Editor’s note: 21st Century Business Herald spoke to Liu Shijin, former deputy director of the Development Research Center of the State Council, on how the country plans to boost its strength in manufacturing, consumption and finance over the next five years. Below are excerpts of the interview. The views don’t necessarily represent those of China Daily.
China’s economy is performing in line with expectations, and its long-term positive supporting conditions, such as its stable economic foundation, strong resilience and great potential, have not changed.
Its economy has three advantages: first, the growth potential of the service industry through consumption, and the transformation and upgrading of traditional manufacturing and agriculture; second, its development of digital and green technologies; and third, its superlarge market.
The country should build itself into a manufacturing powerhouse, a consumption powerhouse and a financial powerhouse to leverage these advantages, which coexist and function simultaneously, forming a synergistic effect through mutual integration and support.
Its strength in manufacturing, consumption and finance should have a full-chain technological and industrial layout so that the national economy moves into a new cycle of high-quality development.
To boost its strength in manufacturing, China’s position in the global industry and value chains must be steadily upgraded. This requires improvements in labor productivity, total factor productivity and value-added ratios across industries, and allowing market competition to foster a group of large-scale, leading technology enterprises capable of pioneering world-class innovations.
To promote consumption, the most urgent task is to address structural imbalances and expand effective demand to create the world’s largest consumer market.
But the strength of manufacturing cannot be boosted nor the potential of consumption released unless finance better serves the real economy. As China’s economy enters a stage of high-quality development, the complexity of economic growth is increasing and it is crucial that China have a strong capital market and a strong currency.
Project selection is increasingly being done by the capital market. As more funds flow into China’s capital market, it should foster large technology companies with globally competitive innovation capabilities as well as innovative small and medium-sized enterprises. It should incentivize innovation, promote the integration of technological and industrial innovation and accelerate industrial transformation and upgrading.
From the perspective of investors, the capital market needs to significantly increase the share of institutional investors such as pension funds to provide strong support for the expenditure needs of the social security system in an aging society. By improving the efficiency of resource utilization and increasing property income for investors, the capital market can play a more prominent role in expanding household consumption.
A strong currency is the hallmark of a financial powerhouse. Historically, major international currencies have been underpinned by economic, trade, technological and military strength, as well as sound monetary systems and advanced financial infrastructure. In their early stages, these economies were supported by manufacturing sectors that accounted for a large share of global output. However, there has always been a transitional period between becoming an economic powerhouse and achieving currency strength.
Compared with the international standing of China’s manufacturing and exports of goods, there is significant room for improvement in the internationalization of the renminbi. A substantial increase in the volume of offshore renminbi would help achieve economies of scale in renminbi internationalization.
China should actively expand the offshore renminbi financial ecosystem, including bonds, equities, funds and derivatives, to enhance renminbi liquidity and ease of use. This would help the appreciation of the currency and significantly accelerate its internationalization. The ultimate goal is to ensure that renminbi-based international monetary transactions are commensurate with the global position of China’s real economy.