadequacies in the education system, in the system of scientific and technological innovation, in industrial policy, and in the system for appraising cadre performance. Other important reasons include the general unsoundness of China’s market system, with its many imperfect mechanisms, and failures of government administration. At the same time, there is no doubt that the reliance on regulation by the market is excessively wide. Areas that should not be completely market-oriented, such as healthcare, education, and housing, are marketized, and market failures occur. These too are important factors leading to inadequate effective supply and excessive ineffective supply. Consequently, the problem is not insufficient marketization but excessive marketization. China does not require further marketization and a weakening of government regulation and social governance; rather, it needs to improve marketization, raise the quality of government regulation and social governance, and effectively overcome market and government failures. The problems that the market can reasonably and effectively solve should be left to the market, whereas the problems that the market cannot solve should be addressed by the government and social organizations. The government should refrain from interfering in areas outside its scope, while at the same time carrying out the actions required of it with diligence and efficiency.
Third, the primary reason for the lack of domestic effective demand has nothing to do with incomplete privatization, marketization, and liberalization of the economy. Rather, it is related to the shortcomings of private ownership, and to market failures. The lives of the Chinese people remain only moderately prosperous, their need for an affluent life is far from satisfied, and potential demand from the population remains large. Nevertheless, there are many products in oversupply. For instance, although numerous ordinary urban and rural families do not have a full set of household appliances, home appliance sales are weak. This is mainly due to the lack of purchasing power of the general urban and rural population, which is caused in turn by the wide inequities in the distribution of wealth and incomes and the low pay rates of working people. These problems, in turn, are due to the disproportionate share of private capital and the government in the overall distribution of national income. The proportion of national income accruing to private capital is excessive for several reasons. The proportion going to the public economic sector has declined significantly, the proportion enjoyed by the non-public sector has increased significantly, and the wealth and non-payroll income of the non-public sector have been captured by a small number of owners. Coupled with this are market competition and the “survival of the fittest,” with the victors becoming millionaires or billionaires; meanwhile, those who lose out in the competition may become penniless, in some cases even committing suicide. Huge profits can be made overnight through speculating in stocks, real estate, foreign exchange and difficult-to-obtain commodities, or through drug dealing, gambling, or trafficking in adult materials. The distribution mechanisms of the market economy will inevitably widen the gap between rich and poor, with winners receiving everything. Moreover, the many years since the beginning of reform and opening up have seen a persistent shortage of capital, resulting in high borrowing costs and allowing favored parties to receive a variety of preferential treatments. Labor force, by contrast, is available in abundance, keeping wage incomes low and providing high returns to capital. The government’s share of national income is disproportionately large due to high levels of taxes and other charges, and the rapid growth of imports and exports. Further powerful streams of government revenues have come from tariffs and land finance, along with profit revenues from state-owned enterprises. The high government receipts, however, are not the cause of the low level of wages and salaries, neither raising nor reducing the real earnings of urban and rural residents. The need is for government revenues to be used primarily for the provision of public goods, that is, for infrastructure construction, land reorganization, environmental protection, national security, improvement of people’s livelihoods, social security, and the development of education and healthcare. Meanwhile, power-for-money deals, privileges and corruption are widening the gap between rich and poor, and are keeping demand inadequate by restricting the purchasing power of ordinary urban and rural residents. The main reasons for the persistence of corruption include the existence of the market economy and private ownership, which objectively provide conditions for power-money transactions; the excessive power of government, reflected in its undue control over resources; and the insufficient role of socialist and democratic supervision.
Fourth, the fact that the national economy in general suffers from overproduction and oversupply is due to insufficient effective demand and an excess of ineffective supply, as well as to the situation in which the ineffective supply far exceeds the effective demand in terms of quantity and variety. Therefore, the chief cause of the mismatch between demand and supply, which represents the chief cause of the general overproduction, is not any lack of economic privatization, marketization, or liberalization.
The analysis presented here thus indicates that the main reason for the downturn in China’s economic growth during recent years is not inadequate or incomplete economic privatization, marketization, and liberalization. If China’s economy were to be thoroughly privatized, marketized, and liberalized, it would not only be unable to achieve sustained high-quality development, but would also be plunged into a prolonged recession and a severe crisis of overproduction.
In sum, the fundamental measures needed for China’s economy to achieve sustained high-quality progress in the new development stage do not include complete privatization, marketization, and liberalization. Rather, China should implement Party and state policies guided by Marxism, adhere to the leadership of the CPC, and fully utilize the advantages of socialism. The country should deepen reform in all aspects, improve the socialist market economic system, create an effective market and active government, find solutions to market and government failures, pursue the common development of multiple ownership systems led by public ownership, implement multiple distribution methods based on work, and effectively overcome the negative role of capital while utilizing its positive functions. Further, the government should improve the system for the distribution of wealth and income, markedly reduce the disparity between rich and poor, and take concrete steps to promote common prosperity. China should apply the new development philosophy to creating a new development paradigm, while expanding domestic demand and supply-side structural reform and adjusting and optimizing the economic structure. It should uphold such important strategic policies and guidelines as strengthening education, science, technology, and human resources; improving self-reliance and independent innovation; opening the country further to the outside world; reinforcing socialist democracy and the rule of law; and persevering in the fight against corruption and privileges.
