China plots economic recovery path, technological innovation a ‘matter of survival’ for Beijing

Vice-Premier Liu He reflected on the key weakness of China’s economic system in a 6,500-word article published on Wednesday in the People’s Daily
Xi Jinping’s key adviser also raised the possibility of further economic reforms, technological innovation and institutional high-level opening-up

China's economic recovery

Frank Tangin Beijing

Published: 8:30pm, 24 Nov 2021

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Beijing has pinned its hopes on improving the quality of its economic development and technological innovation to steer the world’s second largest economy through uncharted waters and external turmoil, China’s economic tsar said on Wednesday.

In a 6,500-word article published by the ruling Communist Party’s flagship newspaper, the People’s Daily, Vice-Premier Liu He reflected on the key weakness of the country’s economic system.

Xi Jinping’s key adviser also raised the possibility of further economic reforms, technological innovation and institutional high-level opening-up to tackle stubborn problems in the latest comments by a senior official amid concerns over an economic slowdown.

We must emancipate our minds and use a pioneering spirit and professional attitude to promote reform and opening-up to make major breakthroughs in key areas and key links

Liu He

“We need to strengthen market mechanisms, form healthy competition, reduce institutional transaction costs, and establish a unified, open, competitive and orderly high-standard market system,” said Liu.

“The reform tasks have become more complex and difficult in the new development stage. We must emancipate our minds and use a pioneering spirit and professional attitude to promote reform and opening-up to make major breakthroughs in key areas and key links.”

The comments by Liu, who has previously led several key reforms and the recent financial de-risking campaign, come at a time when China’s economic future is plagued by a variety of factors and headwinds.

Beijing has been constantly challenged by its rigid enforcement of a zero-Covid policy, worries over the future of the private economy after a crackdown on big tech companies and private tutoring businesses, as well an energy crunch as it sought to reduce carbon emissions.

China’s deep-rooted problems need to be addressed through reform and opening-up. More actions are now needed. There seems to be a consensus among Chinese leadershi

Tang Jianwei

The adoption of the so-called dual circulation strategy, which leans more towards the domestic market and technological self-reliance, has fuelled concern of involution at home and abroad.

“From a long-term perspective, many of China’s deep-rooted problems need to be addressed through reform and opening-up. More actions are now needed. There seems to be a consensus among Chinese leadership,” said Tang Jianwei, chief analyst at the Bank of Communications.

Xi continued to highlight Beijing’s determination to open up during last week’s meeting with US President Joe Biden, as well as during speeches at both Association of Southeast Asian Nations (Asean) and Asia-Pacific Economic Cooperation (Apec) events earlier this month.

Premier Li Keqiang also pledged further reforms to offset the downward economic pressures and foster high-quality growth in Shanghai on Monday.

“The highlight on long-term issues indicated confidence of stabilising the growth and determination of using no big stimulus,” Tang added.

Immediate downside risks caused by the coronavirus, tapering by the US Federal Reserve and the ongoing rivalry with the US have added to calls for more supportive macroeconomic policies amid concerns that national economic growth could further slow to below 4 per cent in the fourth quarter.

China needs to ensure an annualised growth of around 5 per cent to remain on course to achieve its target of doubling gross domestic product by 2035.

Beijing introduced cross-cyclical adjustment in the summer, with some marginal loosening now seen in mortgage loans and credit support for market entities.

‘More challenges’ ahead with China’s economic slowdown to continue in 2022

Long-term stability, in Liu’s view, should be achieved through the optimisation of the economic structure.

Liu made reforms to the pricing of land, finance, technology, data and other factors, coal-electricity pricing mechanisms and the development of green energy as the top priorities.

Opening up should also focus on integration with international rules, while the introduction of hi-tech direct investment from developed economies should also be encouraged.

Improvements covering human capital and expanding the middle-income group should be undertaken as part of China’s so-called common prosperity strategy, while innovation is viewed as a key driver for future growth.

Given the profound changes in the world and national conditions, technological innovation is not only an issue of development for China, but also a matter of survival

Liu He

“Given the profound changes in the world and national conditions, technological innovation is not only an issue of development for China, but also a matter of survival,” Liu said.

Beijing has initiated a new whole-nation mechanism to sharpen its strategic technology force as it tries to tackle bottleneck technologies and master “trump card” technologies with its large market and application scenarios.

Innovation is viewed as a key tool to avoid the dreaded middle-income trap, where growth stagnates and incomes stall, with Liu pointing to the success of the likes of South Korea, Singapore and Israel.

“These countries all occupy a key position in the global innovation and industrial chain division of labour,” Liu added.