In the past few years, some commentators and politicians in the United States and the West have put forward the pessimistic view of “peak China”. Its gist is nothing more than that China’s weak economic performance after the COVID-19 pandemic confirms its development has peaked and that it will go downhill irreversibly. These doomsayers believe a debilitated China will reduce its antagonism to the US and threats to Western security, and simultaneously reduce its contribution to global economic growth.
Those who hold the peak China view maintain that China’s future development will be hampered by many “structural” factors. However, the doomsayers view China’s growth from a biased perspective. They refuse to admit that China’s development success owes a great deal to the competent leadership of the Communist Party of China, which can overcome seemingly insurmountable challenges to make continuous progress.
Admittedly, the factors hindering China’s development, which are put forward by the peak China view, must be seriously addressed. However, it is also true that these factors can be overcome through bold reform and innovation. The just-released Resolution of CPC Central Committee on Further Deepening Reform Comprehensively to Advance Chinese Modernization shows the determination of the CPC to overcome those “structural” factors through comprehensive reforms.
Those who hold the peak China view maintain that China’s future development will be hampered by many “structural” factors. However, the doomsayers view China’s growth from a biased perspective. They refuse to admit that China’s development success owes a great deal to the competent leadership of the Communist Party of China, which can overcome seemingly insurmountable challenges to make continuous progress
First, the peak China view believes that the Chinese government’s excessive control of the market is detrimental to unleashing economic potential and promoting development. In this regard, the central government is determined to build an efficient market system in China and let it play a more influential role in economic development and industrial upgrading. The resolution states that China will focus on building a high-level economic system and give full play to the decisive role of the market in resource allocation. In its words, “We must better leverage the role of the market, foster a fairer and more dynamic market environment, and make resource allocation as efficient and productive as possible.” The resolution seeks to build a unified national market system, which includes promoting unified primary institutions and rules, fair market supervision, high-standard connections among market facilities, strengthening rigid rules to safeguard fair competition, enhancing anti-monopoly and anti-unfair competition measures, and cleaning up and abolishing various regulations and practices that hinder the formation of a national unified market and fair competition.
Second, the peak China view posits that the Chinese government’s economic policies interfere with developing private and foreign-funded enterprises that benefit economic growth, job creation, productivity improvement, and technological innovation. Regarding private enterprises, the resolution calls for adherence to the principles of creating a good environment and providing more opportunities for the development of the nonpublic economy, formulating a private economy promotion law, breaking down market access barriers, promoting the fair opening of the competitive field of infrastructure construction to business entities, improving the long-term mechanism for private enterprises to participate in the construction of major national projects, supporting capable private enterprises to take the lead in undertaking major national technological research tasks, improving the financing support policies and institutions for private enterprises, and promoting entrepreneurship.
The resolution also puts forward policies to encourage foreign investment, including deepening the reform of the foreign investment management system, creating an international business environment, protecting the rights of foreign investors and expanding the catalog of industries that encourage foreign investment, reducing the negative list for foreign investment access, implementing the comprehensive lifting of restrictions on foreign investment access in the manufacturing sector, promoting the orderly expansion of opening-up in the fields of telecommunications, internet, education, culture, and medical care, making it more convenient for foreign investment in equity investment and venture capital in China, and providing more support to qualified foreign-funded institutions to participate in the financial business pilot projects.
Third, the peak China view asserts that the shrinking labor force and rapidly aging population are insuperable obstacles to China’s economic development. To deal with these problems, China is determined to adopt measures to increase the fertility rate of its citizens and better tap the potential of its aging labor force. The resolution proposes to reinforce the population development support and service system and improve the population development strategy focusing on coping with aging and low birth rates, improve the fertility support policy and incentive mechanism, and promote the construction of a fertility-friendly society, effectively reducing fertility, childcare, and education costs, improve the maternity leave mechanism, establish a maternity subsidy system, improve the level of introductory maternity and children’s medical public services, increase personal income tax deductions, strengthen the construction of a universal childcare service system, and support employers to provide childcare and community-provided childcare. The resolution calls for creating diversified jobs suitable for older people to cope with labor force reduction. More importantly, the statutory retirement age will be progressively delayed steadily.
Fourth, according to the peak China view, the continued and unrelenting containment and suppression by the US and the West will constrict China’s international economic development. To cope with this problem, China is increasing the pace of opening-up to the non-Western world. At the same time, China is determined to promote the expansion and development of the Belt and Road Initiative, the BRICS, and the Shanghai Cooperation Organization. The resolution tasks the central government to improve the mechanism for promoting high-quality joint construction of the BRI, continue the implementation of the BRI science and technology innovation action plan, and strengthen multilateral cooperation in green development, digital economy, artificial intelligence, energy, taxation, finance, disaster reduction, and other fields. The new BRI cooperation plan must align with the conditions in China and other countries, making it more efficient and sustainable.
The resolution proposes to expand institutional opening-up steadily. Significant measures include increasing opening-up autonomously, enlarging the opening-up of China’s commodity market, service market, capital market, and labor market, and expanding unilateral opening-up to the least developed countries. This includes expanding the global high-standard free trade zone network, establishing a compliance mechanism consistent with international rules, and optimizing the environment for opening-up and cooperation. It also includes deepening the reform of the foreign trade system and promoting the expansion of foreign trade.
Fifth, the peak China view identifies insufficient domestic demand as a problem hindering China’s economic development. It also points out that China’s taxation, welfare, healthcare, education, and retirement systems force people to save heavily in preparation for various needs. This makes them unwilling and afraid to consume actively, thus engendering the problem of long-term insufficient domestic demand. At the same time, China is shifting from an investment-driven economy to a consumption-driven economy. This change has required China to increase its efforts to boost domestic demand, which involves challenges such as reducing income inequality, improving social welfare, and promoting domestic consumption. The resolution prescribes many policies and measures to boost domestic demand. These policies include accelerating the cultivation of a complete domestic demand system, establishing a long-term mechanism for government investment to support the construction of basic, public welfare, and long-term significant projects, improving the system and mechanism of government investment to drive social investment effectively, improving the long-term effective mechanisms for the expansion of consumption, reducing restrictive measures, reasonably increasing public consumption, and actively promote the debut economy. The resolution also proposes to improve the income distribution system and establish a coordinated and supporting institutional system for primary distribution, redistribution, and tertiary distribution to increase citizens’ income. The resolution states that the proportion of the aggregate income of the citizens in national income should increase, and so should the proportion of labor compensation in primary distribution. “We will improve the redistribution mechanisms such as taxation, social security, and transfer payments. We will keep income distribution and the means of accumulating wealth well-regulated, open more avenues for urban and rural residents to increase their property incomes, and put in place systems to effectively boost the incomes of low-income earners, steadily expand the size of the middle-income group, and properly regulate excessive incomes.” All these measures aim to increase the income of ordinary people, reduce their need to save excessively, and allow China to unleash domestic demand.
Sixth, the peak China view emphasizes that China’s heavy debt, especially excessive local debt, has seriously hampered economic development, and high debt levels have triggered concerns about the sustainability of China’s growth model. Unsurprisingly, the central government has decided to alleviate local debt pressure, increase local fiscal revenue, and reduce local responsibilities by increasing the central government’s responsibilities. The resolution specifies establishing a new fiscal relationship between the central and local governments with clear powers and duties, coordinated financial resources, and regional balance. It orders an increase in local independent financial resources, expanding local tax sources, and appropriate increase in the authority of local tax management authority. It calls for promoting the gradual transfer of consumption tax collection to the local governments and authorizing them to determine specific applicable tax rates within a certain range. It suggests reasonably expanding the scope of local government exceptional bond support, appropriately expanding the areas, scale, and proportion of capital funds, and establishing a comprehensive government debt management system. The local debt monitoring system and the long-term mechanism to prevent and resolve hidden debt risks will accelerate the reform and transformation of local financing platforms, standardize the management of nontax revenue, appropriately decentralize some nontax revenue management authority, and provide differentiated management based on actual conditions at the local level. Looking to the future, local fiscal and debt pressures will gradually ease.
Seventh, the peak China view contends that China’s rapid industrialization has led to severe environmental problems such as pollution and resource depletion. Addressing these issues will require significant investment and may impact economic growth. In this regard, the resolution proposes a series of solid policies and measures to improve the environment, mainly to improve the ecological civilization system, coordinately promote carbon reduction, pollution reduction, green expansion, and economic growth, actively respond to climate change, and accelerate the improvement and implementation of green policies. Environmental protection also involves improving the ecological environment governance system and the green and low-carbon development mechanism. Investing more resources in the short term to improve the environment will lay a stronger foundation for China’s long-term sustainable economic development.
Finally, the peak China view highlights the impact of financial risks on China’s development. It asserts that China’s financial system faces grave risks such as shadow banking, nonperforming loans, and a lack of transparency. These risks could lead to a financial crisis that could jeopardize economic growth. The resolution proposes to deepen the reform of the financial system, improve the capital market functions that coordinate investment and financing, prevent risks, strengthen supervision, and promote the healthy and stable development of the capital market. The central government will formulate financial laws, improve the financial supervision system, bring all financial activities into supervision by the law, strengthen supervisory responsibilities and accountability systems, and beef up central and local supervision coordination. These measures, together with the central government’s policies to broaden local government revenue sources mentioned above, will reduce the need for local governments to overly rely on land sales and borrowing to pay for expenses and prevent the occurrence of excessive local government debt. In the long run, these measures will significantly reduce the possibility of financial risks and allow the Chinese economy to thrive in a stable and positive financial environment.
The author is a professor emeritus of sociology, the Chinese University of Hong Kong, and a consultant for the Chinese Association of Hong Kong and Macao Studies.
The views do not necessarily reflect those of China Daily.
