China’s 40 Years of Reform 9811985049, 9789811985041

Table of contents :
Preface
Contents
Introduction China’s Reform and Opening-up from a Historical and Global Perspective
1 The World-System and China’s “Four 40 Years”
2 China’s Phase of Rapid Growth from a Global Perspective
3 The Global Significance of China Entering a Stage of High-Quality Development
4 China Will Lead a New Stage in World History
References
From Adjustment to Innovation: How China’s Economic Structure Has Been Upgraded
1 Economic Restructuring: Policy Emphasis Since 1978
2 Optimization and Upgrading: The Evolution Path of Industrial Mix
3 The New Normal: Opportunities and Challenges in Structural Transformation
4 “Innovative Competition” Requires Stock Innovation and New Economic Drivers
References
From Flat Ground to Tall Building: How China’s Finance Rises
1 Starting from Scratch: Development in Tandem with Reform
1.1 Financial Development After 1978 to the Early 1990s
1.2 Financial Development From 1993 to 2012
2 From One to Many: Striving to Create a New Situation in Building a Modern Financial System
2.1 Deepening the Reform of the Banking Sector
2.2 Steadily Advancing the Reform to Make the Interest Rate Market-Determined
2.3 Making Key Advancements in Making the RMB an International Currency
3 From One to Many: Key Points and Difficulties in Building a Multi-Level Capital Market
3.1 The Necessity of Developing a Multi-Level Capital Market in China
3.2 Three Difficulties and Risks for China to Build a Multi-Level Capital Market
4 The Road to a Financial Power
4.1 The Necessity of Becoming a Financial Power
4.2 China’s Strategic Layout for Becoming a Financial Power
From an Auxiliary Role to a Central Role: How to Shape Enterprise Ecology
1 Decoding the Meaning of the Era of “Market Anxiety”
2 Exploring How the Relationship Between Government and Enterprises Changed in the Past Four Decades
3 Two Dimensions of Enterprise Reform
4 Enterprise Ecology in the Modern Economic System
References
From “Division of Land” to Revitalization: How Chinese Villages Achieve Modernization
1 “Emancipation” and China’s Rural Reform
1.1 Agricultural Production After the Founding of the New China
1.2 Farmers’ Living Standards After 1949
2 The Road from Land Contracting to Urbanization
2.1 The Emergence of the Contract System with Remuneration Linked to Output
2.2 The Gradual Emergence of Issues Related to Agriculture, Rural Areas, and Farmers
3 Key Points and Difficulties on the Road to Prosperity for All
3.1 Restrictions Posed by Traditional Agricultural Production Methods
3.2 Insufficiency of Financial Support Policies for Traditional Agriculture
3.3 Changes in the Rural Population Mix
4 Revitalizing Rural Through Financial Means
4.1 The Necessity of Rural Financial Reform
4.2 Effective Solutions to Financial Innovation and Issues Related to Agriculture, Rural Areas, and Farmers
From Green Water to Golden Mountains: The Evolution of Ecological Development
1 The Deepening of the Green Concept
2 Continuous Strengthening of Green Institutions
2.1 The State Council Environmental Protection Leading Group → State Environmental Protection Administration (Non-independent)
2.2 State Environmental Protection Administration (Vice-Ministerial Level Directly Affiliated to the State Council) → State Environmental Protection Administration (Ministerial Level Directly Affiliated to the State Council)
2.3 Ministry of Environmental Protection (A Department at the Ministerial Level of the State Council) → Ministry of Ecology and Environment (A Department at the Ministerial Level of the State Council)
3 Continuously Strengthening Green Governance
4 Continuous Improvement of Green Development
From “Taking the Lead to Achieving a Better Quality of Life” to Fairness: The Road to Optimizing the Income Structure
1 For the World’s Largest Middle-Income Community
2 The Course of Income Distribution Reform
3 Incremental Reform: Expanding the Middle-Income Community
4 Stock Reform: Upgrading the Income Structure and Narrowing the Wealth Gap
References
From Docking to Leading: Road to the Center Stage of Global Governance
1 China and the World in the Historical Dimension
1.1 1978–2000: From Prudent Participation to Full Participation
1.2 2001–2013: Deep Participation and Reform
1.3 2013 to Present: Actively Leading the Transformation of Global Governance
2 China’s Views on and Propositions to the World
2.1 An Outlook on Global Governance that Advances with the Times
2.2 Reasons for the Change of Ideas
3 Opportunities and Challenges Facing China in Its Participation in Global Governance
3.1 The Road to Global Governance with Both Opportunities and Challenges
3.2 The Friction Between China’s New and the West’s Old Outlooks on Governance
3.3 China’s International Discourse Power is Weak, and Its Discourse Ability Lags Behind Its Ability to do Things
4 How China Leads Global Governance in the New Era
4.1 Relying on International Organizations to Reshape Its International Discourse System
4.2 Attach Great National Strategic Importance to the Training of Talents in International Organizations
4.3 Improve the Ability to Shape and Communicate International Discourse
References
From Initiative to Networking: The Belt and Road Initiative (BRI) Reshapes the Road of World Development
1 The BRI Implies Open Development
2 China’s Contribution to World Development and Cooperation
2.1 40 Years of “Bringing in”
2.2 40 Years of “Going Global”
2.3 40 Years of Development and Cooperation
3 The BRI Promotes a Global Governance Featuring Open Development
4 Towards a “Broader, Wider, and Deeper” BRI
4.1 A Broader Scope
4.2 A Wider Area
4.3 A Deeper Degree
4.4 We Must Be Prepared to Overcome Difficulties
From Processing to Importing: The Transformation of the Opening-Up Pattern
1 From “Processing Raw Materials on Clients’ Demands, Assembling Parts for the Clients, and Processing According to the Clients’ Samples” to the World Industrial Center
2 The Current International and Domestic Trade Layout
3 The Transformation of China’s Import and Export Layout and Policy Adjustment
3.1 Formulate Suitable and Appropriate Trade Policies at the Macro Level
3.2 Continue to Deepen the Reform of the Trade Structure
3.3 Make the Development of Import and Export Balanced
3.4 Promote Trade Liberalization
4 The People’s Needs for a Better Life and the New Pattern of Full Opening-up
From Digital China to Reform of Party and Government Institutions: The Wisdom of Modernizing the Governance Model
1 Institutional Reform, the Relationship Between Digital China and National Governance
1.1 The Campaign of Big Data Development is an Important Path for Building a Digital China
1.2 Building a Digital China is the Backbone of Modernizing the Governance Model in China
1.3 Deepening the Reform of Party and Government Institutions is a Prerequisite to Modernizing the Governance Model in China
2 The “Digitalization” Process in Modernizing the Governance Model
3 Looking at the Deepening Reform of Party and Government Institutions from the Context of the Big Data Era
4 Building Government Leadership Sustainably and Stably
Reference
Postscript

Citation preview

Understanding China

Wei Liu   Editor

China’s 40 Years of Reform

Understanding China

The series will provide you with in-depth information on China’s social, cultural and economic aspects. It covers a broad variety of topics, from economics and history to law, philosophy, cultural geography and regional politics, and offers a wealth of materials for researchers, doctoral students, and experienced practitioners.

Wei Liu Editor

China’s 40 Years of Reform

Editor Wei Liu Renmin University of China Beijing, China Translated by Zesi Fan People’s Publishing House Chengdu, Sichuan, China

ISSN 2196-3134 ISSN 2196-3142 (electronic) Understanding China ISBN 978-981-19-8504-1 ISBN 978-981-19-8505-8 (eBook) https://doi.org/10.1007/978-981-19-8505-8 Jointly published with People’s Publishing House The print edition is not for sale in China (Mainland). Customers from China (Mainland) please order the print book from: People’s Publishing House. ISBN of the Co-Publisher’s edition: 978-7-01-019405-9 © People’s Publishing House 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publishers, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publishers nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publishers remain neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Preface

The year 2018 marks the 40th anniversary of China’s vigorous and ever-new reform and opening-up, which started in 1978. The path of China’s reform started from “crossing the river by feeling for stones” and has achieved a new historical dimension of “adhering to the same blueprint of reform”. This is because we have constantly advanced the great cause of reform in the past 40 years, which gives us full confidence in the path, theory, system, and culture of socialism with Chinese characteristics. In China, the age of 40 signifies decisiveness. In “Zihan” of the Analects of Confucius, it is stated, “A wise man is not confused, a benevolent man is not worried, a brave man is not afraid”, which implies a disposition of wisdom and selfconfidence. The 40th anniversary of reform and opening-up means that we should have stronger confidence in the path, theory, system, and culture of socialism with Chinese characteristics by better absorbing Chinese wisdom. The period of 40 years is a short period of time compared with the long history of humanity. However, the period between 1978 and 2018 has witnessed earth-shaking changes in China. Over the past four decades, China’s total GDP has grown from only 1.8% of the world’s total to about 15%, and its per capita income has grown from being among the lowest in the world to the level of upper-middle-income countries (according to the standard designated by the World Bank). The country is quickly approaching the level of high-income countries. In 1978, more than 70% of China’s laborers were farmers; by 2018, this proportion had dropped to 28%. In 1978, China’s urbanization level was only 17%; in 2018, it reached 57%. The tremendous changes in a relatively short period of time mean that many long-term, solidified structural imbalances and fundamental problems in Chinese history have been reversed or even resolved, thus highlighting the extraordinariness of this historical period. To put it in a broader context, since the mid-nineteenth century, generations of Chinese patriots have been arduously exploring the way forward for China, which is why we can confidently say that the hard work of more than 100 years has paid off in that we have found the way to the great national rejuvenation. In other words, in the process

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of exploring the road for more than 100 years, there have been times when we were mentally “confused”. Today, we are “not confused” because we have confidence in the right path we have found. Some have said that China’s reform and opening-up is a step-by-step process and lacks systematic theoretical preparation. I am opposed to this idea. China’s reform and opening-up fully and comprehensively emancipated the country’s ideology and mobilized its theoretical advancement, covering areas of philosophy, scientific socialism, and political economy. Deng Xiaoping’s theory of socialism with Chinese characteristics, the important thinking of the “Three Represents”, the Scientific Outlook on Development, and Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era are all theorized combinations of the basic tenets of Marxism and the practice of China’s reform that open up a new realm in adapting Marxism to the conditions in China. Although the reform process is constantly scrutinized, it has always had a solid ideological and theoretical foundation and firm direction. Thanks to the theoretical development in the past 40 years, correct judgments were made so that we can have a comprehensive judgment of the general trend of reform today. Reform and opening-up is an ongoing journey. As the reform deepens, the great national rejuvenation is an inevitable trend that cannot be stopped by anyone. Today, our theoretical research on this process can enhance our theoretical confidence. China’s process of becoming rich through reform and opening-up is also very inspiring for the world. On the one hand, the Chinese path, Chinese wisdom, and Chinese approach brought about by reform and opening-up have provided brand new choices for other countries and nations that want to both accelerate development and maintain their independence; on the other hand, the world today is undergoing profound changes unseen in a century: the traditional drive for globalization is declining, and the “reversing” policies in the global structure such as the “trade war” have brought risks and uncertainties to the future of the world. China has adopted strategic measures to further expand its opening-up, strives to jointly build a community with a shared future for mankind with other countries, and has proposed the “Belt and Road Initiative”, which has injected positive energy into the future of the world. Looking back over the past four decades of China’s process of approaching the center stage of the world, we can become more confident in our system. Renmin University of China is the first new regular university created by the Communist Party of China (CPC). The 40th anniversary of the reform and openingup is also the 40th anniversary of the resumption of Renmin University of China. Along with reforms, Renmin University of China has always been committed to studying major theoretical issues in the development of the Party and the country, while continuously deepening reforms and exploring effective ways for universities to serve the country. The Chongyang Institute for Financial Studies at Renmin University of China is a new type of modern university think tank established by Renmin University of China. It is a product of reform and has also effectively served the reform. “It takes a teacher to transmit wisdom, impart knowledge, and resolve

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doubts”. As an embodiment of our confidence in culture, the present book shows how the Chongyang Institute for Financial Studies at Renmin University of China thinks of the reform process and discovers the defining trend of China’s reform.

September 2018

Wei Liu President of Renmin University of China Beijing, China

Contents

Introduction China’s Reform and Opening-up from a Historical and Global Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 The World-System and China’s “Four 40 Years” . . . . . . . . . . . . . . . . . . . . . 2 China’s Phase of Rapid Growth from a Global Perspective . . . . . . . . . . . . 3 The Global Significance of China Entering a Stage of High-Quality Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 China Will Lead a New Stage in World History . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . From Adjustment to Innovation: How China’s Economic Structure Has Been Upgraded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Economic Restructuring: Policy Emphasis Since 1978 . . . . . . . . . . . . . . . . 2 Optimization and Upgrading: The Evolution Path of Industrial Mix . . . . . 3 The New Normal: Opportunities and Challenges in Structural Transformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 “Innovative Competition” Requires Stock Innovation and New Economic Drivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . From Flat Ground to Tall Building: How China’s Finance Rises . . . . . . . 1 Starting from Scratch: Development in Tandem with Reform . . . . . . . . . . 1.1 Financial Development After 1978 to the Early 1990s . . . . . . . . . . . 1.2 Financial Development From 1993 to 2012 . . . . . . . . . . . . . . . . . . . . . 2 From One to Many: Striving to Create a New Situation in Building a Modern Financial System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Deepening the Reform of the Banking Sector . . . . . . . . . . . . . . . . . . . 2.2 Steadily Advancing the Reform to Make the Interest Rate Market-Determined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Making Key Advancements in Making the RMB an International Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 2 4 6 8 10 11 12 17 19 21 33 35 35 36 37 38 38 39 40

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3 From One to Many: Key Points and Difficulties in Building a Multi-Level Capital Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 The Necessity of Developing a Multi-Level Capital Market in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Three Difficulties and Risks for China to Build a Multi-Level Capital Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 The Road to a Financial Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 The Necessity of Becoming a Financial Power . . . . . . . . . . . . . . . . . . 4.2 China’s Strategic Layout for Becoming a Financial Power . . . . . . . . From an Auxiliary Role to a Central Role: How to Shape Enterprise Ecology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Decoding the Meaning of the Era of “Market Anxiety” . . . . . . . . . . . . . . . 2 Exploring How the Relationship Between Government and Enterprises Changed in the Past Four Decades . . . . . . . . . . . . . . . . . . . 3 Two Dimensions of Enterprise Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Enterprise Ecology in the Modern Economic System . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . From “Division of Land” to Revitalization: How Chinese Villages Achieve Modernization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 “Emancipation” and China’s Rural Reform . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Agricultural Production After the Founding of the New China . . . . 1.2 Farmers’ Living Standards After 1949 . . . . . . . . . . . . . . . . . . . . . . . . . 2 The Road from Land Contracting to Urbanization . . . . . . . . . . . . . . . . . . . . 2.1 The Emergence of the Contract System with Remuneration Linked to Output . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 The Gradual Emergence of Issues Related to Agriculture, Rural Areas, and Farmers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Key Points and Difficulties on the Road to Prosperity for All . . . . . . . . . . 3.1 Restrictions Posed by Traditional Agricultural Production Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Insufficiency of Financial Support Policies for Traditional Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Changes in the Rural Population Mix . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Revitalizing Rural Through Financial Means . . . . . . . . . . . . . . . . . . . . . . . . 4.1 The Necessity of Rural Financial Reform . . . . . . . . . . . . . . . . . . . . . . 4.2 Effective Solutions to Financial Innovation and Issues Related to Agriculture, Rural Areas, and Farmers . . . . . . . . . . . . . . . From Green Water to Golden Mountains: The Evolution of Ecological Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 The Deepening of the Green Concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Continuous Strengthening of Green Institutions . . . . . . . . . . . . . . . . . . . . . .

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2.1 The State Council Environmental Protection Leading Group → State Environmental Protection Administration (Non-independent) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 State Environmental Protection Administration (Vice-Ministerial Level Directly Affiliated to the State Council) → State Environmental Protection Administration (Ministerial Level Directly Affiliated to the State Council) . . . . . . . . 2.3 Ministry of Environmental Protection (A Department at the Ministerial Level of the State Council) → Ministry of Ecology and Environment (A Department at the Ministerial Level of the State Council) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Continuously Strengthening Green Governance . . . . . . . . . . . . . . . . . . . . . . 4 Continuous Improvement of Green Development . . . . . . . . . . . . . . . . . . . .

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From “Taking the Lead to Achieving a Better Quality of Life” to Fairness: The Road to Optimizing the Income Structure . . . . . . . . . . . . 97 1 For the World’s Largest Middle-Income Community . . . . . . . . . . . . . . . . . 97 2 The Course of Income Distribution Reform . . . . . . . . . . . . . . . . . . . . . . . . . 99 3 Incremental Reform: Expanding the Middle-Income Community . . . . . . . 101 4 Stock Reform: Upgrading the Income Structure and Narrowing the Wealth Gap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 From Docking to Leading: Road to the Center Stage of Global Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 China and the World in the Historical Dimension . . . . . . . . . . . . . . . . . . . . 1.1 1978–2000: From Prudent Participation to Full Participation . . . . . . 1.2 2001–2013: Deep Participation and Reform . . . . . . . . . . . . . . . . . . . . 1.3 2013 to Present: Actively Leading the Transformation of Global Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 China’s Views on and Propositions to the World . . . . . . . . . . . . . . . . . . . . . 2.1 An Outlook on Global Governance that Advances with the Times . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Reasons for the Change of Ideas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Opportunities and Challenges Facing China in Its Participation in Global Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 The Road to Global Governance with Both Opportunities and Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 The Friction Between China’s New and the West’s Old Outlooks on Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 China’s International Discourse Power is Weak, and Its Discourse Ability Lags Behind Its Ability to do Things . . . . . . . . . .

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4 How China Leads Global Governance in the New Era . . . . . . . . . . . . . . . . 4.1 Relying on International Organizations to Reshape Its International Discourse System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Attach Great National Strategic Importance to the Training of Talents in International Organizations . . . . . . . . . . . . . . . . . . . . . . . 4.3 Improve the Ability to Shape and Communicate International Discourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . From Initiative to Networking: The Belt and Road Initiative (BRI) Reshapes the Road of World Development . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 The BRI Implies Open Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 China’s Contribution to World Development and Cooperation . . . . . . . . . 2.1 40 Years of “Bringing in” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 40 Years of “Going Global” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 40 Years of Development and Cooperation . . . . . . . . . . . . . . . . . . . . . 3 The BRI Promotes a Global Governance Featuring Open Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Towards a “Broader, Wider, and Deeper” BRI . . . . . . . . . . . . . . . . . . . . . . . 4.1 A Broader Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 A Wider Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 A Deeper Degree . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 We Must Be Prepared to Overcome Difficulties . . . . . . . . . . . . . . . . . From Processing to Importing: The Transformation of the Opening-Up Pattern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 From “Processing Raw Materials on Clients’ Demands, Assembling Parts for the Clients, and Processing According to the Clients’ Samples” to the World Industrial Center . . . . . . . . . . . . . . . 2 The Current International and Domestic Trade Layout . . . . . . . . . . . . . . . . 3 The Transformation of China’s Import and Export Layout and Policy Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Formulate Suitable and Appropriate Trade Policies at the Macro Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Continue to Deepen the Reform of the Trade Structure . . . . . . . . . . . 3.3 Make the Development of Import and Export Balanced . . . . . . . . . . 3.4 Promote Trade Liberalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 The People’s Needs for a Better Life and the New Pattern of Full Opening-up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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From Digital China to Reform of Party and Government Institutions: The Wisdom of Modernizing the Governance Model . . . . . . 1 Institutional Reform, the Relationship Between Digital China and National Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 The Campaign of Big Data Development is an Important Path for Building a Digital China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Building a Digital China is the Backbone of Modernizing the Governance Model in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 Deepening the Reform of Party and Government Institutions is a Prerequisite to Modernizing the Governance Model in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 The “Digitalization” Process in Modernizing the Governance Model . . . . 3 Looking at the Deepening Reform of Party and Government Institutions from the Context of the Big Data Era . . . . . . . . . . . . . . . . . . . . 4 Building Government Leadership Sustainably and Stably . . . . . . . . . . . . . Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Postscript . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

Introduction China’s Reform and Opening-up from a Historical and Global Perspective

The year 2018 was nothing but exceptional because domestically, it coincided with the 40th anniversary of the reform and opening-up, which started in 1978, and the 120th anniversary of the Hundred Days of Reform of 1898, and globally, it coincided with the 170th anniversary of the publication of the Communist Manifesto in 1848 and the 200th anniversary of Karl Marx’s birth in 1818. To look back at the past 40 years of reform and opening-up and look forward to the future when China’s Two Centenary Goals will be achieved, the country should see the reform and opening-up from the perspective of history and global affairs, which corresponds with President Xi Jinping’s speech commemorating the anniversary of Marx’s birth on May 4, 2018: “It is only by considering the long course of human history that we can gain a perspective on the essence of historical movements and the direction of contemporary developments.” Xi Jinping stated that through reform and opening-up, “Chinese Communists have been merging the tenets of Marxism with the practical realities of the reform and opening-up. Chinese Communists brought the people together in developing the great new endeavor of socialism with Chinese characteristics, enabling China to take big strides to catch up with the times. Thus, they brought about the tremendous transformation of China: from having gained independence to becoming wealthy.” Indeed, the only viable way to understand the relevance of China’s reform and opening-up is to understand what the phrases “the practical realities” in China and “to take big strides to catch up with the times” mean. China’s 40 years of reform and opening-up is a process from gaining independence to becoming prosperous. In history, however, prior to gaining independence, China “woke up”; after “becoming prosperous”, China will become powerful. We may say that the process of China’s reform is a process from waking up, gaining independence, to becoming prosperous and becoming powerful. The significance of such a process is obvious only when seen from a global perspective.

© People’s Publishing House 2023 W. Liu (ed.), China’s 40 Years of Reform, Understanding China, https://doi.org/10.1007/978-981-19-8505-8_1

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1 The World-System and China’s “Four 40 Years” In the set phrase “reform and opening-up”, “reform” is a domestic process and “opening-up” is oriented to the rest of the world: China has actively integrated itself into the world economy in the era of globalization. From a global perspective, what are the roots and drivers for China’s rise through reform and opening-up? The famous scholar Giovanni Arrighi argues in his book Adam Smith in Beijing: Lineages of the 21st Century: “Contrary to widespread belief, the main attraction of the PRC for foreign capital has not been its huge and low-priced reserves of labor as such—there are plenty of such reserves around the world but nowhere have they attracted capital to the extent that they have in China. The main attraction, we shall argue, has been the high quality of those reserves—in terms of health, education, and capacity for self-management—in combination with the rapid expansion of the supply and demand conditions for the productive mobilization of these reserves within China itself. Moreover, this combination was not created by foreign capital but by a process of development based on indigenous traditions— including the revolutionary tradition that gave birth to the PRC. Foreign capital participated in the process in the later stage.” [1: 351] In Arrighi’s expression, before the opening-up, China had “a process of development based on indigenous traditions”, and opening-up was the connection between this process and the rest of the world. In fact, China’s population has long accounted for about a quarter of the world’s total, and it has its own civilization and revolutionary traditions. It can be said that before the opening-up, it constituted a world. [2: 2] In this sense, the internal cause of and driver for China’s rise is reform, and the external cause is the opening-up. In The Modern World-System, Immanuel Wallerstein argues that the modern world-system, “as spacious as a grand empire… (as) a kind of social system the world has never known before” [3: 15], originated in Europe from the end of the fifteenth century to the beginning of the sixteenth century. However, such a system is not a political entity, but an economic one. In this sense, the modernization process of the world can be described as the modern world-system expanding from Europe to the rest of the world. Therefore, the modern history of China (after the mid-nineteenth century) is an interactive process between two worlds: the “world” of China and the modern worldsystem. After being invaded by the modern world-system, China sensed the existence of the modern world-system; the oppression imposed by the modern world-system made China resist; China’s backwardness (compared to the modern world-system) stimulated China to catch up with the modern world-system; after China managed to integrate itself into the world, both China and the modern world-system have been developing together. China’s “process of development based on indigenous traditions” became sufficient for making China a leader in the stage of the world. This historical process can be constructed as a historical dimension, which includes five successive stages: “opening eyes” → “waking up” → “gaining independence” → “becoming prosperous” → “becoming strong”. The 40 years of the reform and

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opening-up is roughly a period of “becoming prosperous”, which carries on the past of “gaining independence” and ushers in the new era of “becoming strong”. This division of stages of Chinese history shows that “becoming prosperous” is a process of about 40 years, and the three historical processes before it also lasted about 40 years. Such four processes can be collectively referred to as “Four 40 years of China’s reform”. The first 40 years (an approximate number) is the process of China “opening its eyes”. The 1840 Opium War was a collision of “two worlds”, but gaining an effective understanding of the nature of the event (correctly understanding the changes in the rest of the world) took a relatively long time for the Chinese people. Wei Yuan was commissioned by Lin Zexu to compile Haiguotuzhi (graphical records of overseas countries) from 1841, and it was published in 1852. During this period, he and Xu Jishe, Feng Guifen, Wang Tao, and other thinkers jointly put forward the idea of “learning from the advanced technologies in the West in order to resist the invasion of the Western powers”, but it was not until the beginning of 1861 with the birth of Tongwen College, which marked the rise of the Westernization Movement, that China advanced its modernization independently. The leaders of the Westernization Movement were some officials in the Qing dynasty, who were only part of the upper class. Therefore, the period from the 1850s to the Hundred Days of Reform of 1898 can only be called a period that China “opened its eyes” to understand the modern world-system. The second 40 years (an exact number) is the process of China’s “waking up”. Although the Hundred Days of Reform of 1898 was unsuccessful, it was a social movement that resonated widely among the scholar class in China, and it had a whole set of propositions to fundamentally change the Chinese system. It can be considered that for Chinese society, it was a sign that the whole intellectual class, which had a clear understanding of the modern world-system, had “opened its eyes”. The subsequent series of historical events such as the 1911 Revolution and the May 4th Movement were all processes of “waking up”. However, China’s “waking up” must be marked by the great “waking up” of the entire Chinese nation. The third 40 years (an approximate number) is the process in which China “gained independence”. In 1938, Mao Zedong published On Protracted War, which had the most far-reaching impact in waking up the Chinese nation. Before the publication of the article, the KMT’s imagination of “China’s quick defeat” or “China’s quick victory” was widely circulated. The two different opinions epistemologically made an error that the Anti-Japanese War was a war between two governments. In fact, such a war was an all-out war between nation-states in the context of the modern world-system. Mao Zedong stated in On Protracted War: “The war between China and Japan is not just any war, it is specifically a war of life and death between semi-colonial and semi-feudal China and imperialist Japan, fought in the 1930s.” Because of On Protracted War, the whole Chinese society gained a sense of national consciousness. The Chinese people realized that the nature of the War of Resistance against Japanese Aggression was absolutely different from the history of the Qing dynasty replacing the Ming dynasty. Thus, the concept of the “War of Resistance against Japanese Aggression” was sublimed as something relevant to not a few but

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all Chinese people, which underpinned China’s “gaining independence” endeavor. The birth of the People’s Republic of China (PRC) in 1949 was a sign of China’s “gaining independence”. Since then, independent modernization has been possible to develop. Before the reform and opening-up, the independent modernization process enabled China to “gain independence” in many major social sectors such as industry, society, education, and health. The 40 years of “becoming prosperous” can be seen as a continuation of the previous three “40 years”. If such a period is compared to a race, then in such a race, China and developed countries have been competing against each other in the modern world-system. The first 40 years taught China that it was not in the arena of the modern world-system, thus the country spent the second 40 years trying to enter the modern world-system, the third trying to start, and the fourth trying to catch up with others, finally “running side by side” with others. This is a new historical dimension and has demonstrated the ability to lead the world.

2 China’s Phase of Rapid Growth from a Global Perspective At the beginning of the reform, China established a basic line of focusing on economic development. In the following 40 years, its per capita income (of a quarter of the world’s population) increased from 160 USD in 1978 to over 8800 USD in 2017, an increase of approximately 54 times; the share of China’s economy in the world’s total economy increased from 1.8 to 16%, an increase of nearly 8 times; its contribution to global economic growth has reached more than 30% for many years, ranking first in the world. This is a miraculous quantitative change and the largest rapid growth process in human history. In this process, China’s position has changed from “following others to run” to “running side by side”. How has China managed to do this? This is probably one of the most important theoretical issues today, and related research abounds. Here, we want to emphasize an important cognitive basis: external factors work through internal factors. To be specific, China’s specific reality and reforms are internal factors, and foreign capital and international markets are external factors. An interesting and profound phenomenon is that there are many expressions related to terrain in the discussion on the specific ways forward for reform, such as “crossing the river by feeling for stones”, “going to the sea”, “climbing slopes or ridges”, “crossing rapid torrents and wading through dangerous beaches”, etc. For those who are in a specific and actual historical dimension, these expressions are accurate and vivid in that they describe a choice to press forward in face of difficulties: what will be the specific situation after crossing rapid torrents and wading through dangerous beaches, will it be smoother or more difficult? The answer is indefinite but we must move forward. Those who are in the specific and actual historical dimension will find the topographical expressions natural to use, which are, however, distinct

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from the interpretation of “mainstream economics” (neoclassical economics). In the interpretation of neoclassical economics, micro-actors (enterprises and individuals) will automatically make optimal decisions based on price signals, so that the market will automatically achieve the optimal allocation of resources. Therefore, all the government has to do is to initiate such an automated process of marketization, ensure that correct price signals are accurately transmitted, and see a spontaneous achievement of economic growth. Obviously, the process of China’s rapid growth in the past four decades cannot be best explained by neoclassical economics. In fact, there is almost no real history in the world that can be explained by neoclassical economics, which, nonetheless, dominates the mainstream international discourse. Evolutionary economics, one of the important critics of neoclassical economics, describes the process of economic growth in a way similar to China’s discourse. Evolutionary economists Richard R. Nelson and Sydney G. Winter, in the book An Evolutionary Theory of Economic Change, argue that explaining economic growth requires the use of “topography”: the market should be seen as an environment in which choices can be made, with complex topography; economic growth is a pure selection process. Only by constantly “searching” in the complex topography and accumulating technological progress can microscopic actors discover areas of profit, and the market structure will also change and become a source of economic growth [4: 258–384]. Therefore, the Chinese discourse of the road to reform and opening-up is in line with the interpretation of economic growth in evolutionary economics. As the contemporary theoretical inheritor of Schumpeter’s theory of “innovation”, evolutionary economics emphasizes on the role of innovation as the structural change of the market itself, which is different from neoclassical economics, which disregards the structural difference between markets. In fact, China’s reform process is a process of constantly breaking through the constraints of the original system and mechanism (the market structure) and creating new industrial chains and value chains. It is also an innovation-driven economic process. Both the “destruction” and “creation” of the market structure are highly relevant. Therefore, although China’s rapid growth process is a rapid quantitative growth, it is not a quantitative superposition of the technological level in 1978. Instead, it constantly change its economic form through technological advancement and structural changes of the market. Through the above explanation, we can also answer another question related to “topography”: will China fall into the “Middle-Income Trap”? The “Middle-Income Trap” was first proposed in the 2007 World Bank research report entitled An East Asian Renaissance: Ideas for Economic Growth. [5]. In the early stage of its proposal, this concept did not attract the attention of the economics community, nor did it trigger in-depth discussions in the policy community. After the 2008 global financial crisis, Western economies fell into a protracted downturn, and China’s economic growth rate declined. Discussions on the “Middle-Income Trap”, such as concerns about whether China will have long-term social inequality, weak

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growth, and stagnant development, gradually became a research question that was given attention in both China and the rest of the world. [6]. In fact, it is precisely China’s economic growth, which stems from changing the market structure rather than quantitative accumulation, that ensures that China will not fall into the “middle income trap”. As a giant economy accounting for one-fifth of the world’s population and approximately one-sixth of the global economy, China is subject to the global economic system in terms of its own development and the accompanying rise in its per capita national income, which will also positively change the global economic structure and standard setting. For example, the fortunes of some countries have changed thanks to China’s investment and development. In fact, most countries in the world do not have the ability to independently change the market structure due to reasons such as population size. The market of some countries being subject to other countries is the main reason why they have fallen into the “middle income trap”.

3 The Global Significance of China Entering a Stage of High-Quality Development A family becoming rich does not mean that it consumes more food, but that its conduct has changed. Likewise, China’s becoming prosperous is a process of qualitative change, not quantitative change. Indeed, from the perspective of indicators in the high-speed growth stage, the quantitative growth is primary, which answers to the need of catching up with, running side by side, and overtaking others. We may use the concept of “phase transition” in physics to explain the economic significance of qualitative changes caused by quantitative changes. A “phase” is a part of a material system that has the same physical properties and is separated from other parts by a certain interface. For example, in a system composed of water and ice, ice is one phase and water is the other phase. The transformation of a substance from one phase to another requires a process, which is called a “phase change”, for example, ice becomes water and graphite becomes diamond. A phase change has three characteristics: 1. It must go through a certain period of time; 2. There must be changes in such things as energy absorption and release, or in the physical quantities of things like heat capacity, thermal expansion coefficient, and isothermal compression coefficient; 3. The structure of the material has changed. In order to distinguish it from the concept of a phase change in physics, we refer to the structural change that has occurred in the socio-economic fields as a “major phase change”. During the 40 years of reform and opening-up, the period of “major phase change” was mainly reflected after the year 2012 when the 18th National Congress of the Communist Party of China (CPC) was held, which can be called the “phase change period of China”. During the phase change period in China, China experienced a number of phase changes of great historical and world significance: in terms of development mode, China achieved a “leap-forward” transition from relying on traditional

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economic drives to new economic drives; in terms of people’s lives, the trajectory of the life of the Chinese people has undergone a qualitative change from meaning to goal; in terms of spatial structure, China has seen a trend of layout transformation from population movement to the rise of localities; in terms of the governance system, China has realized the “system optimization and upgrading” of the governance system and governance methods; in the overall situation of the world, in the past five years, China has changed from a “connected” in a global network to a “connecter”. All of these can be said to be phase changes. From the perspective of the model of development, innovation is becoming the core concept of leveraging the transformation of China’s economic drive through the powerful promotion of economic growth. The concept of “jumping” in quantum mechanics can be used to describe the transformation of China’s model of development. “Jumping” refers to the process of rapid changes in the state of the quantum mechanics system. The rapid change of China’s economic model of development is also a transition from traditional orbits to innovation drives, just like the jumping of electrons from a lower-energy state orbit to a higher-energy state orbit in quantum mechanics. From the perspective of people’s lives, the pace of prosperity for all is approaching, China’s per capita income is growing steadily, consumption is being pluralized and upgraded, and emerging businesses such as the shared economy and e-commerce have rapidly changed people’s lives. The main social tension has changed into the conflict between unbalanced and inadequate development and the people’s evergrowing needs for a better life. All of these are fundamentally changing the life trajectory of the Chinese people and fostering well-rounded human development. From the perspective of geographical space, China’s economic geospatial structure has undergone profound changes. The coordinated development of the BeijingTianjin-Hebei Region, the Yangtze Economic Belt, and the Belt and Road Initiative (BRI) have formed three major supporting belts for China’s regional economic development. Together with the original four major sectors of “the large-scale development of western China, the revitalization of northeast China, the rise of central China, and the east taking the lead in development”, they constitute the new pattern of regional economic development in China. After several years of hard work, China’s regional development has shown a good trend of shifting from an unbalanced to a balanced state and from an uncoordinated to an increasingly coordinated state. It can be said that this change has made a fundamental layout for the long-term development of China’s spatial structure in the future. From the perspective of the governance system, China has optimized and upgraded the governance system and governance methods. China is a country that maintains the long-term development of its civilization, so its own long-term stability has also become essential for the survival of its civilization. In this regard, ancient Chinese sages remarked long before that “The most important things for a country are political and military achievements”. Naturally, maintaining a set of efficient and powerful civil and military official systems has become the core of China’s governance capabilities. Just as the “optimizing” process in systems engineering aims to enable the system to reduce redundancy, increase stability, and improve operational efficiency,

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the operation of the governance system of the “living body” of a civilized country also needs to be “optimized.“ In the past five years, through a series of substantial “optimization” work such as party-building, anti-corruption efforts, and military reform, China is rebuilding the foundation for sustained stability under new historical conditions. The change in China’s world status is the biggest change brought about by China’s period of phase change, and it will also have a huge impact on China’s future development. The most “qualitative” aspect of this change is that once, the two coasts of the Atlantic, which occupies a small area on the world map, acted as the only “server” in the global economic network, and the rest of the world needed to have an economic connection with such an area before being able to be “connected” to the whole world. That said, with the successful convening of the 2014 APEC Beijing Summit, the 2016 G20 Hangzhou Summit, the Belt and Road Forum for International Cooperation in May 2017, and the BRICS summit in September 2017, China has become a newly emerging “server” in the global economic network and is gaining greater relevance. This process can be described as “networking” in communication engineering. From the perspective of the “big coordinate” of world history and the world pattern, the transition from “a world of a single server” to “a world of two servers” is a “major phase change”.

4 China Will Lead a New Stage in World History China, which has gone through the process of “opening its eyes”, “waking up”, “gaining independence” and “becoming prosperous”, on the occasion of the 40th anniversary of the launch of the reform and opening-up, now stands at a new juncture of “becoming strong”. It faces an unfolding roadmap of building a great modern socialist country by the middle of this century. For the “modern world-system” dominated by the West, China is another civilization. Nonetheless, China thoroughly understands the right way forward precisely because it has been invaded and repelled by the “modern world-system”, integrated into this system, and risen as a major power. China is the only major country that has truly risen peacefully in world history. During the 40 years of China’s “becoming prosperous”, the only major country in the world that has not witnessed, launched, or participated in any wars is China. This indeed breaks through and subverts the previous rule of world history that “a strong nation is bound to seek hegemony”. It can be said that with the rise and improvement of China’s economy, the stronger China is, the less likely it is that the world will be plagued by the hegemony among major powers. China, which has ushered in a new era of “becoming strong”, has shown its ability to “lead”. What direction will China point out to the world, which is now in difficulty? Building a community with a shared future for mankind is China’s answer.

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In the present-day world, human society is interconnected to an unprecedented degree, yet the difficulties and challenges facing globalization are also unprecedentedly complex. Non-traditional security issues such as the refugee crisis and terrorism are becoming more complicated, and the wave of “anti-globalization” has profoundly changed the political ecology of the West. The root cause of such problems is that the expansion of the world-system featuring Western-centrism has come to an end. The only way to get out of this predicament is to form a new cooperation network among the people of all countries in the world, understand each other, learn from each other, seek common ground while reserving differences, and build a community of a shared future for mankind that seeks common development and shared prosperity. China has enshrined building a community with a shared future for mankind into its Constitution. As President Xi Jinping stated in his speech “Work Together to Build a Community of a Shared Future for Mankind” at the United Nations Headquarters in Geneva: “Mankind is in an era of major development as well as profound transformation and change. The trends of global multi-polarity, economic globalization are surging forward. IT application in social development and cultural diversity are making continued progress. A new round of scientific and industrial revolution is in the making. Interconnection and interdependence between countries are crucial for human survival.” Socialism with Chinese characteristics has ushered in a new era, and high-quality development has become the core goal of establishing a modern economic system. The world is also at a new historic juncture. We all live together in a community with a shared future. Globalization requires new momentum and the right direction. China is building a high-quality community with a shared future for mankind based on the concept of common development. Xi Jinping put forward four expectations for building a community with a shared future for mankind: We should jointly build a world of common security for all; We should build a world of common prosperity through win–win cooperation; We should build an open and inclusive world through exchanges and mutual learning; We should make our world clean and beautiful by pursuing green and low-carbon development. To say the least, these four expectations point out the right direction and provide a vision for creating a community with a shared future for mankind. As the first dimension of a community with a shared future for mankind, “a world of common security for all” embodies the new security concept. In today’s era, the social and technological conditions on which mankind depends for survival are unprecedentedly complex, and people’s interconnection and interaction are unprecedentedly close. This makes the security threats facing mankind increasingly complex and integrated. No country can solve real security problems alone or through hegemony. This requires advocating a new vision of common, comprehensive, cooperative, and sustainable security and creating a security framework that features fairness and justice and is built by all to be enjoyed by all. As the second dimension of the community with a shared future for mankind, “a world of common prosperity” embodies the new outlook on development. Inadequate and unbalanced modernization is the biggest difficulty facing globalization. To solve this problem, people in emerging economies and developing countries, who account for more than three-quarters of the global population, must be integrated into the

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process of globalization. This will form a new international market network and bring about common development and prosperity. China has the development experience of making one-fifth of the world’s population “achieve a better quality of life” and is well aware of the connection between poverty reduction and openness. To create good conditions for the common development of all mankind, China advocates “open, tolerant, inclusive, balanced, and win–win” economic globalization. As the third dimension of the community with a shared future for mankind, the “open and inclusive world” embodies the new outlook on cooperation. As a major country with a civilization more than five millennia old and its decline and reemergence after the mid-nineteenth century, China has proved with its development experience that the road to modernization must have a civilizational meaning beyond the level of material advancement in order to achieve stable and long-term progress. Only by adhering to the new outlook on cooperation of “seeking common ground while reserving differences, seeking openness and tolerance” between civilizations, and transcending inter-civilization barriers, conflicts, and sense of superiority through inter-civilization communication, mutual learning, and coexistence can we realize mutual understanding, mutual respect, and mutual trust among nations, and thus see that all counties can achieve long-term progress on the road of globalization. As the fourth dimension of the community with a shared future for mankind, the “clean and beautiful world” embodies a new outlook on ecology. The Earth is the shared home of mankind. There is only one Earth and everyone is on it. The concept of ecological development proposed by China clarifies from a philosophical perspective that the relationship between man and nature is comprehensive and three-dimensional, and cannot be simplified as carbon emissions. Human activities include both production and consumption, where all links must shoulder ecological responsibilities and adhere to the concept of coexistence between man and nature. Only in this way can we jointly create a harmonious and livable home for humans, so that nature and ecology recuperate and rebuild and everyone can enjoy green waters and mountains.

References 1. Arrighi, G. (2007). Adam Smith in Beijing: Lineages of the 21st century. Verso. 2. Peyrefitte A. (1995). 停滞的帝国: 两个世界的撞击, [L’empire Immobile, Ou, Le Choc Des Mondes: Récit Historique] (王国卿, [W. Guoqing et al.] Trans.). 生活·读书·新知三联书店. SDX Joint Publishing Company. 3. Wallerstein, I. (1974). The modern world-system. Academic Press. 4. Nelson, R. R., & Winter, S. G. (1997). 经济变迁的演化理论 [An evolutionary theory of economic change] (胡世凯, [H. Shikai], Trans.). 商务印书馆 [The Commercial Press]. 5. Gill, I., & Kharas, H. (2007). An East Asian renaissance: Ideas for economic growth. World Bank. 6. Wang, W. [王文]. (2017). 超越’中等收入陷阱’: 解决全球不平等的中国经验与方案 [Beyond the middle-income trap: China’s experience and approach to resolving global inequality]. 红旗 文稿 [Red Flag Manuscript], (23).

From Adjustment to Innovation: How China’s Economic Structure Has Been Upgraded

In the past 40 years of reform and opening-up, through economic and industrial restructuring, China has always focused on the key task of transforming its extensive model of economic development into an intensive development model. Before 2012, China had not achieved significant results in the difficult political process of economic restructuring. After the 18th National Congress of the CPC in 2012, the CPC Central Committee took innovation-driven growth as the core goal of its policy. Especially after 2015, by taking the new normal into account, the CPC Central Committee made the supply-side structural reform the main focus and main task of the economic work, advanced “cutting overcapacity, reducing excess inventory, deleveraging, lowering costs, and strengthening areas of weakness”, and enabled China’s economy to shift from investment-driven to factor-driven and finally to an innovation-driven growth model. China’s economic structure has finally shifted from being industry-oriented to service-oriented. Its rapid growth shifted to high-quality growth. A modern economic system is being built. President Xi Jinping proposed that while moderately expanding aggregate demand, efforts should be made to strengthen supply-side structural reforms, improve the quality and efficiency of the supply system, strengthen the momentum of sustained economic growth, and greatly improved China’s social productivity. The 19th National Congress of the CPC proposed that supply-side structural reform should be the main line of our work in order to build a modern economic system and that we should deepen supply-side structural reforms amid the world’s innovative competition.

© People’s Publishing House 2023 W. Liu (ed.), China’s 40 Years of Reform, Understanding China, https://doi.org/10.1007/978-981-19-8505-8_2

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1 Economic Restructuring: Policy Emphasis Since 1978 Since the reform and opening-up started in 1978, the Chinese economy has shifted from a planned economy to a market economy, during which process economic restructuring and upgrading have always been the economic focus. Although China’s economic conditions and policies for boosting economic development have varied in different periods, economic restructuring policies and policies aimed at transforming economic development models have always been the main task of China’s policies for boosting economic development. From the perspective of the development process, in the process of transition from a planned economy to a market economy, China’s economic structure has gradually shifted its focus from heavy industry to light industry, especially the service industry, achieving strategic transformation and upgrading. On the whole, China’s economic structure is more reflected in the transformation and upgrading of industrial mix. From the perspective of the transformation and upgrading of the three industries, the main task of China’s industrial restructuring is to optimize the proportions of the three industries and the internal proportions of the three industries while maintaining stability, especially to adjust the proportions of light and heavy industries within the industrial sector and the proportions of the advanced and backward industries in the manufacturing sector. At the same time, the development goal is to properly handle agriculture, gradually attaching importance to industrial development and service industries and vigorously developing high-tech industries. In addition, the key to transforming the economic development model lies in the dynamic equilibrium of opening-up, market-oriented reforms, investment, consumption, and exports. China’s economic restructuring and development evolution can be divided into four stages: 1. 1978–1991. In the planned economic development phase from 1949 to 1978, heavy industry was prioritized and the economic model was highly centralized and concentrated, resulting in a deformed industrial structure that was too focused on heavy industry. In such a structure, light industry was insignificant, agriculture was backward, and the service industries were too small. The low economic efficiency and the severe shortage in the economic lives made drastic economic reforms necessary. From 1978 to 1983, the GDP increased by 66% and the proportion of agriculture increased. The development of light industry was faster than that of heavy industry, and the industrial mix tended to shift its focus to light industry. In 1984, the “Decision of the CPC Central Committee on Reforming the Economic System” was issued as a programmatic document. Reform and opening-up were carried out in urban and rural areas across the country. The industrial structure showed the law of industrialization development: the proportion of agriculture fell and the proportion of industry rose, and especially, the proportion of light industry rose. The socialist market economic system had not yet been established, and the “dual track system” promoted gradual reforms.

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2. 1992–2008. In 1992, Deng Xiaoping’s southern tour talks and the 14th National Congress of the CPC determined that the target model of China’s economic system reform was a socialist market economy. “The Decision of the CPC Central Committee on Several Issues Concerning the Establishment of a Socialist Market Economic System” was promulgated and implemented in 1993 as the second programmatic document of China’s reform. The “Eighth Five-Year Plan” stated that the outstanding problem of China’s economic development was the irrational industrial mix, and it emphasized that adjustment and optimization of the industrial mix should be placed in a prominent position. The “Outline of the National Industrial Policy in the 1990s” was formulated in 1994 and proposed that the industrial mix should be adjusted according to the objective laws of the process of industrialization and modernization to promote healthy industrial development. The outbreak of the 1997 Asian Financial Crisis led to a relative overcapacity. From 2001 to 2008, China’s accession to the WTO brought about huge overseas markets and stimulated the rapid development of China’s manufacturing industry. At the same time, after the Asian Financial Crisis and the Internet bubble, China’s economy and industrial mix also began to shift from being labor-intensive and production-intensive to technology-intensive, knowledgeintensive, and capital-intensive. 3. 2008–2012. After the financial crisis in Europe and the United States, external demand was weak and China’s manufacturing industry was experiencing overcapacity. At the same time, the new economy was also developing. China proposed to develop strategic industries and emerging strategic industries represented by new materials, new energy, communication technology of the next generation, and newenergy vehicles. From 2013 to 2018, supply-side structural reforms were proposed, highlighting innovation-driven economic growth. Efforts to cut overcapacity were carried out in traditional industries such as steel, coal, and others. The country was committed to developing new economies, new business forms, new models, and new industries to replace old drivers of growth with new ones, and the country was committed to developing the service industry. Moreover, China’s service industry accounted for more than half of the economy, which overtook industry for the first time to become the engine of economic growth. 4. After 2012. Under the new normal conditions, the fundamental problem is no longer the GDP but the economic structure. The main conflict lies on the supply side. Therefore, it is necessary to increase the quality and effectiveness of supply through supply-side structural reform. Supply-side structural reform must use innovation to re-arrange and combine the five major production factors of innovation, labor, land, capital, and technology, transform and upgrade traditional drivers of growth, and cultivate new drivers of growth. Through the revitalization of the real economy, new momentum will be strengthened, and the stable and healthy economic development can come true, so that China’s economic transformation and upgrading will be achieved. In order to adapt to and lead the new normal of the economy, the 2015 Central Economic Work Conference proposed for the first time to advance supplyside structural reforms. This is China’s voluntary choice to adapt to the new situation of comprehensive national strength competition after the international financial crisis

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broke out in 2008. The 2016 Central Economic Work Conference further proposed that the ultimate goal of supply-side structural reforms was to meet demands, the focus is to improve the quality of supply, and the fundamental way is to deepen reforms. It has been proposed to further advance “cutting overcapacity, reducing excess inventory, deleveraging, lowering costs, and strengthening areas of weakness”, to further implement the supply-side structural reform of agriculture, to focus on the revitalization of the real economy, and to see that the development of the real estate market is stable and healthy. The 2017 Central Economic Work Conference proposed that by deepening supply-side structural reforms, China should transform “made in China” into “created in China”, China’s speed into China’s quality, and China’s status as a major manufacturing country into a strong manufacturing power. From the beginning of the reform and opening-up in 1978 to the beginning of the 1990s, China’s economic development began to transform from a planned economy to a commodity economy. China’s main social conflict was the one between the evergrowing material and cultural needs of the people and the backwardness of social production, and the country was faced with a chronic shortage of consumer goods. Therefore, the focus of China’s economic development was to adjust production to meet consumer demand and improve the supply capacity of basic industries. During that period, the focus was developing agriculture and light industry, mainly adjusting the production of consumer goods. In addition, as infrastructure and basic industries could not meet the needs of economic development or coordinate with it, the emphasis at the time was developing infrastructure and basic industries to reduce bottlenecks that restricted economic development. After economic adjustment in the 1980s, China overcame the long-term shortage of consumer goods, developed the tertiary industry, paid attention to the shift from extensive to intensive and active development, and adjusted the economic structure to a certain extent. However, there were still problems of low economic efficiency, slow development of basic industries, a prominent conflict between basic industries and processing industries, and major economic fluctuations. Therefore, it was necessary to adjust existing problems in policies related to the economic structure (so as to vigorously develop infrastructure and industry and improve economic efficiency) and to, institution-wise, improve the market system and expand opening-up. [1] After Deng Xiaoping’s southern tour talks in 1992, market-oriented reforms and opening-up became important directions for economic development. The market economy officially became the goal and direction of China’s economic development. The economic policies of that period emphasized on building a market economy on the basis of the planned economy policies and emphasized both market-oriented reforms and opening-up. Problems of basic industries were further resolved and priority was given to developing basic industries such as the transportation, communications, and energy industries; at the same time, more emphasis was placed on developing the industrial sector (especially the manufacturing industry) and pillar industries including machinery and electronics, the petrochemical industry, automobile manufacturing, and the construction industry.

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In the late 1990s, China’s economic development model gradually changed into an intensive development model, but the fundamental transformation of the economic development model had not been completed. The transformation of traditional industries and new economic growth required the further development of high-tech and independent innovation. Developing high-tech industries and independent innovation became the main content of the next stage. [2] On the other hand, the unstoppable economic globalization brought new opportunities and challenges to China’s economic development. China acceded to the World Trade Organization (WTO) in 2001, taking the first step to consciously integrate itself into economic globalization. [3] Since the beginning of the twenty-first century, China’s opening-up has embarked on a new development stage. China’s major industries have achieved rapid development driven by external demand. China’s economy has been even more characterized by manufacturing as the mainstay. The adjustment of traditional industries and the development of the high-tech industry have become the focus of industrial adjustment, which helps the reorganization of the raw material industry and the textile industry and the revitalization of equipment manufacturing, electrical power, transportation, energy and other infrastructure, the automobile industry, and the construction industry. Development has also been achieved in high-tech industries and their informatization, such as the manufacturing of electronic information products, biological industries, the aerospace industry, and the new material industry. Service industries such as transportation, financial services, and information services have been put on the agenda as development priorities. In-depth adjustment of the economic structure, especially the industrial mix, has become the focus of economic policies during this period. After the 2008 financial crisis in the United States, China’s economic development entered a new normal. With the weak external demand in Europe and the United States, China’s steel and other manufacturing industries had an overcapacity. China’s investment-driven economic growth model needed to be changed. At the same time, China’s demand for personalized consumption was also expanding. China’s economic structure required that the proportion of industry must be reduced while the proportion of service industry must be increased. After several years of structural adjustments, the service industry gradually outgrew industry to become the engine of China’s economic growth. According to statistics from the National Bureau of Statistics, the service industry accounted for more than 51.6% of China’s GDP in 2016, becoming the locomotive for China’s economic growth. The supply-side structural reform has become the core of China’s economic development policy since the global financial crisis and is the main task and an effective means of China’s economic work, promoting the adjustment, transformation, and upgrading of the economic structure. The adjustment of China’s economic structure is deepening. At this time, the development of high-end manufacturing (such as the education on science and technology, information technology, high-end equipment, new materials, and biomedicine), high-tech industries, and new industries that apply new materials and new energy are the long-term mainstays of China’s economic

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restructuring. Especially, under the new normal conditions, developing strategic emerging industries has been an important part of China’s economic restructuring. On the one hand, since the reform and opening-up started, China’s GDP has rocketed. On the other hand, corresponding to adjustment-oriented economic policies, our method of national economic development has fundamentally changed in the past four decades. From the perspective of GDP calculated by the expenditure, the sum of China’s final consumption rate and capital formation rate is almost 100%, roughly complementing each other. In terms of consumption rates, from 1978 to the beginning of the 1990s, the consumption rate steadily fluctuated around 60%; in the 1990s, the consumption rate fell slightly and grew steadily; in the first decade of the twenty-first century, the consumption rate fell and the economic development was mainly investment-driven; since 2010, it rose again, indicating that economic development had shifted to be demand-driven; the rate reached 53.6% in 2016. In terms of investment rates, from 1978 to the end of the twentieth century, the investment rate fluctuated around 40%; in the first decade of the twenty-first century, the investment rate continued to rise, which greatly boosted GDP; it reached a peak of 48% in 2011 and fell to 44.1% in 2016, which corresponded to the increase in consumption rate. This shows that China’s economy has ushered in a new stage in the first decade of the twenty-first century. In the past four decades of reform and opening-up, the status of trade in China’s economy, as reflected in the degree of external dependence, has shown an overall upward trend, which is in line with the process of opening-up. Especially since the accession to the WTO in 2001, the degree of external dependence has increased rapidly, reaching a peak of nearly 70% in 2006 and then slowly fell to close to 40% in 2016. The fall in this stage was affected by the global financial crisis. In around the first decade of this century, investment and trade rapidly became the main engines of the economy and was essential for China’s rapid economic growth of the first decade of the twenty-first century. Around 2010, the economic growth pattern began to change: the role of consumption tended to increase, the role of investment tended to decrease, and the role of trade tended to come down and stabilize, which was in line with the new normal of economic development. During the 40 years of reform and opening-up, especially in the past two decades, the “troika” of consumption, investment, and trade played their respective role in economic development. It cannot be generalized as “imbalance”. The proportional relationship between the three factors is a macro dynamic balance, rather than imbalance, which is exactly in line with China’s economic development [1, 4]. From the perspective of output, the classic production function decomposes output into capital input, labor input, and total factor productivity. The above three perspectives can be used to analyze China’s past economic growth. From 1999 to 2007, capital was the most important element in economic development; the increase in the number of labor forces at the dawn of the reform process had a relatively high contribution to economic growth, and at the beginning of this century, it gave way to the quality of labor forces. The total factor productivity grew prominently during this

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period, and it is becoming more and more important. Market reform, urbanization, and the advancement of infrastructure have all contributed to economic development. [5] Market reforms bolstered China’s economic development and the improvement of total factor productivity from 1997 to 2007. [6] Other roles of market reforms remain to be tested. After 2007, the global financial crisis gradually broke out, the global economy entered a cold winter, and China’s economic development also entered a new stage. Under the new normal conditions, China’s economic restructuring and the transformation of economic development methods require more in-depth and prudent changes. The main problem of the current economy is not cyclical but structural. The main task of economic development is not to expand the economic aggregate but to adjust the supply structure to meet demand. [7] Therefore, the direction of the new stage of China’s economic development is to specifically and profoundly direct the previous policies of adjusting the economic structure and changing the development model to supply-side structural adjustment. Therefore, we should continue to deepen the past structural adjustments and changes in the development model. We should also focus structural reforms on the mechanisms and structure to thoroughly resolve economic structural imbalance. [8]

2 Optimization and Upgrading: The Evolution Path of Industrial Mix During the past 40 years of reform and opening-up, as a whole, China’s industrial mix has become more reasonable. From 1978 to 2016, the development of industry was roughly in line with the overall economic development, and its internal restructuring was continued, and the proportion of industrial added value in GDP roughly remained at 40–50%; the proportion of agriculture gradually declined, and remained below 10% in recent years; since the “Ninth Five-Year Plan” was promulgated in 1994, the service industry has become one of the centers of economic construction, and the proportion of the service industry has continued to rise. As the status of the service industry in the economy gradually becomes more prominent, the policy of the service industry is also becoming more specific and detailed. In 2015, the added value of the service industry accounted for more than 50% for the first time. In terms of contribution rates, in recent years, the contribution rate of industry and the service industry to GDP has roughly remained at 40–-50%. In 2015, the contribution rate of the service industry exceeded that of industry for the first time; the contribution rate of agriculture since the 1990s has remained at a low level, below 10%. The service industry has developed rapidly, and the industrial mix has become more reasonable. In terms of employment, from 1978 to 2016, the proportion of agricultural employment continued to decline, and the proportion of industry and service industries continued to rise, and especially, the proportion of employment in

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the service industry grew rapidly. In 2016, the service industry provided 43.5% of jobs in the country, and the number for the industrial and agricultural sectors was around 28% each, with that of industry being slightly higher than that of agriculture. The employment mix is constantly adjusting with the industrial mix, with obvious characteristics of industrialization. In terms of internal industrial transformation and upgrading, from 1978 to 1992, the “Sixth Five-Year Plan” and the “Seventh Five-Year Plan” emphasized that industrial production should meet demand and the structure and proportion of light and heavy industries should be adjusted. The proportion of light industry rose slightly, accounting for about 50% in 1992. In addition, infrastructure and industries in this period were the focus of development policies, and the infrastructural improvement gradually reduced restrictions on overall economic development. From 1992 to the beginning of the twenty-first century, the socialist market economic system was gradually improved, and continuing economic construction became an important task. Basic industries were still very important. Industries such as machinery and electronics and petrochemical industries were emphasized as pillar industries, and the proportion of heavy industries continued to rise. From the beginning of the new century to 2011, the adjustment direction of the industrial mix shifted to high-tech industries and emerging industries. At the same time, the proportion of heavy industry continued to rise, reaching about 70%, and industry continued to be greatly oriented to heavy industry; from 1978 to 2011, the proportion of manufacturing declined slightly, accounting for about 70% of industry in 2011. At the end of the “Eleventh Five-Year Plan” period, China generally entered the mid-stage of industrialization. [9] However, at the same time, the development of regional industrialization was still unbalanced. In 2010, Beijing and Shanghai entered the post-industrialization stage. The Yangtze River Delta, Pearl River Delta, Bohai Rim, and northeast China were in the late stage of industrialization. The six central provinces, southwest China, and northwest China were in the middle stage of industrialization. [10] The “Twelfth Five-Year Plan” and “Thirteenth Five-Year Plan” put forward higher requirements for the adjustment of the industrial mix. The adjustment of the industrial mix became the focus of work in the “Twelfth Five-Year Plan” and “Thirteenth Five-Year Plan” and was in line with supply-side structural reforms under the economic new normal. Policy documents for in-depth adjustment of the industrial mix were introduced, such as the national manufacturing strategy and the “Thirteenth Five-Year” development plan of the national strategic emerging industry. Throughout the 40 years of reform and opening-up, China’s economic structural reform policies have been mainly oriented to stabilizing agriculture, adjusting industries, and promoting service industries. In addition, structural adjustment within the industry is also one of the consistent main lines. Development of technology and hightech industries, promotion of the internal transformation and upgrading of industries, and consolidation of pillar industries are all internal adjustment methods of industry. Opening-up and market-oriented reforms are important measures that have determined the direction of economic development since the reform and opening-up, and China’s development model has been transformed.

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3 The New Normal: Opportunities and Challenges in Structural Transformation Implementing supply-side structural reform is a major innovation for our Party to adapt to and steer the new normal of economic development. It is an all-around development of the socialist political economy with Chinese characteristics, with a scientific system and great relevance. The downward pressure on the Chinese economy is mainly due to supply-side issues, and restructuring and upgrading are needed. 1. Weak external demand, leading to a slowdown in exports and overcapacity; 2. China is faced with the Lewis turning point, weakened demographic dividend and rising costs; 3. Extensive economy, weak environmental capacity, and severe smog; 4, Enterprises have high debts, financial risks are too high, and leverage is high; 5. There are many asset bubbles, and some real estate inventories are large. To sum up, under the new normal conditions, the supply-side structural reform is a historical and dialectical understanding of the current characteristics of China’s economic development and is accurately grasping the new normal of China’s economic development. From the perspective of consumer demand, China’s consumption in the past was characterized by imitation and fads, which is not the case now because personalized and diversified consumption has gradually become the mainstream and ensuring product quality and safety and activating demand through innovative supply have become significantly important. Correct consumption policies must be adopted to release consumption potential so that consumption can continue to underpin economic development. In terms of investment demand, after years of high-intensity large-scale development and construction, traditional industries are relatively saturated. However, infrastructure connectivity and investment opportunities for new technologies, new products, new formats of business operation, and new business models have emerged in large numbers, which puts forward new requirements for innovating financing methods. We must be good at grasping the direction of investment, eliminating investment barriers, and enabling investment to continue to underpin economic development. Among them, new industries, new formats of business operation, and new momentum have become the new engine of China’s economy. From the perspective of exports and the international balance of payments, the international market space expanded rapidly before the global financial crisis. Exports have become an important driving force for the rapid development of China’s economy. Now the global total demand is sluggish, and China’s low-cost comparative advantage has also changed, but China’s competitive advantages of exports still exist. High-level introduction and large-scale globalization are happening simultaneously. We must step up efforts to cultivate new comparative advantages so that exports can continue to play a supporting role in economic development.

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From the perspective of production capacity and industrial organization, insufficient supply in the past was a major problem that plagued us for a long time. Now the supply capacity of traditional industries has greatly exceeded demand. The industrial mix must be optimized and upgraded. Enterprise mergers and restructuring and relative concentration of production are inevitable. Emerging industries, the service industry, and small and micro enterprises are becoming more prominent, and the miniaturization, intelligence, and specialization of production will gradually define industrial organization. From the perspective of the relative advantages of production factors, China’s low labor costs were the biggest advantage in the past. The introduction of technology and management could quickly turn into productivity. Now, the population is aging rapidly, the surplus labor force in agriculture is decreasing, the driving force of the scale of factors is weakened, economic growth will rely more on the quality of human capital and technological progress, and innovation must be the new driving force of development. For example, developing artificial intelligence and robotics industries has become an important part of the new economy. From the perspective of market competition characteristics, in the past, enterprises mainly competed through quantity expansion and price competition. Now, they are gradually turning to the quality-based and differentiated competition. At the same time, unifying the national market and improving the efficiency of resource allocation are endogenous requirements for economic development. Reform and opening-up must be deepened, which will accelerate the formation of a unified, transparent, orderly, and standardized market environment. From the perspective of resource and environmental constraints, energy resources and ecological environment were relatively large in the past, and now the environmental capacity has reached or is close to the upper limit. It is necessary to comply with the people’s expectations for a good ecological environment and form a new green and low-carbon circular development method. We should fundamentally restructure, transform, and upgrade the economy, make our skies blue again, reduce smog, and achieve green development through economic and financial means. From the perspective of the accumulation and resolution of economic risks, with the slowdown in economic growth, various types of hidden risks have gradually become explicit and the risks are generally controllable. However, it will take some time to resolve various risks characterized by high leverage and the formation of bubbles. We should treat both symptoms and root causes, suit the remedy to the case, and establish and improve systems and mechanisms to resolve various risks. From the perspective of resource allocation models and macro-control methods, the marginal effects of comprehensive stimulus policies are diminishing. It is necessary to fully resolve overcapacity and explore future industrial development directions through market mechanisms. It is necessary to fully grasp the new changes in the total supply–demand relationship and conduct macro regulation scientifically. In short, these trends and changes indicate that China’s economy is evolving to a stage with a more advanced form, a more complex division of labor, and a more reasonable structure. Economic development has entered a new normal. It is shifting from high-speed growth to medium–high-speed growth. Extensive growth is shifting

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to intensive growth with quality and efficiency. The economic structure is shifting from incremental capacity expansion to in-depth adjustment of stock adjustments and the coexistence of better incremental growth. The driving force for economic development is shifting from traditional growth to new growth.

4 “Innovative Competition” Requires Stock Innovation and New Economic Drivers General Secretary Xi Jinping stated in his speech at the twelfth meeting of the Office of the Central Leading Group for Financial and Economic Affairs that the fundamental purpose of supply-side structural reforms was to improve the level of social productivity and implement the people-centered philosophy of development. While moderately expanding total demand, we must cut overcapacity, reduce excess inventory, deleverage, lower costs, and strengthen areas of weakness. We should strengthen high-quality supply in the production area, reduce ineffective supply, expand effective supply, improve the adaptability and flexibility of the supply structure, improve total factor productivity, and enable the supply system to better adapt to changes in the demand structure. 2018 is the first year to fully implement the spirit of the 19th National Congress of the CPC. It is the 40th anniversary of the reform and opening-up, as well as a year of deepening supply-side structural reforms. Faced with the complex and changeable international situation, the world condition of innovative competition, and the outstanding problems of the domestic economic structure, China has also entered a tough period of moving toward new development modes, structural transformation and upgrading, and growth drivers. Only through innovation that can lead to supplyside structural reform can China’s economy be stable and sustainable and achieve high-quality development. Since the Industrial Revolution, the industrial revolutions brought about by innovation have led to the continuous economic development of the world. Since the twenty-first century started, the world has ushered in an era of high-level research and development, and innovation competition has long been gaining momentum. When the American king of crossover Elon Musk was in university, he thought about the real problems that the world was facing and what was affecting the future of mankind. In the end, he focused on the Internet, sustainable energy, and space exploration by developing three bombshells in these three areas (namely Paypal, the high-end electric sports car Tesla, and the large Falcon Heavy rocket), and planned to launch satellites to build a satellite communication network covering the world. Innovation leads the future. In addition to scientists and entrepreneurs, many countries have also joined the competition of innovation. Germany, a strong manufacturing country, put forward a strategy of Industry 4.0. Its “unmanned factories” have started intelligent production, setting off a new wave of revolutionary technological innovation. Based on the profound knowledge of science and the humanities,

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the UK has successively established 11 Catapult Centres of innovation, maintaining its position in the ranks of the world’s innovative powers. The rise of innovative countries in Asia, mainly China and Japan, is also remarkable. As the “invisible king” in the innovation industry, Japan has reached the world’s highest level in the fields of big data, cloud computing, new materials, and resource reuse. China’s R&D investment has accounted for over 2.2% of its GDP, which has risen sharply. Technological applications such as drones, mobile payments, and shared bicycles have brought unlimited business opportunities to production and life, and endless innovations have brought rapid technological changes. Unicorn companies have quietly emerged, and the shared economy and digital economy have been developing at a fast speed. In the era of the Internet and artificial intelligence, innovation has become a key factor in determining the global landscape. Only by taking supply-side structural reform as the main line, carrying out institutional innovation, stimulating innovation potential, enhancing technological competition and economic innovation, and cultivating new momentum can we ensure long-term and stable economic growth. The supply-side structural reforms are technological innovations, institutional innovations, and theoretical and practical innovations based on summarizing practical experience in order to adapt to and steer the new normal of the economy. Theoretical innovation should make breakthroughs. To carry out innovation in combination with practice, we must neither copy Say’s Law of Market or the Laffer Curve nor engage in a UK- or US-style supply revolution. Instead, we must carry out supply-side structural reforms with Chinese characteristics by achieving theoretical and practical innovation based on China’s national conditions. Institutional innovation is crucial. Supply-side structural reform is to reform the problems of the existing system and mechanism, stimulate supply-side efficiency and effectiveness, and adapt to and meet changes in demand. For example, separating the ownership rights, contract rights, and management rights for contracted rural land is another institutional innovation after the contract system with remuneration linked to output, which helps stimulate creativity and increase agricultural productivity. Technological innovation is the engine. Supply-side structural reforms for optimizing, transforming, and upgrading the industrial mix, whether it is product innovation or new industry cultivation, are inseparable from technological innovation. Enhancing the quality and efficiency of supply through technological innovation will cultivate and catalyze new driving forces for development and give full play to technology as the primary productivity. To build an innovative country, we must aim at the frontiers of world science and technology, strengthen basic research, and achieve major breakthroughs in forwardlooking basic research and original results of leading significance. It is necessary to strengthen applied basic research and expand the implementation of major national science and technology projects. We should deepen the reform of the science and technology system, build the system supply of an innovative country, and establish a technological innovation system that is enterprise-oriented, market-oriented, and deeply

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integrated with industry, academia, and research. We should advocate an innovative culture and strengthen the creation and protection of intellectual property rights. We should cultivate a large number of innovative talent teams with international standards. In the process of advancing the supply-side structural reform, we must handle three major relationships: First, in the process of advancing the supply-side structural reform, we must balance the relationship between the government and the market. We should give full play to the decisive role of the market in resource allocation and have the government play a better role. We should comprehensively deepen reforms in various fields, accelerate the advancement of fundamental and key reforms, and strengthen endogenous development momentum. We should use market-oriented and legal measures to phase out non-compliant companies in industries with overcapacity. We should do more to streamline administration and delegate more powers to lower-level governments and to society in general while improving regulation, so as to provide a good environment. Secondly, in the process of advancing the supply-side structural reform, we must be good at replacing old drivers of growth with new ones. Innovative thinking, models, technologies, and methods should be used to transform the stock, enhance traditional drivers of growth, and foster drivers of growth. Taking Shandong Province as an example, Shandong’s investment and consumption rank first and second in China respectively, and its GDP ranks third, with huge potential for import and export development. To build a comprehensive reform pilot zone for replacing old drivers of growth with new ones in Shandong, three methods should be adopted: resolve excess capacity to expand the space for replacing old drivers of growth with new ones, develop emerging industries, foster new drivers of growth, and form new drivers of growth by transforming traditional industries. It is necessary to innovate and foster new industries to grow new drivers of growth and to use innovation to transform the drivers of growth of traditional industries. We should develop high-end equipment, a modern marine industry, etc., and replace old drivers of growth with new ones. Finally, in the process of advancing the supply-side structural reform, we must balance long-term and short-term, and overall and local interests. While balancing long-term and short-term, and overall and local interests, we should also take into account the domestic and foreign situations. To replace old drivers of growth with new ones, it is necessary to advance supply-side structural reforms by considering the international and domestic macroeconomic condition (Table 1).

Improving the internal structure of agriculture and light and heavy industries; accelerating the construction of energy, transportation, communications, and raw material industries; developing science and education; developing the tertiary industry; using new technologies to transform traditional industries, and developing emerging industries

“The Outline of the Seventh Five-Year Plan for National Economic and Social Development of the People’s Republic of China (1986–1990)”

September 1985

1

Developing industry and agriculture; adjusting production to meet consumers’ demand; adjusting the mix and proportion of light and heavy industries; developing science and technology; energy conservation and environmental protection; developing foreign trade; agriculture, energy, transportation, and education science should be strategic priorities; basic construction investment should be focused on energy and transportation construction

“The Outline of the Sixth Five-Year Plan for National Economic and Social Development of the People’s Republic of China (1981–1985)”

December 10, 1982

Main content

The documents are from websites such as www.gov.cn, www.mofcom.gov.cn, www.china.com.cn, www.cpcnews.cn, and www.xinhuanet.com.

(continued)

Developing agriculture; developing fuel, power, and raw material industries; basically realizing agricultural mechanization by 1980

Document/Major event

“The Outline for National Economic Development 1976–1985 (Revised Draft)” (Instead of being compiled separately, the “Fifth Five-Year Plan” was arranged in this 10-year plan)

Date

January 1975

Table 1 Major policies for economic development and events during the 40 years of reform and opening-up1

24 From Adjustment to Innovation: How China’s Economic Structure Has …

“The Outline of the Eighth Five-Year Plan for National Economic and Social Development of the People’s Republic of China (1991–1995)”

Deng Xiaoping’s southern tour talks and Jiang Zemin’s report at the 14th National Congress of the CPC

April 1991

Early 1992, October 1992

(continued)

Liberating and developing productive forces; development is of fundamental significance; economic development should be faster; planning and markets are both economic means; developing education of science and technology. Establishing and improving the socialist market economy system; opening to the rest of the world; adjusting and optimizing the industrial mix, attaching great importance to agriculture, developing basic industry, infrastructure and tertiary industry; developing education of science and technology

Adjusting the industrial mix; focusing on agriculture, basic industry and infrastructure (energy, transportation, communications, important raw materials and water conservancy, etc.); transforming the processing industry; developing the electronics industry; developing the construction industry and the tertiary industry

“Decision of the State Council on the Main Points of Current Adjusting the industrial mix to prevent economic stagnation; Industrial Policy” focusing on supporting agriculture, agro-industry, light industry, the textile industry, infrastructure and basic industries (part of the transportation industry, post and telecommunications industry, energy industry, and raw material industry), machinery, electronics industries, high-technology industries, products that generate large sums of foreign exchange, etc.

Main content

Document/Major event

Date

March 15, 1989

Table 1 (continued)

4 “Innovative Competition” Requires Stock Innovation and New … 25

Encouraging foreign investment in agriculture, basic industrial construction, high-tech industries, industries that can expand exports, and projects with high resource utilization efficiency which can give play to the advantages of the central and western regions Economic system reform; opening to the outside world; transforming to the socialist market economy system; strengthening the basic position of agriculture; developing infrastructure and basic industries; focusing on strengthening agriculture, water conservancy, energy, transportation, communications, science and technology, and education; revitalizing pillar industries (machinery, electronics, the petrochemical industry, the automobile industry, the construction industry, etc.), cultivating high-tech industries; actively developing the tertiary industry (developing emerging industries such as tourism, information, consulting, technical services, legal services, and accounting services; standardizing and developing finance and insurance industries; guiding the healthy development of the real estate industry)

“Interim Provisions on Guiding Foreign Investment Direction” and “Catalogue for the Guidance of Foreign Investment Industries”

“The Outline of the Ninth Five-Year Plan for National Economic and Social Development of the People’s Republic of China (1996–2000)”

June 20, 1995

March 17, 1996

(continued)

Developing agriculture and rural economy; strengthening basic industries (transportation, communications, energy industry, etc.); developing pillar industries (mechanical electronics, petrochemical, automobile manufacturing, and construction); adjusting foreign economic and trade structure; developing high-tech industries; vigorously developing the tertiary industry; optimizing the industrial mix

“The Outline of National Industrial Policy in the 1990s”

Main content

Document/Major event

Date

March 25, 1994

Table 1 (continued)

26 From Adjustment to Innovation: How China’s Economic Structure Has …

Opening-up entered a new stage Consolidating and strengthening the basic position of agriculture; strengthening the construction of infrastructures such as energy, transportation, water conservancy, and information; developing advanced manufacturing with the focus on revitalizing the equipment manufacturing industry; developing high-tech industries; promoting the overall development of the service industry; developing a circular economy; adjusting regional industrial layout; improving the level of opening-up

“The Outline of the Thirteenth Five-Year Plan for National Economic and Social Development of the People’s Republic of China (2001–2005)”

China acceded to the WTO

“Interim Provisions on Promoting Industrial Structure Adjustment”

March 15, 2001

November 10, 2001

December 2, 2005

(continued)

Adjusting the mix of agriculture and industry; industrial reorganization and transformation (the raw materials industry, the textile industry, revitalization of equipment manufacturing, electric power, transportation, energy and other infrastructure, the automobile industry, and the construction industry); developing high-tech industries; information industrialization; developing the service Industry (housing, tourism, commercial retail and catering, finance and insurance, culture and sports industries, transportation and logistics, intermediary services, information services, social services, etc.)

Focusing on developing some industries, products, and technologies in agriculture, forestry, water conservancy and meteorology, coal, electricity, nuclear energy, oil and gas, and railways

“Catalog of Industries, Products, and Technologies whose Development is Encouraged by the State”

Main content

Document/Major event

Date

December 29, 1997

Table 1 (continued)

4 “Innovative Competition” Requires Stock Innovation and New … 27

Developing high-tech industries (electronic information product manufacturing, biological industry, aerospace industry, and new materials industry); revitalizing the equipment manufacturing industry, optimizing the energy industry, adjusting the raw material industry, upgrading light industry and the textile industry; giving priority to developing transportation in the service industry; developing the financial service industry and information service industry; developing business and commercial service industry, real estate industry, tourism industry, community service industry, and sports industry

“The Outline of the Eleventh Five-Year Plan for National Economic and Social Development of the People’s Republic of China (2006–2010)”

“Several Opinions of the State Council on Developing the Service Industry”

March 27, 2007

(continued)

Giving priority to the transportation industry, developing information services, financial services, and business services; developing social public services; developing tourism, culture, sports, leisure and entertainment industries, supporting individuals in starting their own businesses that can provide jobs

Main content

Document/Major event

Date

March 16, 2006

Table 1 (continued)

28 From Adjustment to Innovation: How China’s Economic Structure Has …

The global economy and finance were hit, and the world economy was sluggish Shifting the economic growth model to a model that is driven by consumption, investment, and export; consolidating the basic position of agriculture; optimizing industrial mix, developing emerging industries, adjusting equipment manufacturing, shipbuilding, automobiles, metallurgical building materials, petrochemicals, packaging, electronic information, and construction industries; developing strategic emerging industries such as energy conservation and environmental protection, new-generation information technology, biology, high-end equipment manufacturing, new energy, new materials, new-energy vehicles, etc.; increasing the proportion of the value-added of the service industry, expanding the financial service industry, developing modern logistics, and developing the high-tech service industry, business service industry, consumer service industry, etc.

The US’ subprime mortgage crisis triggered the financial crisis, which spread to Europe and throughout America, affecting the global economy

“The Outline of the Twelfth Five-Year Plan for National Economic and Social Development of the People’s Republic of China (2011–2016)”

March 2011

(continued)

Main content

Document/Major event

Date

2008

Table 1 (continued)

4 “Innovative Competition” Requires Stock Innovation and New … 29

Xi Jinping put forward an important statement of “the new normal of China’s economy” and, based on the new normal, proposed in-depth advancement of supply-side structural reforms

“National Manufacturing Strategy”

2015

May 19, 2015

(continued)

Building a strong manufacturing country; focusing on improving manufacturing innovation capabilities; advancing the deep integration of informatization and industrialization; strengthening basic industrial capabilities; building quality brands; promoting green manufacturing; aiming at strategic priorities such as next-generation information technology, high-end equipment, new materials, and biomedicine; promoting structural adjustment; actively developing service-oriented manufacturing and producer services; improving the level of international development

Based on the new normal, Xi proposed cutting overcapacity, reducing excess inventory, deleveraging, lowering costs, and strengthening areas of weakness. Such supply-side structural reforms should be implemented mainly in the steel and coal industries, aiming at improving quality and efficiency and liberating and developing productivity

The 18th National Congress of the CPC and the Third Proposing the strategic adjustment of economic structure to Plenary Session of the 18th CPC Central Committee realized achieve a development method that is green, open, shared, strategic adjustment of the economic structure innovative, and coordinated

Main content

Document/Major event

Date

November 2013

Table 1 (continued)

30 From Adjustment to Innovation: How China’s Economic Structure Has …

In-depth structural adjustment and revitalization of the real economy; supply-side structural reforms; strengthening emerging industries; transformation of traditional industries; technological innovation 2030; implementation of the project to strengthen industrial development at the grassroots level; development of new manufacturing industries (aerospace, marine engineering and ships, advanced rail transit, high-end CNC machine tools, robots, modern agricultural machinery, high-performance medical apparatus, and complete sets of modern industrial equipment); development of the service industry (specialization of the production service industry, improvement of the quality of biochemical services, and improvement of systematic policies for developing service industries)

“The Outline of the Thirteenth Five-Year Plan for National Economic and Social Development of the People’s Republic of China (2016–2020)”

(continued)

Main content

Document/Major event

Date

March 2016

Table 1 (continued)

4 “Innovative Competition” Requires Stock Innovation and New … 31

“Notice of the State Council on Issuing the National Strategic Developing the information technology industry (Internet Emerging Industry Development Plan for the Thirteenth power, “Internet Plus” campaign, big data strategy, artificial Five-Year Plan” intelligence as the core industry of the information technology, and Internet-based economic management); promoting breakthroughs in high-end equipment and new-materials industries (intelligent manufacturing, the aviation industry, satellite and application industries, rail transit equipment, marine engineering equipment, and new materials); accelerating the innovation and development of the biological industry; promoting the rapid growth of new-energy vehicles, new energy, and energy-saving and environmental protection industries; developing digital creative industries; agglomerate strategic emerging industries, etc.

Main content

Document/Major event

Date

November 29, 2016

Table 1 (continued)

32 From Adjustment to Innovation: How China’s Economic Structure Has …

References

33

References 1. Hong, M. [马洪]. (1992). 中国经济的发展问题 [Issues surrounding China’s economic development]. 管理世界 [Management World] (2). 2. Hong, M. [马洪]. (1996). 把开发高新技术产业放在经济发展战略全局的主导地位 [Put the development of high-tech industries in the dominant position of the overall economic development strategy]. In: 当代财经 [Contemporary Finance & Economics] (11). 3. Hong, M. [马洪]. (2001). 经济全球化与中国经济 [Economic globalization and Chinese economy]. 开放导报 [China Opening Journal] (3). 4. Qingwang, G. [郭庆旺], & Zhiyun, Z. [赵志耘] (2014). 中国经济增长’三驾马车’失衡悖论 [The paradox of the imbalance of three elements driving China’s economic growth]. 财经问 题研究 [Research on Financial and Economic Issues] (9). 5. Xiaolu, W. [王小鲁], Gang, F. [樊纲], & Peng, L. [刘鹏]. (2009). 中国经济增长方式转换和 增长可持续性 [Transformation of China’s economic growth mode and growth sustainability]. 经济研究 [Economic Research Journal] (1). 6. Gang, F. [樊纲], Xiaolu, W. [王小鲁], & Guangrong, M. [马光荣]. (2011). 中国市场化进程 对经济增长的贡献 [Contribution of China’s marketization process to economic growth]. 经 济研究 [Economic Research Journal] (9). 7. Changlin, W. [王昌林], Baozong, F. [付保宗], Liyan, G. [郭丽岩] et al. (2017). 供给侧结 构性改革的基本理论: 内涵和逻辑体系 [The basic theory of supply-side structural reform: Meaning and logic system]. 宏观经济管理 [Macroeconomic Management] (9). 8. Jinglian, W. [吴敬琏]. (2017). 一文读懂’供给侧结构性’改革 [How to understand the ‘Supply-side structural reform’]. Retrieved Mar 16 from https://www.thepaper.cn/newsDetail_f orward_1640427. 9. Bei, J. [金碚]. (2011). 中国工业的转型升级 [Transformation and upgrading of China’s industry]. 中国工业经济 [China Industrial Economics] (7). 10. Qunhui, H. [黄群慧]. (2013). 中国的工业化进程: 阶段, 特征与前景 [China’s industrialization process: Stages features and prospects]. 经济与管理 [Economy and Management] (7).

From Flat Ground to Tall Building: How China’s Finance Rises

This year marks the 40th anniversary of the reform and opening-up. At the age of 40, China’s reform and opening-up has also changed from the original style of “crossing the river by feeling for stones” to a new era of paying more attention to top-level design. Finance is an important instrument of a major country, and an important pillar and necessary condition for the rise of a major country. As we enter a new era, finance is becoming increasingly important in the rapid development of China’s technology and the real economy, supply-side reform, and implementing the BRI. Sorting out the financial development of China since 1978 serves the following purposes: showing past major achievements, summing up experience, sorting out ideas, and pointing out the right direction for us to realize the dream of becoming a financial power as soon as possible.

1 Starting from Scratch: Development in Tandem with Reform Before 1978, the planned economy in China was a highly centralized economic system. In this system, the central government directly controlled the economic surplus of the whole society, most of the investment came from the budget allocation of the central government, and the banking system was only responsible for providing a small number of short-term loans. In the planned economy system featuring “great unification”, residents did not have much savings and did not need the banking system to allocate loans. Even nominally, the People’s Bank of China was directly under the Ministry of Finance, and state-owned banks were not independent. During the 40 years of China’s reform and opening up, economic structural reform has released a large amount of private financial resources accumulated under the background of decentralization. At the same time, through the reorganization of the banking system and the implementation of operating system reforms within the banks, the traditional model of capital flow led by the fiscal sector has been © People’s Publishing House 2023 W. Liu (ed.), China’s 40 Years of Reform, Understanding China, https://doi.org/10.1007/978-981-19-8505-8_3

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From Flat Ground to Tall Building: How China’s Finance Rises

transformed into a market-oriented model of capital flow led by the financial sector, thus contributing to financial development. As the fiscal sector’s ability to control financial resources has gradually weakened and the financial sector’s ability to control financial resources has gradually improved, a pattern of “weak fiscal sector” and “strong financial sector” has been formed. China’s financial development has grown from scratch. From 1978 to 2012, China’s financial development went through two stages. In the first stage, the previous highly centralized financial system in China was gradually broken. A financial structure in which the central bank was the center, state-owned commercial banks were the main body, and multiple institutions coexisted took shape. In the second stage, China’s financial order was further regulated, and a financial structure of separate operation and separate supervision was gradually formed.

1.1 Financial Development After 1978 to the Early 1990s 1978–1993 can be regarded as a stage of China’s financial development. During this stage, China’s previous highly concentrated financial system was gradually broken through and a new financial structure took shape. In 1978, the Third Plenary Session of the Eleventh Central Committee of the CPC kicked off the historical prelude to China’s reform and opening-up, and financial reform was put on the agenda. (1) Professional banks with independent operation and enterprise management were established. In February 1979, in order to adapt to the economic structural reform that first started in the countryside, revitalize the rural financial industry, and develop agriculture, the Agricultural Bank of China was restored; all of the rural financial business of the People’s Bank of China was transferred to the Agricultural Bank of China. In March 1979, the Bank of China, which monopolized foreign exchange business, was spun off from the People’s Bank of China and operated completely independently. This was an inevitable result of meeting the requirements of openingup and the rapid development of foreign economic exchanges. In the same year, the People’s Construction Bank of China was also spun off from the financial sector. (2) The introduction of foreign banks further deepened the reform and opening-up. Due to the need of opening-up, the issue of foreign financial institutions setting up offices in China was raised; due to the establishment of the special economic zones, the issues of foreign capital, overseas Chinese capital, and joint ventures establishing banks in the special economic zones and foreign banks setting up branches in China were raised. In 1980, foreign financial institutions were allowed to set up offices in China; foreign capital, overseas Chinese capital, and joint venture banks began to be set up in special economic zones in 1981; in the early 1990s, starting from the Pudong Development Zone, foreign banks were allowed to set up branches in China.

1 Starting from Scratch: Development in Tandem with Reform

37

(3) Transformation of the financial system featuring “great unity” into a central bank system. As the financial system featuring “great unity” transitioned to a multi-type and multi-level structure, financial coordination, diversion, and management has become important. As financial institutions that had previously not been independent became independent, financial institutions that did not exist emerged and such institutions tended to continue to expand. This made coordination, diversion, and management issues in the financial field rise to an important position. Coupled with the activities of foreign financial institutions in China and the establishment of banks by foreign and overseas Chinese capital, the task of financial management became more important. In this context, the State Council decided in September 1983: The People’s Bank of China should exclusively perform the functions of the central bank; and the Industrial and Commercial Bank of China was established to handle all the industrial and commercial credit business and urban savings business originally handled by the People’s Bank of China.

1.2 Financial Development From 1993 to 2012 China’s financial reform from 1993 to 2012 started with the rectification of the financial order. In November 1993, the Third Plenary Session of the Fourteenth Central Committee of the CPC stated that the socialist market economy should be initially established by the end of the twentieth century and demanded to accelerate the reform of the financial system. In December 1993, the State Council’s “Decision on Financial System Reform” put forward the goals of China’s financial system reform and made clear the right direction for China’s financial development. (1) Separating policy-oriented finance from commercial finance and establishing a financial organization system with state-owned commercial banks as the main body and coexistence of multiple financial institutions. Since 1994, the market-oriented reform of the financial system has been fully implemented. Three policy-oriented banks were established in 1994, namely, the China Development Bank, the Export–Import Bank of China, and the Agricultural Development Bank of China, which separated policy-oriented business from the banking business. (2) Turning the People’s Bank of China into a true central bank and establishing a strong macro-control system; at the same time, gradually reforming the financial oversight system, improving financial regulations, and strengthening financial oversight and management. In 1995, the “Law of the People’s Republic of China on the People’s Bank of China”, the “Commercial Bank Law of the People’s Republic of China”, the “Note Law of the People’s Republic of China”, the “Guarantee Law of the People’s Republic of

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From Flat Ground to Tall Building: How China’s Finance Rises

China”, and other financial laws were successively promulgated and implemented, initially forming the basic framework of the legal system of China’s financial law. In the system of financial oversight, separating operations and separating supervision of the financial industry have been implemented. By November 1998, a financial management system was formed in which the People’s Bank of China was responsible for monetary policy and the banking sector supervision, the China Securities Regulatory Commission was responsible for the supervision of the securities and futures industry, and the China Insurance Regulatory Commission was responsible for the supervision of the insurance industry; and the three institutions had a clear division of roles and coordinated well with each other. In April 2003, the China Banking Regulatory Commission (CBRC) was established, which separated the supervision function of the People’s Bank of China over banking financial institutions and formed the financial management system composed of the People’s Bank of China, the China Securities Regulatory Commission, the China Insurance Regulatory Commission, and the China Banking Regulatory Commission.

2 From One to Many: Striving to Create a New Situation in Building a Modern Financial System Finance is an important core competitiveness of the country. The CPC Central Committee emphasizes on preventing and controlling financial risks and ensuring financial security. After 2012, under the leadership of the CPC Central Committee with Comrade Xi Jinping at the core, in the face of the continuous impact of the global financial crisis and the severe challenges of “dealing simultaneously with the slowdown in economic growth, making difficult structural adjustments, and absorbing the effects of previous economic stimulus policies” of the domestic economy, the financial system vigorously promoted reform and innovation and effectively strengthened macro-control as well as financial oversight. The strength of financial institutions continued to rise, financial products became increasingly abundant, financial services became more inclusive, multi-level financial markets were gradually improved, financial infrastructure was improved, and the financial system’s ability to prevent and control risks increased significantly.

2.1 Deepening the Reform of the Banking Sector (1) Shareholder structure reform and listing of large state-owned commercial banks In addition to raising capital, advancing large-scale wholly-state-owned commercial banks to carry out shareholding reforms, more importantly, can establish a corporate governance structure according to the modern corporate system and enhance

2 From One to Many: Striving to Create a New Situation in Building …

39

transparency. Since 2003, the Bank of China, China Construction Bank, Bank of Communications, Industrial and Commercial Bank of China, and Agricultural Bank of China have successively carried out shareholding reforms and been successfully listed, and initially established a relatively standardized corporate governance structure. Their internal management and risk control capabilities have been continuously enhanced, the market restraint mechanism has been significantly enhanced, and the scale of assets and profitability have ranked among the top in the world. At the end of 2016, the capital adequacy rate of commercial banks was 13.3% and the provision coverage was 176.4%. The capital adequacy has increased significantly. Since 2011, the Bank of China, Industrial and Commercial Bank of China, Agricultural Bank of China, and China Construction Bank have been selected as Global Systemically Important Banks (G-SIBS). The results of reform have fully justified CPC Central Committee’s major decision-making and deployment on the reform of large commercial banks. (2) Deepening the reform of rural credit cooperatives At the beginning of the twenty-first century, the assets of rural credit cooperatives accounted for about 10% of the financial system, and non-performing assets accounted for about 50%. At the end of 2002, there were 2535 rural credit cooperatives nationwide, of which 97.8% were insolvent. To overcome the continuous shrinking of rural financial services and the weak capacity of rural financial institutions for sustainable development, the State Council reformed and designed a positive incentive mechanism to link the payment of special loans and special bills from the central bank to the practical reform of rural credit cooperatives, thus fully mobilizing local governments. Under the influence of the positive incentive and restraint mechanism, the asset quality, profitability, financial strength of supporting agriculture, and sustainable operation capabilities of rural credit cooperatives were significantly improved. At the end of 2016, the capital adequacy rate of rural credit cooperatives nationwide was 11.6%, an increase of 20.1% points from the 2002 growth rate. Since the rural credit cooperatives achieved profitability for the first time in 2004, their profits have rocketed. At the end of 2016, they had gradually achieved a profit of 1343.7 billion yuan.

2.2 Steadily Advancing the Reform to Make the Interest Rate Market-Determined The main point of market-oriented reform of interest rates is to reflect the independent pricing power of financial institutions in a competitive market and optimize resource allocation through differentiated pricing. Implementing a market-oriented interest rate is a long-term process. After entering the twenty-first century, the People’s Bank of China has steadily implemented the market-oriented interest rate, improved the

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From Flat Ground to Tall Building: How China’s Finance Rises

market-oriented interest rate control transmission mechanism, given financial institutions greater autonomy in interest rate pricing, and given full play to the decisive role of the market in resource allocation by making the interest rate “openable, formable, and controllable” and by “dealing with loans first, then deposits; large amounts first, then small amounts; foreign currency first, then RMB”. In 2006, the People’s Bank of China established the Shanghai Interbank Offered Rate (SHIBOR), which served as a benchmark in the pricing of various financial product transactions. At the same time, to accelerate the market-oriented reform of interest rates, the control of the lower limit of loan interest rates and the upper limit of deposit interest rates were lifted in 2013 and 2015, respectively. The final lift of the control of the deposit interest rate ceiling in 2015 marked the completion of China’s more than 20 years of market-oriented reform of interest rates, which is a milestone in the process of market-oriented reform of interest rates and financial reform. While advancing the market-oriented reform of interest rates, the monetary policy regulatory framework has also been gradually transforming from quantity-oriented to price-oriented. In the context of the gradual advancement of the market-oriented reform of interest rates, the People’s Bank of China has effectively explored an interest rate corridor mechanism. For example, to stabilize short-term interest rates, operation has continued to be carried out on the 7-day repurchase rate. By facilitating the operation of standing lending, short-term liquidity support in full and on demand has been offered, and the role of interest rates as the upper limit of the interest rate corridor has been explored.

2.3 Making Key Advancements in Making the RMB an International Currency Based on market-oriented reforms that have lasted for many years, China’s financial reform has begun to be global, which was not possible before. In recent years, China has seized favorable opportunities to comply with market demand and steadily and orderly make RMB an international currency. According to the deployment of the CPC Central Committee and the State Council, the People’s Bank of China followed the long-term goal of “gradually making the renminbi a convertible currency”, further reduced unnecessary administrative controls and policy restrictions, and has successively launched innovative institutional arrangements such as the Renminbi Qualified Foreign Institutional Investor (RQFII) program, RMB qualified domestic institutional investors (QDII), ShanghaiHong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect, mutual recognition of funds, Bond Connect, etc. By doing so, it has improved the infrastructure system of making RMB an international currency. In 2015, the Executive Board of the International Monetary Fund (IMF) recognized the renminbi as a freely usable currency and included the renminbi in the Special Drawing Rights basket of the IMF

3 From One to Many: Key Points and Difficulties in Building …

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(which would become effective in 2016). This is an important milestone of making RMB an international currency, and it is a win–win result for China and the world.

3 From One to Many: Key Points and Difficulties in Building a Multi-Level Capital Market In 2003, the “Decision of the CPC Central Committee on Several Issues Concerning the Improvement of the Socialist Market Economy”, adopted at the Third Plenary Session of the Sixteenth Central Committee of the CPC, explicitly stated that it was necessary to “establish a multi-level capital market system, improve the capital market structure, and enrich capital market products”. Initially, the idea of building a multi-level capital market was relatively simple, with fewer levels of definition. At that time, the Main Board market and the ChiNext stock market were mainly built. Later, it was gradually understood that a richer multi-level capital market and even a diversified financial market was needed. Since the twenty-first century, in order for diversification, China has secured a standardized and innovative development of a hierarchical, orderly, and complementary financial market system composed of bond markets, currency markets, foreign exchange markets, gold markets, and stock markets. At the same time, the country has been actively exploring development finance, establishing private banks, and actively and steadily developing Internet finance. These all reflect the diversified characteristics of the current stage of China’s financial reform development. After two decades of development, China’s capital market has initially established a capital market system including the Shanghai and Shenzhen Main Boards, SME Board, ChiNext, and Agency Share Transfer System. Although China’s capital market has grown considerably, there are still many problems in system construction, operational efficiency, and institutional mechanisms. Issues such as the division of role and positioning of the Shanghai and Shenzhen Main Boards, the expansion and development of the National Equities Exchange and Quotations (NEEQ), the retention and abolishment of the OTC market, and the convergence and development of various sectors need to be clearly positioned and resolved. As China’s economy and finance are becoming increasingly international, the massive generation and continuous inflow of wealth capital has resulted in a relatively high inflation rate in recent years, which has brought certain negative effects to the economy and finance. The important way to solve these problems is for China to establish a more powerful capital market system, efficiently dispatch and allocate capital, gather capital for a long time and ensure that it flows to the real economy, become the world’s core financial center, achieve sustained and rapid economic development, and achieve its great rejuvenation. Therefore, establishing a more complete and efficient multi-level capital market has become an important strategic option.

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3.1 The Necessity of Developing a Multi-Level Capital Market in China (1) Developing a multi-level capital market is an important means to provide finance to small and medium-sized enterprises (SMEs). With the development and growth of SMEs, financing has become an important means for the stable development of enterprises. The sufficiency of financial support that SMEs can get is not commensurate with their economic contribution. Corporate financing is usually divided into debt financing and equity financing. In terms of debt financing, bank loans are the most important financing method for SMEs. However, due to the many shortcomings of SMEs (high risks and difficulty in obtaining guarantees), banks are unwilling to issue loans to SMEs due to loan risks. The cost of informal private borrowing is much higher than that of bank loans, and the operation is not standardized, which can easily lead to economic disputes and cause many inconveniences to the normal operation of SMEs. Since the financing of creditor’s rights cannot provide enough finance to SMEs, equity financing will be relevant. The establishment of the SME Board and the Growth Enterprise Market (GEM) and the development of venture capital driven by their establishment have broadened the channels of equity financing for SMEs and alleviated the financing problems. (2) Developing a multi-level capital market is an important channel to provide an exit to venture capital. Venture capital is a way of investing funds in high-growth, high-risk companies in the form of equity investment in order to withdraw through listing or other means to obtain high returns. Venture capital is highly relevant to improving a country’s technological innovation capability and the cultivation and development of emerging industries. There are four channels of exit for venture capital: initial public offering (IPO), equity transfer, share repurchase, and bankruptcy and liquidation. Among them, the most important and ideal exit channel is IPO. Before 2004, since the SME Board had not yet been established, most of China’s venture capital projects exited through equity transfer. After 2004, with the launch of the SME Board, the IPO exit channels for venture capital were broadened to a certain extent, and venture capital entered a rapid development stage. (3) Developing a multi-level capital market is an important means to optimize the mix of the financial market and corporate financing. After 40 years of development since 1978, China’s financial system has been relatively sound, with various, basically complete financial institutions. However, there is still a big imbalance in the financing structure of the financial market. China’s financial-market financing structure is a bank-led financial structure with the banking system as the core and complemented by direct financing and financial-market

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financing. From a practical point of view, the financing structure with indirect financing as the dominant power restricts the development of social financing and the vitality of many financing companies. It makes companies maintain a high debt ratio, increases financing costs, and makes it difficult for companies to effectively develop and grow rapidly. It also restricts financial innovation capabilities, concentrates excessive economic risks and financial risks in the banking system, and poses a threat to national financial security and economic security. To this end, it is necessary to increase the proportion of direct financing, rationally develop different types of markets, and establish a multi-level capital market system that is conducive to fundraising for all types of enterprises.

3.2 Three Difficulties and Risks for China to Build a Multi-Level Capital Market (1) China’s hidden financial risks cannot be ignored 2017 is the 10th year since the occurrence of the 2007 global financial crisis, whose extensive impact has not yet dissipated. Many scholars have studied the root causes of its occurrence from various angles, but they mostly explain the emergence of the financial crisis from the point of cyclical fluctuations. Specifically, the economic cycle and the credit cycle tend to fluctuate in the same cycle, and credit expansion often occurs during the economic boom; in the cycle of credit expansion, financial institutions maintain their motivation to invest in high-risk asset portfolios in order to earn high returns, and asset bubbles begin to brew, form, and develop. However, it is difficult for a bubble that has broken away from the fundamental economy to escape its destiny of bursting. With the economic downturn, the economic expectations that support the high asset prices are no longer existent. The risks accumulated before the crisis are concentrated and exposed. Financial leverage accelerates the bursting of asset bubbles, the risks of debt defaults increase, and funding insufficiency is exacerbated. Such leads to the bankruptcy of enterprises and financial institutions. In general, “when credit expansion happens, there is a shortage of assets; when it disappears, there is a shortage of capital”. The investment enthusiasm is high during the initial stage of credit expansion so that it gives rise to asset price bubbles. At the end of credit expansion, with the downturn of economic growth, the burst of asset price bubbles and the shortage of liquidity of funds reinforce each other, which in turn generates systemic financial risks. In recent years, the scale of China’s shadow banking has expanded rapidly, and its financial innovative products have emerged one after another, which has brought huge challenges to supervision. According to statistics from Moody’s, China’s shadow banking system reached 64.5 trillion RMB in 2016. Moody’s definition of shadow banking refers to credit intermediary products, including three core shadow banking systems: entrusted loans, trust loans, and undiscounted bank acceptance bills. There

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are also bank wealth management products and securities company wealth management products without “channels”, and loans of financial companies, private loans, etc. Among them, bank wealth management is the part registering the fastest growth, reaching 29.1 trillion yuan in the first quarter of 2017, accounting for nearly half of the total amount. In order to evade financial oversight, China’s shadow banking system is mainly formed and gradually grown within commercial banks. According to CBRC regulations, off-balance-sheet wealth management does not need to accrue risk assets and provisions, nor calculate the capital adequacy rate. Therefore, certain wealth management products of banks have become one of the main ways for banks to increase leverage. Specifically, banks absorb funds by selling wealth management products and entrust the proceeds to professional investment managers such as brokerage asset managers, trusts, and funds (including public and private equity). These companies then invest the funds in bonds, cash, non-standardized creditor’s rights assets, and equity products. In actual operation, in order to achieve the agreed target of high return, asset companies will often increase leverage again, such as pledge/buyout repurchase in the bond market, or outsourcing again, and some small and medium-sized banks will even borrow capital from other banks and increase leverage. Then, where do these wealth management products go? At present, the main targets of investment in wealth management products are cash, bonds, and nonstandardized creditor’s rights assets. According to the data released by the “Report on the Financial Market in the Banking Sector in China”, the proportion of cash to bank deposits is about 20–25%, and bonds account for about 40–50% and show an upward trend, of which credit bonds are the mainstay; non-standardized creditor’s rights assets account for about 20%, of which a large number of funds flows into the financing platforms of local governments and the real estate sector, which is equivalent to disguised loans to enterprises. There is also the risk of maturity mismatch in the business of non-standardized creditor’s rights assets. In order to obtain high-yield banks, there is a phenomenon of short-term borrowing and long-term use. Rolling issuance is used to invest in long-term, non-standardized creditor’s rights assets to obtain higher interest rate differentials, however, maturity mismatches can easily lead to liquidity risks for banks. In Premier Li Keqiang’s Report of the Work of the Government in 2017, Li specifically mentioned the need to guard against the risks of non-performing assets, specifically the risk of real estate bubbles in some regions. In March 2017, among 70 large and medium-sized cities in China, 62 saw a month-on-month increase in terms of new houses and 54 in second-hand residential houses; from a year-on-year perspective, housing prices in first-tier cities rose too fast. The average residential price in Beijing rose by over 48% year-on-year in March, that in other key cities such as Nanjing, Fuzhou, Wuhan, Jinan, etc., rose by more than 30% year-on-year, and that in Shanghai and Guangzhou rose by 17% and 24% year-on-year, respectively. The government urgently issued a series of policies to curb the skyrocketing housing prices. In April, the housing market in most cities across the country significantly cooled off. However, the problem was that real estate developers were still

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enthusiastic about acquiring land. Statistics from the Centaline Real Estate Research Center show that since 2017, the 25 companies that have acquired the most land have acquired a total of 494.256 billion yuan worth of land, a growth of nearly two times from the 254.9 billion yuan in 2016, showing that the rebound in housing prices after deregulation is likely. Unlike other industries, the real estate sector has a high degree of financialization, and related financial derivatives have developed rapidly. As for the banking sector, as of the end of the first quarter of 2017, the credit exposure of the banking sector to real estate was approximately 29.8 trillion yuan. However, the total credit exposure of banks to real estate may be much larger than direct loans. For example, many financing platforms and corporate loans of local governments use land and real estate as collateral, which constitutes indirect exposure to real estate; in addition, banks may also hold corporate bonds issued by real estate developers and construction companies; “shadow credits” that flow into real estate in other ways such as nonstandardized creditor’s rights assets also constitutes indirect exposure to real estate. It is worth noting that within the financial system, which is dominated by the banking sector, a group of rent-seeking and arbitrage forces uses national credit to seek personal benefits and invests a large number of funds into the stock market in violation of regulations. Even private usury institutions and allocation companies burden borrowers with multiple levels of borrowing costs and risks and severely hinder the financial system from serving the real industry, aggravating the phenomenon of idle funds in the financial system and distorting price signals in the market. At the same time, the multi-layered nested lending structure makes risks spread more easily. If the policy on currency is tightened, any default in any link may cause the collapse of the entire capital chain, which will then evolve into a liquidity crisis in the banking system, leading to the outbreak of a systemic financial crisis. In 2017, the incident of the fake financial products case of the Hangtianqiao branch of Minsheng Bank sounded the alarm for us. (2) The growing degree of financial globalization and the volatile international financial market In the context of the rapid development and maturity of the Internet and information and communication technologies, financial globalization has become more and more intense and has become an irreversible trend. While China’s financial industry is becoming global and sharing the huge benefits brought by financial globalization, the country inevitably assumes a wider range of international financial risks and a deeper degree of systemic risks in the domestic financial system. With the further spread of China’s global financial strategy and efforts to make RMB an international currency, China’s financial liberalization has continued to deepen, the market-oriented reform of interest rates has basically been completed, and the reform of the RMB exchange rate formation mechanism and other efforts to lift financial controls have been under development. China’s finance is becoming more and more integrated with the international financial system. However, developed countries and transnational financial institutions are still in the dominant position in financial globalization. For example, after the 2008 global

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financial crisis, Western developed countries have successively introduced a zerointerest-rate monetary policy. The US Federal Reserve Board (FRB) started quantitative easing policies in August 2010. That is, through the Federal Reserve Bank of New York’s trading institutions, it purchased mortgage-backed securities and treasury bonds and other medium- and long-term bonds from financial institutions such as banks, brokers, and insurance companies in an attempt to reduce long-term interest rates and increase the supply of base money. As a result, a large amount of cheap, low-interest dollar funds was poured into emerging economies in a short period of time, resulting in a rapid expansion of short-term demand, long-term and large-scale inflation, and excess industrial capacity. Facts have proved that such expansion is unsustainable. Starting in mid-2014, the US dollar entered interest rate hike expectations, and the US dollar index began to regain its upward trend. From the second half of 2014 to the end of 2015, within a short period of time, the US dollar index rose very much, from 80 to 100 at its highest, an increase of 25%. It is precisely because of the sharp rise in the US dollar index that we can see that it was not just China that was under pressure from the capital outflow. Emerging economies such as Malaysia, South Korea, Brazil, Russia, and Saudi Arabia were all facing capital outflow and exchange rate depreciation. Even the euro and the Japanese yen also depreciated against the dollar. The presidency of US President Trump added many variables to US economic policies. For example, President Trump advocates reducing illegal immigration, which will lead to a shortage of many low-end jobs including farmers and family care workers, which will increase food prices and nursing fees. Increasing infrastructure investment will also increase bulk commodity prices and stimulate the further increase in the US CPI, which will also give the US Federal Reserve Board (FRB) more solid reasons for raising interest rates. However, raising interest rates will further increase the cost of US government debt expenditures and increase the pressure on corporate financing. This seems to go against President Trump’s proposal to boost the real economy. President Trump’s protectionist measures may also increase trade frictions between China and the US. Therefore, his economic policies will have an impact on China’s economy and increase the volatility of the RMB exchange rate against the US dollar. The economic situation in other parts of the world is not optimistic, and financial markets are facing great uncertainty. The financial crisis of some member states in the EU is difficult to quell, the UK has officially launched “Brexit”, and some developing countries have fallen into economic recession. At the same time, the condition in some regions is turbulent. The conflict between the US and Russia in the Middle East is likely to escalate. This unconventional factor has driven market risk aversion to rise. The prices of gold and oil have skyrocketed, while the prices of bulk commodities such as iron ore have plummeted. Facts have shown that the international financial market is in a period of instability, which has placed tremendous pressure on China’s prevention of financial risks.

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(3) How to manage public sentiment risks in the Internet environment is a major challenge for relevant regulatory authorities In the global economic competition, finance is at the heart of a country’s economy, and financial information services act as a neural network. Generated in financial activities, it feeds back to them, guides the flow of funds, influences the investment decisions of individuals and enterprises, and has a significant impact on the strategy and economy of the entire country. It is also an important component of a country’s soft power, and it is one of the main areas where inter-state competition happens. Financial information service has both the professional characteristics of the financial industry and the communication characteristics of the media industry. At the same time, it requires the help of high technology such as the Internet. It is a new, modern high-end service industry that spans multiple fields and industries. Moreover, a huge and complex ecosystem has been formed around different links such as the generation, collection, processing, dissemination, use, and supervision of financial information. Meanwhile, by developing Internet technology, the speed of spreading and influence of public sentiment regarding finance have been greatly improved. Coupled with the characteristics of financial credit, the development and evolution of public sentiment regarding finance may shake the public’s confidence in the financial market, induce a credit crisis of the financial system, affect consumption and investment expectations, etc., which may, in turn, trigger systemic financial risks. In an already informatized market environment, the flow of funds has eliminated temporal and spatial barriers, and the scale and efficiency of operations have generally improved. Therefore, the spillover effect of financial volatility has become more significant. Market idle funds and hot money have a very quick insight and response to financial information. Even if certain financial information has obvious subjective tendencies, fragmentation, and ideology-oriented characteristics, each market entity cannot accurately grasp and measure its authenticity and purpose. Obviously-biased news will trigger the “butterfly effect” and produce a “stomping” effect. For example, if there are doubts about the operating conditions and cash withdrawal capabilities of a certain bank in the market, it may cause a large-scale run and even lead to bankruptcy. The panic it triggers can even trigger a wave of bankruptcy, which will inevitably and directly affect the solvency and performance of banks and enterprises, directly affect the profitability of enterprises and institutions, bring about a series of debt crises, and trigger widespread market credit risks. China’s system of financial institutions is based on the Financial Stability and Development Committee under the State Council, the People’s Bank of China, China Banking and Insurance Regulatory Commission, and China Securities Regulatory Commission as the regulatory body. For different types of financial information service providers, financial information service providers with a media nature and under the jurisdiction of news agencies are supervised by the competent department of news; rating financial information service providers are mainly supervised by the People’s Bank of China; investment banking financial information service providers and exchange institutions are jointly regulated by the People’s Bank of China and China Securities Regulatory Commission; for other types of financial information

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service providers, there is no clear supervision department. With the rapid development of the financial industry, the current management system has obvious shortcomings: multi-head management, overlapping functions, inconsistency between powers and responsibilities, and low efficiency. This was vividly manifested during the large fluctuations in China’s stock market in 2015. Therefore, in general, China should urgently upgrade its regulatory concepts and framework for the content and dissemination of financial information services.

4 The Road to a Financial Power 4.1 The Necessity of Becoming a Financial Power China has made remarkable economic achievements. According to the World Bank (WB) data, China’s GDP exceeded 11 trillion USD in 2016, ranking second in the world for many years. The country is one of the world’s two countries with a GDP of over a trillion dollars. Compared with the total economic volume, China’s financial industry has not obtained a commensurate position: although the financial sector has huge assets, it is overstaffed and has low innovation vitality; progress has been made to make RMB an international currency, but the currency’s international influence is still not among the top five. Other shortcomings are imperfect laws, regulations, and supervision. These problems also affect China’s economic stability and the efficiency of the finance sector serving the real economy. During the 40th group study session of the Political Bureau of the CPC Central Committee, Xi Jinping, General Secretary of the CPC Central Committee, gave a speech and stated: “Finance is the core of the modern economy. We must ensure a good financial sector so as to ensure steady and healthy economic development.” A strong financial sector is an important support for “the dream of becoming a powerful country”. Therefore, China must attach strategical importance to developing finance.

4.2 China’s Strategic Layout for Becoming a Financial Power General Secretary Xi Jinping emphasized in the 40th group study session of the Political Bureau of the CPC Central Committee: “An active financial sector can revitalize the economy; a stable financial sector can stabilize the economy.” Looking back on the world’s modern history, building a financial power is the sure route to becoming a strong economy. At present, China is at the decisive stage of finishing the building of a moderately prosperous society in all respects, and it is facing the development trend of economic financialization and financial globalization, as well as complex domestic and international economic situations. On the basis that it is already a big economy, China must become a strong economy. To that end, it must

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develop the financial sector. China is already a major financial country and still faces severe challenges on the road to a financial power: its financial oversight system is not yet mature, and financial chaos and financial corruption occur from time to time. Especially in an economic downturn, it faces more pressure of preventing and controlling financial risks and maintaining financial security. At the same time, initial results have been achieved in transforming the economic development model and supply-side structural reform, further efforts have been made to make RMB an international currency, and the Asian Infrastructure Investment Bank and the BRI have been well received by the international community. China is in an important period of strategic opportunities. It is time for China to press ahead with its strategic layout for becoming a financial power. Firstly, understand the importance of finance for national economic development and social stability from the perspective of national strategy, formulate a strategy for becoming a financial power, improve the international competitiveness of China’s financial sector, and maintain national financial security. The country should make becoming a financial power its national development strategy as soon as possible, and arouse the attention on financial development and stability within the Party and throughout society. Based on an accurate grasp of China’s current economic and financial objective conditions, the country should carry out a scientific top-level design of a financial power from a strategic and national level, learn from advanced international experience, and introduce relevant plans and policies, including goals and priorities, the design of tasks, relevant indicator systems, steps of implementation and schedules, etc., so as to meet the needs of China’s economic development and international competition. The country should strengthen the overall coordination of financial oversight departments, prevent systemic financial risks, and enhance the ability to resist economic fluctuations and external shocks. The country should give full play to the existing domestic and international regulatory coordination mechanisms such as the inter-ministerial joint conference system of financial oversight coordination, the Financial Stability Board, etc., and coordinate cross-border and domestic supervision, supervision carried out by the Financial Stability and Development Committee under the State Council, the People’s Bank of China, China Banking and Insurance Regulatory Commission, and China Securities Regulatory Commission, supervision of central and local governments, and supervision of financial information coordinated by the Office of Cyberspace Affairs, as well as coordinate the monitoring of local debt with the Ministry of Finance. The country should resolutely manage financial market chaos, severely crack down on violations of laws and regulations and corruption, effectively identify the breeding sites of financial risks, carry out real-time monitoring and timely warning, and block the occurrence and spread of risks. The country should strengthen the ability to monitor and control public sentiment regarding finance, give play to the role of think tanks, give play to the role of opinion leaders in leading and correcting public sentiment regarding finance, and prevent negative and false information from inducing systemic financial risks.

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Secondly, strengthen the real economy, improve the efficiency of the financial sector serving the real economy, and achieve a benign interaction between finance and economic development. The investment and financing needs that emerge with the development of the real economy underpin the growth of the financial industry. On the other hand, finance determines the development direction and structure of the real economy through the optimal allocation of funds. The two are mutually reinforcing. China should expand and strengthen the real economy, strengthen endogenous development momentum, and lay a solid foundation for financial development. The country should continue to implement supply-side structural reform, “cut overcapacity, reduce excess inventory, deleverage, lower costs, and strengthen areas of weakness”, reduce ineffective supply, increase effective supply, and eliminate outdated production capacity. The country should steadily deleverage to reduce corporate debt ratio and strengthen the financial leverage constraints on state-owned enterprises (SOEs). The country should implement an innovation-driven development strategy, lead the transformation and upgrading of the real economy through innovation, and expand the supply of high-quality products and services. The country should transform traditional industries, vigorously cultivate emerging industries represented by intelligent manufacturing, encourage people to start businesses and make innovations, and implement national manufacturing strategies. The country should continue to implement the coordinated development for the Beijing-TianjinHebei Region, the Yangtze Economic Belt, and the BRI, scientifically prepare and plan the construction of the Xiong’an New District, and cultivate China’s new area of economic growth. The country should support the real economy as the fundamental foothold of financial development, open up the channel of capital flow to the real economy, and improve the efficiency of capital use. The country should give full play to the decisive role of the market in resource allocation, advance the reform of the price mechanism, and deepen the reform of the financial system, including market-oriented reform of interest rates, market-oriented reform of exchange rates, etc., advance SOE reform, and break the government’s unconditional support for SOEs. The country should innovate financial products and services to meet diversified financing needs. The country should expand financing channels, expand the proportion of direct financing in the financing mix, develop a multi-level capital market, actively develop the bond market, and standardize the development of the Internet financial market. The country should prevent the self-circulation of funds within the financial system and regulate the development of interbank business and asset management business. The country should regulate the development of the real estate market, prevent excessive capital flow into the real estate market, and ensure the residential properties of housing. Thirdly, in terms of hardware facilities and soft environment construction, enhance financial infrastructure to ensure the safe and efficient operation of the financial market and overall stability. In building financial infrastructure, the construction of hardware facilities and the soft environment must be advanced simultaneously to improve the chain of the financial industry and further the financial reform. The country should attach great

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importance to the fundamental role of financial infrastructure in economic growth, institutional changes, and risk management, and coordinate and promote financial infrastructure as a supporting system for financial reform. The country should build more hardware facilities such as payment and settlement systems, credit reporting systems, etc., and should also improve the soft environment such as the financial legal system, social credit environment, financial oversight, and pricing mechanism. In view of the characteristics of the long construction cycle, huge investment, and slow results of infrastructure construction, the government should lead infrastructure construction while encouraging social capitals to participate in it. At the same time, the country should coordinate its system and mechanism by eliminating the fragmentation in the management system, and strengthen the coordination between different departments, different markets, and different regions. The country should learn from international development experience, connect with international standards, actively establish “Chinese” standards, and enhance the openness and international presence of China’s financial system. Specifically, in the construction of the payment and settlement system, the country should keep pace with the times, adapt to changes in payment requirements, and actively develop technology related to Internet payment and mobile payment terminals. The country should use information technology and intelligent technology to create an advanced and stable payment system. On the basis of sharing domestic resources, the country should dock with the international payment and settlement system to align the domestic standard with the overseas ones. In terms of the social credit environment and service system construction, the country should build a unified financial information big data platform and give play to its role in the acquisition and analysis of financial information and credit system construction. The country should improve the information disclosure system, expand the scope of financial information disclosure, strengthen the standard of financial information disclosure, and improve the transparency of financial information. The country should cultivate a host of local financial information service companies with strong professionalism, distinctive characteristics, and their own advantages, support their “going global” efforts, and gradually increase the influence of Chinese financial information service companies in the international market. Fourthly, support the leapfrog development of the Internet financial industry through technological innovation, solve the core problems in the financial sector, and accelerate the transformation of the traditional financial sector through the Internet. The country should give full play to the role of technological innovation as the core productivity in developing Internet finance and replace the declining demographic dividend. The country should increase scientific and technological innovation in the financial field, rely on new technologies such as big data, cloud computing, artificial intelligence, and blockchain to optimize the efficiency of capital allocation, strengthen financial risk management, ensure the security of the financial system, expand the breadth and depth of the market, and maintain China’s leading position in the Internet finance industry. For example, the country may use cloud computing technology to process the big data information of e-commerce trading platforms,

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accurately obtain users’ investment and financing needs, and conduct credit evaluations of customers. It may greatly save labor costs through AI-based investment intelligence. It may develop biometric technology and verification technology and digital signature technology to simplify the payment and settlement process, and gradually make transactions fully electronic. It may use blockchain technology to ensure the trustworthiness and security of Internet transactions, and actively explore the application of blockchain technology. The country should give play to the multiplier effect of “Internet+”, accelerate the transformation and upgrading of the traditional financial sector, and improve the overall operating efficiency of the financial industry. In addition to continuing to steadily develop Internet payment and investment and financing businesses such as third-party payment, e-commerce Internet credit, Yu’ebao, crowdfunding, P2P online lending, etc., the country should also use Internet technology to transform online financial services in traditional financial sectors, so as to make banking, securities, insurance, and other businesses Internet-based. The traditional financial sector should accelerate its transformation to be Internet-based and improve its competitiveness by improving management, optimizing services, and innovating products. The emerging Internet financial industry should give full play to the characteristics of being small, public, and open, and focus on inclusive finance, such as SMEs, “agriculture, rural areas, and farmers”, and other areas. Internet finance and traditional financial institutions complement each other’s advantages, play their own roles in the financial market, reshape the financial landscape, and create an efficient, convenient, and inclusive financial ecosystem. Fifthly, support international financial cooperation, participate in global financial governance, and enhance the discourse power in international financial organizations. The country should improve the autonomy and influence of the RMB and do more to make RMB an international currency. The country should expand the offshore RMB trading market platform, increase the ratio of RMB settlement under the current account, expand the number and scale of currency swap countries, and issue more financial bonds and corporate bonds denominated and settled in RMB in overseas areas. The country should maintain the stability of the RMB exchange rate and support the renminbi to become an international reserve currency. The country should actively cooperate with developing countries and emerging countries to gradually change the global financial landscape under the Jamaican monetary system (the US dollar standard) and weaken the hegemony of the US dollar. The country should actively seek pricing power in finance and capital markets to build an international financial center. To this end, the country must open up its financial market, relax financial controls, and gradually realize capital account opening-up and the free convertibility of the RMB. In the fields of exchange rates, bulk commodities, and financial derivatives, the country must actively build international trading centers and pricing centers. The country should increase financial business and product innovation, conduct in-depth market transactions, form a diversified investor structure, increase market participation of professional institutional investors, and accelerate the cultivation of financial institutions with a global presence, such as large international investment banks and credit-rating agencies.

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The country should actively participate in global financial governance and become the makers of the rules of the international financial game. China should continue to reform existing international financial institutions such as the IMF and the WB, ally itself with countries without discourse hegemony to carry out dialogues, communication, and games with countries with discourse hegemony, and make breakthroughs in decision-making mechanisms, governance structures, loan functions, and resource allocation. The country should make full use of regional financial cooperation mechanisms, such as the cooperation mechanisms of the New Development Bank (NDB), African Development Bank, East Asia and Pacific Central Banks, etc., and enhance the microcosmic space of financial discourse power through active participation, increase in capital contributions or assistance, etc. China should propose to establish new multilateral cooperation mechanisms, such as the Asian Infrastructure Investment Bank, the BRI, etc., to increase the supply of global public goods and enhance the institutional discourse power in global economic governance.

From an Auxiliary Role to a Central Role: How to Shape Enterprise Ecology

Enterprise reform is a process during the four decades of China’s reform and openingup in which the government has been continuously adjusting and reshaping market rights. Looking back at the past four decades, on the one hand, SOE reforms have always been the central task of the entire economic structural reform. SOEs have evolved from a political vassal to an independent market economy entity with independent operation, self-financing, self-development, and self-discipline; on the other hand, private businesses have also gone from “illegal households” to economic entities that are extremely dynamic and baptized by the market economy.

1 Decoding the Meaning of the Era of “Market Anxiety” Throughout China’s history of economic structural reform, the adjustment of the government-market relationship has gradually entered a new stage. SOE reforms have gone through three stages: devolution of power and allowing enterprises to retain more profits; the establishment of a modern enterprise system; the reforms of the state asset management system and the strategic adjustment of the stateowned economy. In general, SOE reforms adhered to the direction of marketization. Measures such as expanding enterprises’ independent management rights, establishing a modern enterprise system, and improving corporate governance institutions have continuously stimulated the enthusiasm and competitiveness of enterprises in their production and operation. National capital is gradually concentrated in important industries and key areas of security and the lifeline of the national economy. SOEs have developed from a political vassal into independent market economy entities with independent operation, being autonomous and responsible for their own profits and losses, self-development, and self-discipline. In the meantime, private businesses, which are an important component of the socialist market economy, have also experienced development from “illegal households” to essential market economy entities, from individual economy to group © People’s Publishing House 2023 W. Liu (ed.), China’s 40 Years of Reform, Understanding China, https://doi.org/10.1007/978-981-19-8505-8_4

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development, and from domestic complements to internationalization. As of 2018, the non-state sector accounted for more than 50% of the GDP, taxation accounted for more than 50% of the national tax revenue, and private investment accounted for more than 50% of the total social fixed asset investment. Private businesses are contributing to stable growth, innovation, jobs, better livelihood, and large sums of foreign exchange through export. SOEs and private businesses, as two important entities of the market economy, have also witnessed the reform achievements of the adjustment of the boundary between the power of the government and that of the market. The government gradually reduces its intervention in the market, decentralizes power, allows enterprises to retain more profits, and transforms from an omnipotent government to a service-oriented government. The role of the market is constantly transitioning from “supportive” to “basic” to “decisive”. A socialist market economy is being gradually established and improved. The 2018 Report of the Work of the Government emphasized that the government would continue to “reduce micro-management and direct intervention, and focus on strengthening macro-control, market supervision, and public services”. The report of the 19th National Congress of the CPC stated that the principle of “letting the market play a decisive role in resource allocation and letting the government play its role better” should remain unchanged. At this moment when China is seeking continuous momentum from “high-speed growth” to “high-quality development”, how to understand the role of the market, especially how to grasp the boundary between market power and government power, is a major issue that market entities are most concerned about and is also the crux to current enterprise reforms. Indeed, the current Chinese market entities are facing a profound “market anxiety”. That is, the sense of anxiety that market entities have about the role of the market and the boundaries of market power. On the one hand, new confusion and debates have emerged around what “market” is and what its definition is. More importantly, under the background that “market failure”, “market distortion”, or the imperfection of the market itself has increasingly become a social consensus, how to break the obstacles that cause non-optimal resource allocation and truly find a good combination and delicate balance between the market and the government is the greatest challenge faced by the country in terms of enterprise reforms.

2 Exploring How the Relationship Between Government and Enterprises Changed in the Past Four Decades Historically, China’s economic structural reform in China is a process of changes in the relationship between the government, the market, and enterprises. Since the 1950s, the transformation of such a relationship has been faced the paradox of “Either too strict the control, or too chaotic the market order”. But overall, the degree of government intervention has gradually decreased after 1978. The Chinese government adopted a gradual policy to delegate some power in resource allocation to the

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market and enterprises. For example, from 1978 to 1992, the market played an “auxiliary role”; from 1992 to 2013, the market played a “basic role”; since 2013, the market has been playing a “decisive role”. From 1978 to 1992, in order to stimulate the rigid planned economic system, the government began to introduce market regulation mechanisms so that the market could play an “auxiliary role” in resource allocation. In December 1978, the Third Plenary Session of the Eleventh Central Committee of the CPC decided to fully implement reform and opening-up policies and implement market-oriented reforms in the economic field, which ushered in the process of adjusting the governmentmarket relationship. This conference emphasized the advantages of the market in allocating resources and reflected the change in the Party’s attitude towards market regulation of the economy. Since then, important leaders of the Party and the country have repeatedly mentioned the need to add market regulation in their instructions for China’s economic reform. In September 1982, the 12th National Congress of the CPC formally established the guiding principle of “the planned economy as the mainstay and market regulation as the supplement”, and the relationship between the market and the government began to undergo groundbreaking changes. In order to stimulate market potential, the 12th National Congress of the CPC also stated that the country should relax its restrictions on the development of individual economy and small commodity production, emphasize the role of economic leverage such as price and tax within the planned economy, and follow the objective law of economic development. With the continuous deepening of market-oriented reforms, the period from 1984 to the end of 1991 was called the period of planned commodity economy, which laid the foundation for the continuous adjustment and reform of the government-market relationship. From 1992 to 2013, China’s socialist market economy was gradually established and improved. It was also a period when China’s market-oriented reforms were fully implemented. The market played a “basic role” at this stage. At the beginning of 1992, Deng Xiaoping’s southern tour talk defined the essence of socialism, made it clear that economic planning and the market were both economic means, broke through the traditional concept of the market economy, and had an important impact on the process of reform of the government-market relationship. In the same year, the 14th National Congress of the CPC established the reform goal of the socialist market economy, stating, “We should follow the orientation of reform toward the socialist market economy and make sure that the market forces play an essential role in resource allocation under the state’s macroeconomic control.” [1] Based on the reform goal in the 14th National Congress of the CPC, the Third Plenary Session of the Fourteenth Central Committee of the CPC in 1993 proposed the basic framework of “three systems” and “two major systems”, which was a specific path in line with China’s national conditions that integrates government intervention and the role of the market. Subsequently, important conferences from the 15th National Congress of the CPC in 1997 to the report of the 18th National Congress of the CPC in 2012 revolved around the basic role of the market, expanded the scope and extent of the role of the market, shifted the role of the government

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gradually to the level of macro-control, and constantly improved the socialist market economy through exploration and practice. From 2013 to 2018, China’s economic structural reform entered a new stage. Generally speaking, it was in a stage of reforming and improving the market economic system. The market gradually assumed a “decisive role”. In November 2013, the Third Plenary Session of the Eighteenth Central Committee of the CPC issued a clear instruction on comprehensively deepening reform: “The underlying issue we face in economic structural reform is how to strike a balance between the role of the government and that of the market, and we should follow more closely the rules of the market and better play the role of the government.” [2] Since then, at the theoretical and practical levels, concentrating on letting the market play a decisive role in resource allocation and continuously deepening economic structural reform by giving better play to the role of the government, the Chinese government has been reducing its direct allocation of resources, reducing its direct intervention in microeconomic activities, breaking the restriction on the vitality of market entities, and focusing on the institutional mechanisms and development methods that lead the new normal of economic development. [3] China’s current basic economic system keeps public ownership in a dominant position and has diverse forms of ownership develop side by side. In line with this economic system, we are facing new challenges under the new normal conditions: in what proportion and method should the state regulation law and the market regulation law complement each other and achieve organic synergy? In other words, the current issue is not whether we want “state regulation” or not, but how to directly or indirectly shape new market entities and allocate resource more efficiently and fairly through sensible state regulation. The objective of the economic structural reform stated in the report of the 19th National Congress of the CPC is to focus on building “an economy with more effective market mechanisms, dynamic micro-entities, and sound macro-regulation” to promote innovation and competition in the Chinese economy. To achieve the goal of “dynamic micro-entities”, relevant areas of reform include: deepening SOE reforms and developing a mixed-ownership economy; supporting the development of private businesses, encouraging more social entities to devote themselves to innovation and entrepreneurship, and strengthening support for SMEs innovation; improving the market supervision system and “letting the market play the decisive role in resource allocation and letting the government play its role better”. It is foreseeable that there will be two distinct trends in the future advancement of the government-market relationship. First, from the adjustment method of government intervention, the government will and must maintain a gradual market intervention adjustment. In other words, this adjustment will remain within a predictable pace and range. During the evolution of the government-market relationship in China, the adjustment intensity and speed of government intervention have shown significant differences at different stages. In January 2017, Xi Jinping, General Secretary of the CPC Central Committee, stated while explaining the government-market relationship: “To give play to the role of the government is not simply to issue administrative orders. It must be based on respect

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for market laws, and we should use reforms to stimulate the vigor of the market, use policies to guide market expectations, use plans to clarify investment directions, and use the rule of law to regulate market behavior.” In the field of the government-market relationship in contemporary China, the government once rapidly strengthened its leading role in resource allocation within a short period, which was a heavy lesson. In the future, when optimizing the government-market relationship, the government should adopt moderate intervention and gradual adjustment, while a substantial increase or decrease in market intervention in the short term is a high-risk option. Second, from the perspective of the adjustment of government intervention, the government intervention in the market as a whole continues to weaken, but the intervention in certain economic sectors and fields will be strengthened, especially fields in micro-industry regulation which are highly related to the macroeconomy. In the real estate market, for example, a large number of government control measures are subject to the overall guidance of the macroeconomy. Judging from how policies have changed, the intensity of regulation, and the direction of regulation, real estate regulation is characterized by a strong and flexible “discretionary choice”, but this cyclical intervention is still based on the premise of rational respect for market supply, demand, and expectations. From a horizontal perspective, reflecting on neoliberalism and re-examining “market failure” are common issues faced by major economies in the post-financial crisis era. Take the United States as an example. The US in the twentieth century experienced two major shifts: Roosevelt’s New Deal and Reagan’s economics. Franklin D. Roosevelt responded to the Great Depression of the 1930s with Keynesianism, thus opening the golden age after WWI. In the face of the oil crisis and the mire of “stagflation” of the 1970s, Ronald Wilson Reagan used neoliberalism to correct the negative effects of the government’s strong intervention and contributed to the second period of prosperity after WWII. The twentieth century is thus divided into three cycles of prosperity and decline. At the end of the twentieth century, the third cycle had not yet completely ended. It continued until the worst recession since WWII: the 2008 global financial crisis. Barack Hussein Obama, who came to power under the slogan of “change” during the crisis, tried to adjust, but he never exited the neoliberal framework. Trump, who came to power amidst the internal imbalances of the US economy, politics, and society, fell into the controversy over “new market failure” and reform of financial oversight as soon as he came to power. Balancing the relationship between the government, the market, and enterprises is a worldwide economic conundrum. In the course of reform, China is exploring a path for the government and the market to take their place and attend to their duties. It requires both an “effective market” and an “industrious government”. It is a path to building China’s economic system and offering Chinese wisdom by cracking a global economic problem.

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3 Two Dimensions of Enterprise Reform During the four decades of reform and opening-up, advancing SOE reforms and supporting the development of private businesses have always been the two major areas of corporate reform. First, implement SOE reforms. SOE reforms are the focal point of China’s urban economic structural reform and the central task of the entire economic structural reform. From 1978 to 1992, the core content of SOE reforms was the government’s tax cuts, allowing enterprises to retain more profits, and the expansion of corporate autonomy. The reform during this period is mainly manifested in three respects: the expansion of pilot projects for enterprise autonomy, the substitution of tax payment for profit, and the separation of enterprise ownership and management. In 1978, the government first selected six pilot enterprises in Sichuan Province to implement the reform of “delegating power and allowing enterprises to retain more profits”, which was to reduce the government’s direct intervention in enterprises and expand enterprises’ rights of independent control and management. The measures stipulated that the government granted part of the ownership of the excess profits of enterprises to enterprises for use in pension funds and medical insurance for employees. “Delegating powers and allowing enterprises to retain more profits” greatly increased the enthusiasm of pilot SOE operators and producers, achieving notable economic effects. Therefore, in July 1979, the State Council, after summarizing the relevant experience of the pilot SOEs in Sichuan, issued five documents on reforming the management system of enterprises, including the “Regulations on Expanding the Autonomy of State-Owned Industrial Enterprises in Operation and Management”, and promoted pilot programs of them nationwide. However, in the process of national promotion, the profits turned over by enterprises decreased year by year. The reason was that the macro-control and guidance caused by information asymmetry of the business operation were not updated, so that enterprises did not produce according to national plans, had repeated construction, misreported profits, etc. [4] In 1980, there was a serious fiscal deficit in China. In order to increase fiscal revenue, in April 1981, based on the experience of the contract system with remuneration linked to output, the country fully implemented the industrial economic responsibility system. To a certain extent, it stimulated the enthusiasm of producers and improved the operation and management of enterprises. However, in the course of practice, the unreasonable ratio of the interests owned by enterprises and the state and that among enterprises gradually proved defective. From 1983 to 1984, the government carried out substitution of tax payment for profit twice. In 1983, the government first implemented a reform to allow the coexistence of tax and profit. SOEs had to pay 55% of their profits as taxes to the state and had to also give some remaining profits to the state according to relevant regulations. Only the rest would be retained by the enterprise. In 1984, the reform was furthered, and profit was completely substituted by tax payment: enterprises had to pay both

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income tax and adjustment tax. [5] However, due to the excessively high income-tax rate, the production enthusiasm of enterprises was dissipated and affected to a certain extent. Later on, SOE reforms found a new direction. From 1985 to 1992, the government divided SOEs according to their size and implemented reforms focusing on separating ownership and management. The contract responsibility system was implemented for large and medium-sized SOEs, and the reform measures of “two assurances and one link-up” were implemented; for small SOEs, the leasing system was promoted. In the meantime, the pilot joint-stock system was implemented in some SOEs. The reform of the enterprise operating mechanism was continuously implemented and enterprises were given more autonomy in their operation. From 1993 to 2002, the reform of SOEs was transferred to the system level. In November 1993, the Third Plenary Session of the Fourteenth Central Committee of the CPC clarified that the goal of SOE reforms was to establish a “modern enterprise system”, and its characteristics were summarized as “clearly established property right ownership, well-defined rights and responsibilities, separation of enterprises from government, and scientific management”. The change in reform goals led to a series of major reform measures. Reform measures were implemented on three levels: at the macro level, to strategically adjust the state-owned economy; at the micro level, to support SOEs to establish a modern enterprise system; at the institutional level, to continuously reform the way the government manages SOEs. [4] At the micro level, in December 1993, the “Company Law of the People’s Republic of China” was promulgated, establishing that the typical form of the modern enterprise system is the company system, and companies implement the limited liability system. The state and local governments began to carry out trials of modern enterprise systems. In September 1995, the Fifth Plenary Session of the Fourteenth Central Committee of the CPC passed the “The CPC Central Committee’s Recommendations for Formulating the Ninth Five-Year Plan for National Economic and Social Development and the Vision 2010”, putting forward a new idea for SOE reform: First, transform the economic growth mode; second, implement the reform strategy of “focusing on major issues while putting trivial ones aside”. [6] By distinguishing different situations, the state concentrated on the strategic reorganization and development of large and medium-sized SOEs and enterprise groups so that their backbone role in the national economy could be given full play and economies of scale could be formed; small SOEs were allowed to adopt the forms of reorganization, alliance, merger, joint-stock cooperative system, lease, contract operation and sale, etc., according to their own productivity, thus accelerating the reform and reorganization of small SOEs. In 1997, the state began to separate the functions of government from those of enterprises and adopted a series of measures such as “three reforms and one strengthening” for large SOEs, which continuously expanded the scope and degree of reforms of SOEs and initially established the basic framework of a modern enterprise system. On the macro level, in 1997, the 15th National Congress of the CPC formally proposed “strategic adjustment of the state-owned economy”, and SOE reforms also shifted the focus of reforms from stock assets to flow capital and from local to overall

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reforms. At the system level, the establishment of the Central Work Committee for Large Enterprises in December 1999 promoted the reform of the state asset management system. In March 2000, the “Interim Regulations on Board of Supervisors in SOEs”, issued by the State Council, regulated the board of supervisors system of large and medium-sized SOEs. Since 2003, thanks to governmental measures, a modern system of ownership has been playing its important role in developing a modern enterprise system and strategically adjusting the state-owned economic structure. In order to create a good environment for system construction, in March 2003, the First Session of the Tenth National People’s Congress formally approved the establishment of the State-Owned Assets Supervision and Administration Commission (SASAC). Subsequently, SASACs were established at all levels. To a certain extent, it solved the situation that “SOEs were managed by more than one superior but none could be held accountable”. In October of the same year, “The CPC Central Committee’s Decision on Several Issues about the Improvement of the Socialist Market Economy” from the Third Plenary Session of the Sixteenth Central Committee of the CPC proposed: “As for establishing and improving a modern system of ownership, property rights are the core of it. The main content includes various property rights such as property rights, creditor’s rights, and intellectual property rights. We should establish a modern system of ownership with clearly established property right ownership, well-defined rights and responsibilities, strict protection, and smooth circulation.” This was the first time that the property rights system was elevated to the height of a core position. SOE reform thus entered a new stage of comprehensively establishing a modern enterprise system and strategic adjustment of the state-owned economic structure. Since 2003, under the reform leadership of the State Council’s SASAC, state capital has survived in fair market competition through asset reorganization and structural adjustment. The number of central enterprises decreased from 196 to 143. At the same time, the total assets and competitiveness of enterprises have been improved. At the end of 2006, there were 19 central enterprises in charge of over 100 billion yuan, an increase of 10 from the beginning of its establishment. [7] By the beginning of 2013, more than 90% of SOEs across the country had completed the corporate shareholding reform. Following that, the economy entered the “new normal”, and the new administration proposed that SOE reform had entered the deep water zone and that we should focus on comprehensively deepening reform in various respects such as supervision, property rights, and operation. In August 2015, the programmatic document “Guiding Opinions on Deepening SOE Reform” for guiding and advancing SOE reform in the new era proposed to improve the modern enterprise system and the reforms of the state asset management system, develop a mixed-ownership economy, strengthen supervision, and prevent state asset loss and other goals and measures of SOE reform. In May 2017, “The Program of SASAC of the State Council on Promoting Intelligent Transformation Mainly through Capital Management” authorized the delegation of 43 powers and responsibilities and issued a list of the supervisory powers and responsibilities of

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investors, which was conducive to improving the reforms of the state asset management system and accelerating the pace of SOEs becoming independent market entities. Over the past four decades, SOE reform has gone through a strategic adjustment route from SOEs and state-owned economy to state-owned economy layout, and the management system of SOEs has also been constantly improving through exploration. The issue of “efficiency” has always been the main issue that Chinese enterprises have been criticized for in the current system. To eliminate the institutional roots of insufficient development momentum and low innovation efficiency of SOEs, introducing market competition in a targeted manner is a reliable guarantee for breaking through the rigid path of current SOE reform. “Introducing market competition in a targeted manner” requires us to accurately grasp the functions of different companies. For companies that supply public welfare products or services, such as water supply, power supply, and public transportation, the country should increase investment of state capital in them to encourage them to make greater contributions in the field of public welfare. As for SOEs in the general competitive field, the country should accelerate the reform of the authorized operation mechanism for state capital, rely on the capital market, capitalize state-owned assets, concentrate state capital on key industries and key areas, and speed up the clearance of zombie enterprises. In this process, we should focus on cultivating the innovative competitive advantage and innovation enthusiasm of state-owned enterprises. This innovation is at the technical level and the management level. We should vigorously improve the modern enterprise system of SOEs, especially guide enterprises to highlight their main business, increase internal resource integration, strip and reorganize low-competitive assets in non-main businesses, and improve the efficiency of state-owned enterprises with standardized, institutionalized, and informatized enterprise management. With the increase of market competition, innovative investment is an important law of enterprise development, and the government’s innovation-driven strategic leadership is crucial. As more and more strategic investors are encouraged to participate in the restructuring of SOEs and the improvement of the liquidity of state capital, the willingness of these enterprises to participate in the investment of innovative projects will increase. This is a way to stimulate the vitality of SOEs and is also the trend of market-oriented development. The role of SOEs and the state-owned economy should never be underestimated. In terms of efficiency, after all, if the state-owned economy chooses qualified managers and completes supervision and incentive mechanisms, it is not impossible to achieve unit management costs that are lower than in the private sector. More importantly, when the macroeconomic operation is at risk, the government mainly resolves unemployment through the state-owned economy. The state-owned economy can increase employment according to policy decisions without affecting overall efficiency. Second, we should support the reform of private businesses. Private businesses are an important component of China’s socialist market economy and an important force driving the rapid development of the national economy.

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The period from 1978 to 1991 was the initial exploration period of private businesses. As the legal status of private businesses was confirmed and they became better acknowledged, they began to show strong viability and adaptability. In 1978, the “liberating our thinking and following a realistic and pragmatic approach” guideline from the Third Plenary Session of the Eleventh Central Committee of the CPC and subsequent reforms of the management system of the economy created a relatively relaxed external environment for the formation and development of private businesses. From 1983 to 1987, township and village enterprises and private businesses appeared. The existence of the non-state sector in the early stage was only acquiesced by the policy. It was no longer the case after 1987 when the 13th National Congress of the CPC publicly and clearly recognized the legal status of the private sector for the first time, identified the private sector as a necessary supplement to the socialist public system, and proposed state encouragement for policies that are conducive to developing the individual economy, especially the private sector. After that, the non-state sector began to grow rapidly. In April 1988, the First Session of the Seventh National People’s Congress passed a constitutional amendment, stating: “The state allows the private sector to exist and develop within the scope prescribed by law. The private sector is a supplement to the socialist public economy. The state protects the legal rights and interests of the private sector. The private sector shall be guided, supervised and managed.” This established the legal status of the non-state sector. At that time, there were more than 80,000 private enterprises nationwide. [8] Private businesses gradually formed a large-scale and industrialized business model. However, during this period of exploration and development of private businesses, some irregular business behaviors appeared, exposing some shortcomings in operation, management, and systems. From 1992 to 1998, private businesses entered a stage of rapid development. Affected by Comrade Deng Xiaoping’s “southern tour talk” and the 14th National Congress of the CPC’s establishment of “the basic economic system to keep public ownership in a dominant position and have diverse forms of ownership develop side by side”, private businesses operators began to emancipate their minds and broaden their horizons, shifting private businesses from a pure quantitative increase to a focus on corporate quality. The organizational format of enterprises had changed from an owner-owned system to a joint-stock system, and companies began to be listed domestically. The rapid development also improved the quality of corporate personnel. Private businesses have gradually transitioned to a standardized and grouporiented modern corporate system. In 1999, in addition to continuously expanding the scale and industry scope of private businesses, they also began to go public overseas. At the same time, the rate of mergers and acquisitions of private businesses was also accelerating. In August 2001, the Wanxiang Group acquired UAI (Universal Automotive Industries), a NASDAQlisted company in the United States, which was the first time that a Chinese township and village enterprise had acquired an overseas-listed company. In December 2004, the Lenovo Group acquired IBM’s global personal computer (PC) business. [9] Private businesses began to take the path of internationalization. In 2002, the 16th National Congress of the CPC further proposed that “the development of the

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non-public sector of the economy must be unswervingly encouraged, supported, and guided. The non-public sector of the economy, such as individual economy, private economy, etc., is an important component of the socialist market economy”, which highlighted the important role of private businesses in economic and social development, and emphasized their status as an important component of the entire national economy. In 2005, private businesses entered a stage of transformation and upgrading. In February 2005, the State Council issued “Several Opinions on Encouraging, Supporting and Guiding the Development of the Non-Public Sector of the Economy Such as Individual and Private Enterprises”, which stated the overall requirement for encouraging, supporting, and guiding the development of the non-public sector of the economy in the future and issued seven policy measures to develop the nonpublic sector of the economy. Subsequently, the 17th National Congress of the CPC proposed that “we should protect all kinds of property rights alike, and ensure that all economic sectors compete on an equal footing and reinforce each other.” Policies and regulations such as the Corporate Income Tax Law and the Property Rights Law were also promulgated one after another, and the legal system for the development of the non-public sector of the economy also became more and more perfect. During the same period, following the development of Internet technology, private businesses burst out innovation and entrepreneurship, and gradually became the main force for independent innovation and technological development. As of 2006, among China’s 53 national-level new and high-tech development zones, private technology companies accounted for more than 70%, and their scientific and technological achievements accounted for more than 70% of the new and high-tech development zones. Subsequently, policy opinions on the status of the non-public sector of the economy were published. From the “we must unswervingly encourage, support and guide the development of the non-public sector, and ensure that economic entities under all forms of ownership have equal access to factors of production according to the law, compete on a level playing field and are protected by the law as equals” at the 18th National Congress of the CPC in 2012, to the “we should work for equality in rights, opportunity, and rules, abolish all forms of unreasonable regulations on the non-public sector of the economy, eliminate various hidden barriers, and formulate specific measures for non-public enterprises to enter the franchise field” at the Third Plenary Session of the Eighteenth Central Committee of the CPC, and to General Secretary Xi Jinping’s words at a Joint Committee of China Democratic National Construction Association and Association of Industry and Commerce that China’s basic economic system must adhere to “two unshakeable” and that the non-public sector of the economy had “three unchanged” in March 2016, these all strengthened the confidence in the transformation and development of private businesses. [9] Under the new normal conditions, China’s non-state sector development has also entered a new historical stage of transformation and upgrading. Both China and the international community are new environments that private businesses have never encountered.

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In order to achieve development, private businesses need to better seize the opportunities of the national strategic platform. This is a path for the transformation and upgrading of old industries and the expansion and strengthening of new industries. It is also an opportunity of corporate development and better national competitiveness. The government has understood that if it reaches too much into the micro-sphere, companies will often be at a loss or rely too much on the government. In the long run, the market will face the risk of disorder and serious problems such as integrating politics and business. On the current issue of invigorating private businesses, the overall policy is to remove discriminatory restrictions and various hidden obstacles, build a new type of amicable, corruption-free political-business relationship, and implement the policy of protecting property rights. The government plays its role in the macro field, and enterprises operate and develop at the micro level. For many years, many private businesses have developed steadily and pragmatically in a low-profile way and have achieved real results. In the process of China’s comprehensively deepening reform, the increasing vitality and creativity of private businesses are inseparable from China’s seizing opportunities to achieve its development. On the one hand, local governments need to speed up the analysis on the adjustment of functions in the process of regulatory model transformation, including the standardization of various types of workers, the rule of law, and the disclosure of information. Governments should focus on certain tasks while putting others aside and foster an enabling environment for building a credit system. On the other hand, private businesses should also pay more attention than ever to platforms under construction that will serve national strategies, including the BRI and free trade pilot zones (under development). The process of private businesses growing, going global, and excelling in the fierce competition of economic globalization is complementary to the boosting of national strength and policy deployment.

4 Enterprise Ecology in the Modern Economic System During the four decades of reform and opening-up, China’s national economy has increased by 52 times. The economic system has undergone thorough reforms from the planned economy to the socialist market economy. SOE reforms are the main thread running through China’s reform and opening-up. The exploration and development of private businesses can be described as the epitome of China’s reform and opening-up and economic development. All in all, the core competitiveness of a country comes from enterprises. During the four decades of China’s reform and opening-up, the development of enterprises is a vivid record at the micro level. Chinese enterprises have gone through turbulent reforms, thus experiencing the “separation of ownership and management rights”, breakthroughs in autonomy, vitality of innovation, and expansion of scale. China today has SOEs that concentrate on doing major tasks, as well as private businesses that are high-profile in the fierce

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competition in global emerging industries. The development of enterprises is the economic basis of China’s social strength and structural changes. The development of Chinese enterprises is not just empty talk. It is the cornerstone of deepening reform, advancing international cooperation, solving practical problems such as employment and taxation, and creating a new situation for national competitiveness. The government needs strategy and vision to create maximum market fairness, eliminate the anxiety and insecurity of enterprises, and allow enterprises to be more vigorous in the baptism of the market. That said, the reform process is by no means a “benefit transmission” to any enterprise. Its goal is to improve the resource allocation of the entire society. Enterprises, including private businesses, should undertake more social responsibilities while pursuing their benefits and structural optimization, and jointly make due contributions to enhancing national competitiveness.

References 1. Party Literature Research Centre of the CPC Central Committee. (1996). [中共中央文献 研究室] 十四大以来重要文献选编 [Selected compilation of important documents since the fourteenth national congress of the CPC]. 人民出版社 [People’s Publishing House]. 2. Jinping, X. [习近平]. (2013). 关于’中共中央关于全面深化改革若干重大问题的决定’的说 明 [Explanatory notes for the ‘Decision of the CPC central committee on several major issues of comprehensively deepening reform’]. 人民日报 [People’s Daily], Nov 16. 3. Party Literature Research Centre of the CPC Central Committee. (2016). [中共中央文献研究 室] 十八大以来重要文献选编 (中) [Selected Compilation of Important documents since the eighteenth national congress of the CPC, II] (pp. 835–836). 人民出版社 [People’s Publishing House]. 4. Chunli, G. [郭春丽]. (2008). 改革开放30年国企改革的实践进程 [The practical process of SOE reform in the 30 years of reform and opening-up].今日中国论坛 [China Today Forum], (10). 5. Yunzhu, W. [乌云珠]. (2017). 改革开放以来我国政府与市场关系的历史考察 [A historical survey of the relationship between the Chinese government and the market since the reform and opening-up]. Ph.D. thesis, Shanghai Normal University. 6. chinareform.org.cn. Retrieved Mar 14, 2018, from http://www.chinareform.org.cn/special/2013/ reform35/Process/201312/t20131215_183307.htm. 7. Baidu.com. Retrieved Mar 14, 2018, from https://www.baidu.com/link?url=m27ArWqquPrwcjt kdxw7uF3cQxoVNETxtTTWFVuFgXvUqU_olLsIM6fOKR_ue7ouhyjgWCIZDRN6fatUwCcyyk40UXKI-sgV56QweDNLs7&wd=&eqid=d92a78cf000000b3000000035aaa5d58. 8. Hanxi, S. [沈汉溪]. (2006). 中国民营经济: 发展历程, 现状及问题 [China’s private economy: Development history, status quo and problems].中国市场 [China Market], (2). 9. Chunlei, W . [王春雷]. (2014). 我国民营企业的发展历程及启示 [The development process and enlightenment of China’s private enterprises].武汉商学院学报 [Journal of Wuhan Business University], (28).

From “Division of Land” to Revitalization: How Chinese Villages Achieve Modernization

Agriculture underpins a country’s economic development, and the issues related to agriculture, rural areas, and farmers are fundamental issues related to the national economy and people’s livelihood. Reviewing the national agricultural policy and agricultural development from 1949 (when the PRC was founded) to the reform and opening-up and to the new period after 2012, we can understand the historical background and evolution process of issues related to agriculture, rural areas, and farmers. In fact, from 1982 to 1987 and from 2004 to 2018, issues related to agriculture, rural areas, and farmers have almost become synonymous with the annual “No.1 Central Document”, which shows that the Party and the state are concerned about these issues. After the 18th National Congress of the CPC was held in 2012, agriculture, rural development, and farmers’ living standards have made great progress. However, facing the new socio-economic phenomenon and international competition brought about by economic globalization, China’s agricultural production level, rural development vitality, and farmers’ living standards still need to be improved. Adhering to theoretical innovation, practical innovation, and institutional innovation, the strategy of rural vitalization was released by the “No.1 Document” at the beginning of 2018 and has become the basic focus of works regarding issues related to agriculture, rural areas, and farmers under a new era of socialism with Chinese characteristics. As a Chinese poem goes, “The river is always kept clean because there is inflowing water from its source.” In order to achieve the overall goal of rural revitalization, the rural financial system reform and rural financial product innovation as the focus of supporting agriculture finance provide new ideas and abundant momentum for the further improvement of issues related to agriculture, rural areas, and farmers.

© People’s Publishing House 2023 W. Liu (ed.), China’s 40 Years of Reform, Understanding China, https://doi.org/10.1007/978-981-19-8505-8_5

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From “Division of Land” to Revitalization: How Chinese Villages …

1 “Emancipation” and China’s Rural Reform In 1949, China was a typical agricultural country. Agriculture accounted for 70% of the total industrial and agricultural output value, and the rural population accounted for more than 80% of the country’s total population. However, although agriculture occupied the core position in the national economy, it is an indisputable fact that the agricultural development was backward and the standard of living of farmers was low.

1.1 Agricultural Production After the Founding of the New China During the 29 years from 1949 to 1978 when the reform and opening-up began, China’s agricultural development experienced different stages of development under the guidance of different periods and policies. In general, the agricultural development momentum was good in the early days of the founding of the PRC, and the grain and crop yields had undergone earth-shattering changes compared with the yields before 1949. In the middle and later stages of this period of time, due to political and social reasons, the momentum of agricultural development slowed down and even stagnated and regressed at times. Agricultural development had a big gap with the overall goal of the national economy. In the early days after 1949, in order to abolish the exploitation of farmers by the feudal land ownership system and let farmers really be masters of the country, the central government promulgated the Land Reform Law of the People’s Republic of China in June 1950, launching the largest land reform movement in China’s history. Land reform brought tangible benefits to the vast number of farmers and also completely changed the pattern of agricultural production. By the end of 1952, more than 300 million landless peasants in China had obtained 700 million mu of land and a large number of means of production free of charge. The land rent of more than 300 billion tons of grain paid by peasants to landlords every year before the land reform was also exempted. The vast number of peasants were completely liberated politically and economically, which greatly stimulated their enthusiasm for production and greatly liberated the rural productive forces. From 1949 to 1952, China’s total grain output increased by 13.14% annually, and the per capita grain output reached 164 million tons. From 1952 to 1957, the total agricultural output value increased by 28.7%, an average annual growth rate of 5.2%; among them, grain increased by 19%, an average annual growth of 3.5%, and cotton increased by 25.8%, an average annual increase of 4.7%. At the same time, small and medium-sized irrigation and water conservancy facilities were built and repaired on a large scale under the overall planning of the central and local governments, which greatly helped improve agricultural production and rural living standards. The rapid development of agriculture and the substantial increase in grain and other crops have made great

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contributions to the economic recovery of the PRC in the early stage of its founding and to the smooth implementation of the First Five-Year Plan. The land reform improved the production relations, and the small-scale agricultural production mode with family as the unit improved the agricultural production in the early stage. However, with the overall recovery of the national economy, this agricultural production mode became unable to meet the growing national industrialization demand for agricultural raw materials. The central government gradually realized the shortcomings of this mode and then began to adjust the policy to transform the rural cooperative collective economy. The cooperative campaign experienced stages such as mutual aid groups, primary agricultural cooperatives, senior agricultural cooperatives, and the people’s commune. In the initial stage, the cooperative campaign solved some problems in rural areas that were left by the land reform, especially making farmers engage in mutual assistance and cooperation more enthusiastically, and developed rural productivity. However, the excessively aggressive rural collective production and management system caused serious consequences to China’s agricultural development. First of all, the collective production mode, which pursued scale and equalitarianism, did not fully consider the uneven agricultural development level and wealth discrepancy among farmers, resulting in inefficient production and messy management. Secondly, the collective agricultural production did not fully consider the actual feelings of farmers, deprived them of their newly-obtained small amount of cultivated land and means of production, and seriously dampened their enthusiasm for production. After the rural collectivization movement in 1958, instead of the expected large-scale agricultural production, the country faced slow growth and even year-on-year reduction in grain production. In addition, with the rapid growth of the total population in this period, China’s per capita grain output remained below the level before the collectivization movement until the mid-1970s.

1.2 Farmers’ Living Standards After 1949 During the period from 1949 to 1978, the living standards of farmers obviously improved at one time, but this trend did not continue in the later period. The land system of feudal exploitation in the old society oppressed and exploited the vast number of Chinese farmers. Before the land reform, landlords and rich peasants, who accounted for less than 10% of the rural population, occupied 70– 80% of the land and most of the production tools. In order to support their families, a vast number of peasants had to rent land from landlords to cultivate and endure cruel exploitation and oppression. After the land reform was completed in the 1950s, farmers became the real masters of the land, and their long-term depressed enthusiasm for production and construction was completely released. With the rapid increase of grain production in the early days of the PRC, the living and income levels of farmers also significantly improved. In 1953, the net monetary income of farmers increased by 123.6% compared with that in 1949, and the purchasing power of

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farmers increased by 111% compared with that in 1949, and the average purchasing power of consumption doubled. At the same time, large-scale rural public health campaigns, such as the campaign to control schistosomiasis, the popularization of mosquito nets to curb malaria, and the formation of the “barefoot doctor” system, greatly improved the health level of farmers, greatly improved life expectancy, and greatly reduced maternal mortality. With a better living condition, farmers also had better comprehensive cultural quality and knowledge level. According to statistics, in 1951, there were more than 25 million farmers enrolled in rural schools. In 1951, 11 million farmers attended regular night schools. The gradual improvement of farmers’ quality was important for the rural economic development and the stability of rural society. From the agricultural collectivization movement in the mid-1950s, the rural areas began to experience the transformation from small-scale agricultural production to socialist collective management and from scattered individual production to collective unified management, while farmers’ incomes gradually stagnated. From 1957 to 1978, the per capita income of farmers only increased from 72.95 yuan to 133.57 yuan, with a mere average annual increase of 2.88 yuan. The income of members from collective distribution only increased by 2 yuan per capita per year. The distribution was mainly in kind. Cash usually accounted for less than 1/4 of the total amount of distribution, with an average annual increase of 0.4 yuan, which was only equivalent to the expenditure of 1.5 kg of salt. The proportion of food expenditure in household consumption increased from 65.75% in 1957 to 67.71% in 1978, reflecting the relative decline of the overall quality of life of farmers. In the meantime, in order to promote industrialization, the state adopted the policy of “first cities, later the rural area”, “first industry and later agriculture” and “first workers and later farmers”. Meanwhile, in order to protect agricultural production, the government issued a series of policies to curb migration from rural areas to cities, including the household registration system and employment system. These policies and measures seriously hindered urban–rural integration and led to income disparity between urban and rural residents.

2 The Road from Land Contracting to Urbanization The reform and opening-up was a milestone in the development of China’s economy and was important for advancing the reform of agriculture and rural areas. For China, a big agricultural country and a country with a large population, the reform and opening-up started with agricultural and rural areas. Since the PRC was founded, the central government has attached great importance to agricultural development and food security, and proposed that agriculture was the backbone of the national economy and grain was the backbone of agriculture. The state has always put the development of agriculture in first place in the national economy and invested a lot of manpower, materials, and financial resources. However, even when the people’s commune disintegrated, there was still a shortage of food and agricultural products.

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Under the background that the collectivized agricultural production mode could not achieve a substantial increase in grain production and help Chinese farmers get rid of poverty and become rich, China again started a major reform in the field of agriculture.

2.1 The Emergence of the Contract System with Remuneration Linked to Output The most important change brought about by the reform and opening-up to rural areas was the emergence of “the household contract responsibility system with remuneration linked to output”. In 1978, 18 farmers in Xiaogang Village, Fengyang County, Anhui Province, took a huge risk and left a red handprint on the land contract responsibility letter, which launched the prelude to China’s rural reform and the precedent of the household contract responsibility system with remuneration linked to output. In that year, Xiaogang Village achieved a large harvest of grain. After the Third Plenary Session of the Eleventh Central Committee of the CPC, the household contract responsibility system with remuneration linked to output was gradually implemented in China. On January 1, 1982, the annual “No. 1 Central Document” (which was the first report on issues related to agriculture, rural areas, and farmers) summed up the rapid rural reform, stated that the “contract with each household for production quotas and contract with each household for farming or large-scale contracted work” were “all socialist production responsibility systems”. It also explained that it was “different from the small or private individual economy before the cooperation movement. It is an integral part of the socialist agricultural economy.” After that, “the household contract responsibility system with remuneration linked to output” was established in rural areas. Different from the small-scale peasant economy, “the household contract responsibility system with remuneration linked to output” is an organic whole composed of collective economic organizations as the contracting party, the family as the contractor, and the contract as the link. The contract use agreement linked the contractors’ obligation of paying grain quota to the state and grain payment to the collective economic organizations with their right to contract the land. It also clarified the various services that the contracting party should provide to the contractor. The essence of the household contract responsibility system with remuneration linked to output was to break the old agricultural farming model of collective land ownership and collective management under the people’s commune system, separate collective land ownership and management rights, and establish a new agricultural farming model of household contract responsibility system with households as the basic unit on the basis of collective land ownership. The household contract responsibility system with remuneration linked to output, on the basis of respecting the interests of farmers, corrected the long-standing shortcomings of highly concentrated management and excessive monotonous operating

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methods, so that farmers in the collective economy were transformed from pure laborers to both producers and operators, thus greatly mobilizing the farmers’ enthusiasm for production, making good use of the potential of labor and land, and achieving a bumper harvest in successive years of agricultural production. By the mid-1980s, peasants’ food and clothing shortage was initially solved. The household contract responsibility system with remuneration linked to output brought about huge improvements to agricultural development and farmers’ economic conditions. From 1980 to 1984, China’s grain output increased five consecutive years, with an average growth rate of 5.4%. The per capita income of Chinese farmers increased from 134 yuan in 1978 to 1224 yuan in 1994. After deducting price factors, the average annual growth rate was 8.2%; the increase in farmers’ income led to the growth of consumption. In 1994, the average annual consumption expenditure of farmers reached 1087 yuan, increasing by 1.87 times compared with that in 1978, with an average annual growth rate of 6.8%. The emergence of rural surplus labor also laid the foundation for the emergence of township and village enterprises and the future operation of agricultural production.

2.2 The Gradual Emergence of Issues Related to Agriculture, Rural Areas, and Farmers After the reform and opening-up, the bold rural practice and government policy support in rural areas brought benefits to the increase in agricultural production, but they did not fundamentally solve many complex problems in rural development. The development situation in rural areas was also changing from time to time, and in some areas, an unstable situation occurred. After the first bumper harvest since the reform started in 1984, some rural areas experienced difficulties in buying grain and selling cotton. Later, there were “IOUs”, heavy burdens on farmers, increased conflicts between cadres and the masses, rural social instability, a widening gap between urban and rural areas, and many other problems. With the emergence of these problems, a group of scholars and cadres realized that they should strive to solve agricultural problems, separate and study the problems of rural areas, agriculture, and farmers, analyze the relationship between the three elements, and put forward a comprehensive solution. The analysis framework of issues related to agriculture, rural areas, and farmers was gradually formed and has become a theoretical framework for understanding China’s analysis of practical issues related to agriculture. Issues related to agriculture, rural areas, and farmers in the early stage of China’s reform and opening-up were “the top priority”. The theme of all of the “No. 1 Documents” issued by CPC Central Committee from 1982 to 1986 was on agriculture, rural areas, and farmers, making specific arrangements for agricultural reform and rural development.

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After the mid-1990s, some scholars and personnel in the actual work department connected and analyzed the issues of agriculture, rural areas, and farmers. The theory of issues related to agriculture, rural areas, and farmers became a national consensus and was cited in documents, media, and various articles. In October 1998, the “Decisions of the CPC Central Committee on Several Major Issues in Agriculture and Rural Work” stated that the issues of agriculture, rural areas, and farmers were major issues of the reform and opening-up and the overall construction of modernization. Specifically, first, the backwardness of rural production methods. Agriculture, especially modern agriculture, was not equivalent to planting, but a category of industries that was highly technology- and capital-intensive. Traditional production and management methods lacked the support of technology, capital, and effective management systems, leading to problems such as backward productivity, single agricultural structure, and irregular rural markets. Township and village enterprises could not achieve high-efficiency management systems and product sales processes, and the development of the rural economy was also subject to the shortage of high-quality talents, advanced technology, and market capital. Second, farmers’ living security was not enough. Agriculture, as a basic industry, faced many difficult-to-control risks in the process of production and reproduction cycles. The phased shortage of agricultural products and phased surplus coexisted. Especially, when China was closely integrated into the global economy, farmers’ income was greatly affected by the fluctuation of grain output and price. Third, rural life lacked vitality. On the one hand, China’s rural infrastructure security system needed to be improved, the rational flow mechanism of factors between urban and rural areas needed to be improved, and the basic quality of life of villagers needed to be improved. On the other hand, rural people’s livelihood construction was still relatively weak, lacked attractiveness to young people, and it was difficult to meet the growing material and non-material needs of the new farmer community. Without rural stability, there would be no national stability; if farmers were not well-off, then having all people across the country be well-off would be empty talk; without agricultural modernization, the entire national economy could not be modernized. Stabilizing the countryside would give us the initiative to grasp the overall situation. Integrating issues related to agriculture, rural areas, and farmers, and putting forward an overall plan, the central government began to prepare new strategic plans for long-term comprehensive agricultural and rural reforms. After the dawn of the new century, the country put forward new requirements for rural work under new strategic goals. The country proposed the building of a new socialist countryside, established the development of agricultural modernization as the primary goal of the building of a new countryside, and emphasized on improving rural governance mechanisms and farmers’ quality of life.

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3 Key Points and Difficulties on the Road to Prosperity for All Issues related to agriculture, rural areas, and farmers were proposed as a concept in China in the mid-1990s and have since been gradually cited by the media and officials. In fact, these problems have existed since 1949. However, they seem particularly prominent at present given the rapid development of China’s secondary and tertiary industries after the reform and opening-up started. The essence lies in the modernization of agriculture and rural areas. As the primary industry, agriculture provides an economy with the most basic means of production and labor. It is fair to say that for a country like China, an all-round well-off society is closely related to the modernization of agriculture and rural areas. Without the modernization of agriculture, rural areas, and farmers, the modernization of China as a whole will not be achieved, and it will be difficult to achieve a comprehensive well-off society. At present, the key points and difficulties on the road to a well-off countryside mainly exist in the following three respects.

3.1 Restrictions Posed by Traditional Agricultural Production Methods In the context of rising prices of production factors, the production and management model of a single farmer household and non-mechanized planting as a means is unsustainable. The small-scale peasant economy has long been unable to meet the demand of agricultural modernization for highly intensive technology and capital. With the continuous deepening of industrialization and urbanization, the labor productivity of China’s agriculture is only equivalent to one-eighth of the secondary industry and one-fourth of the tertiary industry. Agricultural production factors continue to disappear, and the agricultural economy has begun to face unprecedented challenges. A big country with a small-scale peasant economy is China’s basic national condition. When studying the current problems of China’s agricultural economy, experts found that for a long period of time, individual farmers will still be the most important mode of China’s agricultural operations and are the basis for ensuring the effective supply of agricultural products. Regarding the current challenges facing the agricultural economy, the key to the current problem lies in agricultural modernization, and agricultural modernization must rely on the powerful driving force of technological innovation. Since agriculture is based on individual farmers, the process of technology transformation is relatively long. Therefore, it is necessary to accelerate the popularization and application of cutting-edge technologies and transform them into actual productivity in agricultural production.

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3.2 Insufficiency of Financial Support Policies for Traditional Agriculture For a long period of time, the agricultural funding support policy based on direct financial subsidies was China’s most direct means of dealing with the development of the agricultural economy, and it achieved phased achievements within a certain period of time. However, considering the particularity of agriculture, traditional agricultural support methods cannot flexibly and equally distribute funds, fully mobilize farmers’ enthusiasm for production, or enable farmers to obtain benefits corresponding to their lives and labor. On the other hand, through the years, fiscal subsidies gradually became less effective than before. The problems of traditional agricultural policies largely stem from the failure to make full use of finance, a modern means of capital leverage, to fully mobilize market resources and make reasonable allocations to promote rural development. Compared with the shortcomings of traditional agricultural support policies that lack flexibility and efficiency, the advantages of modern agricultural financial tools in inter-time resource allocation are conducive to improving current agricultural support policies in terms of funding coverage and subsidy equity. When the “amber box” policy of direct subsidies is about to reach the “ceiling” of subsidies, the content of agricultural policies should be enriched, and the agricultural support policy led by the “amber box” policy should be gradually transformed into that mainly composed of “green box” policies of indirect subsidies.

3.3 Changes in the Rural Population Mix After 1978, the continuous advancement of urbanization was an important driving force for the continuous increase in the income of Chinese urban and rural residents. However, as the labor force shifted from rural to urban areas and the overall degree of aging was increasing, a large number of rural families were indeed left with only minors and elderly people. The demographic structure of China’s rural areas gradually showed a “hollowing” phenomenon. This phenomenon stripped the countryside of economic vitality and caused serious social problems such as “left-behind children”. In the meantime, rural economic development lacked the talents needed, and rural infrastructure construction, management construction, and economic development planning also lacked driving forces. Under the background that a rural vitalization strategy had become the guiding ideology for the overall development of rural areas, such a status quo was not conducive to agricultural modernization and the implementation of a better rural plan. In fact, under the special background of a “big country with a small-scale peasant economy”, although the loss of labor force and “hollowing of industries” had added burden to the growth of the traditional agricultural economy, it also provided opportunities for the rapid growth of modern agriculture.

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4 Revitalizing Rural Through Financial Means To solve issues related to agriculture, rural areas, and farmers, it is necessary to comprehensively analyze the nature of issues related to agriculture, rural areas, and farmers from the aspects of technology, policy, and society, and also to propose strategically significant and practical measures to liberate the vitality of agricultural and rural economies by focusing on the rural vitalization strategy, which is the general task for our work related to solving issues about agriculture, rural areas, and farmers in the new era. To implement a rural vitalization strategy, it is necessary to gradually expand the scale and coverage of rural financial services and establish a modern rural financial system with multiple levels, wide coverage, sustainability, moderate competition, and controllable risks. Specifically, the financial industry should actively help the implementation of a rural vitalization strategy to provide finance for the rural vitalization strategy. The inherent advantages of resource allocation in the financial industry can fill funding gaps in agricultural development and develop the agricultural economy through effective capital flow with quality and quantity, thereby promoting the implementation of the rural vitalization strategy.

4.1 The Necessity of Rural Financial Reform In 2018, the annual “No. 1 Central Document” proposed: “We should adhere to the correct direction of rural financial reform development, improve the rural financial system suitable for the characteristics of agriculture and rural areas, bring rural finance back to its origin, and allocate financial resources to key areas and weak links of rural socio-economic development, thus better meeting the diversified financial needs of the rural vitalization strategy.” To this end, the financial service sector should actively promote rural “two right” mortgage, accelerate the deployment of service branches, and provide policy loans based on their own positioning, thus revitalizing the rural vitalization strategy with finance. For a long time, China has mainly relied on direct financial subsidies to support agricultural development. The disadvantages of it have been fully revealed by China’s agricultural modernization strategy. Increasing farmers’ income and ensuring China’s food security are two long-term goals in China’s agricultural development. To achieve the two goals, it is necessary to reform agricultural direct subsidies. Speeding up the transition from the “amber box” policy of agricultural subsidies to the “green box” policy is a general trend in international agricultural support policies. “Putting the rice bowl in one’s own hands” urgently requires us to accelerate the reform of the agricultural subsidy policy system.

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4.2 Effective Solutions to Financial Innovation and Issues Related to Agriculture, Rural Areas, and Farmers There are various forms of agriculture and rural finance. In addition to traditional bank credit support, financial instruments such as securities, insurance, and futures are also playing an increasingly important role in solving issues related to agriculture, rural areas, and farmers. Taking insurance as an example, the annual “No. 1 Central Document” puts forward clear requirements for insurance work. Specifically, as far as insurance is concerned, the document mainly focuses on two respects: First, when talking about improving the agricultural support and protection system, the document states that we should develop full cost insurance and income insurance for the three major staple foods of rice, wheat, and corn, in an effort to establish a multi-level agricultural insurance system; second, when talking about how to improve the level of financial services, the document emphasizes that pilot programs of “insurance + futures” should be steadily expanded, and pilot programs of “contract agriculture + insurance + futures (options)” should be explored. Traditional agricultural insurance and rural insurance cover all aspects of agricultural and animal husbandry products, farmers’ lives, pensions, and medical care. On the whole, China’s agricultural insurance development has been relatively extensive and the level of protection has been relatively low over the years. Previously, China established the principle of “low guarantee and wide coverage”, which means expanding coverage while keeping the insurance level low. In order to effectively improve the insurance level, the government shifted its thinking pattern to “expanding coverage, raising standards, and increasing products”, striving to guarantee farmers’ income in an all-round way and effectively increase agricultural insurance and fill resource allocation gaps. Among them, “expanding coverage” means expanding the coverage of insurance, “increasing products” means increasing the number of types of insurance products, and “raising standards” means improving the level of insurance. To this end, with the help of the potential of financial innovation, vigorously developing different types of agricultural and rural insurance products can effectively solve issues related to agriculture, rural areas, and farmers, such as the gap of agricultural development funding, thereby liberating the potential of agricultural production, keeping a red line, and vigorously promoting China’s agricultural modernization. One innovation of agricultural insurance is to carry out innovative pilot work of “income insurance” products. In the past, China’s crop industry insurance was called cost insurance, whose standard of loss was based on the time of the disaster, which was different from the “yield insurance” of the international agricultural inspection. Insurance only considers cost changes and ignores the impact of other factors on farmers’ incomes. The development of income insurance adopts the method of “both natural risk and price risk”, avoiding the risk of agricultural economic income reduction caused by price and output factors, thus providing farmers with better insurance and enhancing their ability to resist various risks. As one of the locations of pilot projects, Shanghai has effectively reformed agricultural insurance. From the historical perspective of the reform experiment of agricultural insurance, Shanghai’s

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agricultural insurance reform has gone through four periods: cost insurance, yield insurance, price insurance, and income insurance. Starting in 2016, income insurance has also officially adopted Shanghai as a pilot. For the Shanghai insurance industry, income insurance has freed Shanghai’s agricultural insurance from its single function of disaster loss compensation and has also transformed the government’s performance of agricultural risk management functions and undertaking multiple social responsibilities, which has made modern agriculture in Shanghai develop healthily, sustainably, and stably. Another exploration is to incorporate the full cost insurance of the three major staple foods into the future development direction. The full cost insurance means that the low and medium labor costs are included in the scope of insurance on the basis of fully guaranteeing materialized costs, which implies the average price of various production factors. China’s current agricultural insurance is mostly at the stage of protecting material products, and cost insurance in most provinces has not fully covered the cost of all types of material products. The level of insurance has always been prominently low. The development of full cost insurance helps to improve the agricultural insurance protection and weak attractiveness to farmers, mobilize farmers’ enthusiasm for agricultural activities, and fully implement a rural vitalization strategy. With the increasingly close economic globalization, how to use financial means to enhance the international competitiveness of China’s agriculture and agricultural products is also the essential requirement of agricultural modernization. In recent decades, global agricultural trade has been in unequal relations, and it has become more and more serious. The reason is that, on the one hand, the agricultural production of developed countries has ushered in the stage of modern large-scale agricultural production, using the WTO and other international trade rules to rationalize transnational food expansion, and dumping agricultural products to developing countries through huge agricultural subsidies to transfer their products overseas and optimize their agricultural structure. On the other hand, multinational food giants have capitalized operations in global agricultural product trade and controlled and managed the entire industrial chain from seed to table by controlling key links such as processing, warehousing, and logistics. As a result, they monopolize the international trade of agricultural products, make producer prices of agricultural products in developing countries highly irrelevant to consumer prices in the world, and make developing countries lose food self-sufficiency. Developing countries can only stay in the lowend links of the modern agricultural industry chain, and they cannot complete the modernization of agriculture. At present, the global agricultural trade value chain is controlled by Western developed countries, and developing countries rarely have a say in it. For example, the Chicago Mercantile Exchange (CME) is an important center of traditional grain futures. The trading volume of agricultural product futures accounts for about 90% of the world’s total. The resulting price has become the benchmark price of the international agricultural product market; the famous ABCD (ADM, Bunge, Cargill, and Louis Dreyfus) control 60% of the total global grain trade, forming a monopoly.

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Although there are some rising stars in developing countries, such as COFCO International, they cannot shake the monopoly of the four major grain merchants because they are subject to the Western agricultural market with pricing mechanism as the core. As people’s living standards improved, the consumption of protein agricultural products such as poultry, eggs, and meat has increased rapidly. However, contemporary agriculture, animal husbandry, and fishery are typical industries that are highly capital- and technology-intensive. China urgently needs to increase investment, strive for the influence of international pricing power, and strive to change the current unequal and unfair global agricultural product trading system. On the basis of improving domestic key infrastructure, improving relevant norms and regulations, and promoting grain production, China can also seek cooperation with other countries, propose key policies, strengthen mutual communication mechanisms of agricultural trade information, and finally establish an international futures market to enhance its control of price fluctuations in the international market. The rural vitalization strategy addresses the respective key issues of agriculture, rural areas, and farmers; it also takes all issues related to agriculture, rural areas, and farmers into account, pointing out the direction for the research and practice of agriculture-related issues in China. In a new era of socialism with Chinese characteristics, agricultural financial innovation represented by insurance and futures is entering a critical stage of rapid development. By incorporating full cost insurance into the future directional goals, comprehensive income insurance, cost insurance, and other types of insurance, China will surely be able to continuously improve the level of agricultural operations and improve the livelihood of farmers, thereby providing ample momentum and vitality for the overall revitalization of China’s rural areas.

From Green Water to Golden Mountains: The Evolution of Ecological Development

The years from 1978 to 2018 was a period of 40 years of reform and opening-up. In the beginning, China’s environmental protection and green development cause were null, and advancements were made gradually in terms of concepts, systems, institutions, and practices. The country’s governance method also evolved from purely technical means of governance to a comprehensive governance method that integrated administration, law, economy, and finance. The system for ecological development has been constantly built and improved. Finally, it was enshrined into the Constitution, forming a path of evolution of ecological development with Chinese characteristics and pushing the entry of the entire Chinese society, economy, and ecological environment into a new era of development.

1 The Deepening of the Green Concept The CPC Central Committee made important instructions for environmental protection for the first time in 1978. In that year, the CPC Central Committee approved the State Council Environmental Protection Leading Group’s “Key Points of Environmental Protection Work Reporting”, stating: “Eliminating pollution and protecting the environment is an important component of socialist construction and the realization of the four modernizations… We must not take the detour of ‘pollution before governance’.” This indicated that China’s environmental protection work had entered a new era of reform and innovation. Forty years later, on the afternoon of March 11, 2018, the Third Plenary Meeting of the First Session of the 13th National People’s Congress voted and passed the “Amendments to the Constitution of the People’s Republic of China”. “Ecological development” was enshrined into the revised Constitution, demonstrating that ecological development is at the height of “the overall plan”, which has become the

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will of the country, and “beautiful” has thus become one of the five major characteristics of socialism with Chinese characteristics in the new era (the other four are “prosperous, strong, democratic, culturally advanced, and harmonious”). These are expressions of “ecological development” in the constitutional amendment. The seventh paragraph of the Preamble of the Constitution has been changed into “coordinately promote material, political, cultural and ethical, social, and ecological advancement, make China a great modern socialist country that is prosperous, strong, democratic, culturally-advanced, harmonious and beautiful, and realize the great national rejuvenation”. The sixth item of Article 89 which stated that “the State Council shall exercise the following powers” was changed into “lead and manage economic work, urban and rural construction, and ecological development”. The entry of ecological development into the Constitution is in line with the objective needs of China in the new era. As the fundamental law of the country, the Constitution is paramount. The current Constitution was implemented in 1982 and has undergone five revisions: in 1988, 1993, 1999, 2004, and 2018. During this period, China promulgated many laws on ecological environment and resources, but ecological development was not included in the overall plan at first. After the Third Plenary Session of the Eighteenth Central Committee of the CPC, the theoretical framework of ecological development began to be built and gradually advanced. In 2012, “building a Beautiful China” was written into the report of the 18th National Congress of the CPC, and ecological development was included in the five-sphere integrated plan of the overall plan; this year, ecological development, through an amendment proposed by the 18th National Congress of the CPC, was written into the Party Constitution for the first time. Since 2013, ecological development has entered the Report of the Work of the Government in the form of a special chapter every year, and since 2014, it has been enshrined in all the revised or formulated environmental protection laws and regulations. In 2017, the report of the 19th National Congress of the CPC listed “ecological development” as an important component of a journey to fully build a modern socialist China. In January 2018, the Second Plenary Session of the Nineteenth Central Committee of the CPC deliberated and approved the “The CPC Central Committee’s Proposals for Amending Part of the Constitution”, and “ecological development” was written twice into the constitutional amendment to be reviewed by the First Session of the 13th National People’s Congress. This indicated that ecological development conformed to the national conditions of the development path with Chinese characteristics and was an objective requirement for China’s development in the new era. The enshrinement of ecological development into the Constitution gives it a higher legal status and stronger legal effect. At the implementation level, it also requires that the institutional reform of the ecological development must comply with constitutional provisions. This requires that national staff, enterprises, and ordinary people, in the process of work and life, must keep in mind the urgent requirements of ecological development, implement specific measures for ecological development, and develop ecological development according to the law.

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2 Continuous Strengthening of Green Institutions China’s environmental protection department grew out of nothing to a nonindependent bureau-level department of the State Council, and then to an independent departmental department of the State Council with constantly strengthened organizational functions. This process reflects the continuous deepening of the understanding and actions of the state and society of ecological environmental protection and green development.

2.1 The State Council Environmental Protection Leading Group → State Environmental Protection Administration (Non-independent) In October 1974, the State Council Environmental Protection Leading Group was formally established. Its main responsibilities were: formulating environmental protection guidelines, policies, and regulations, reviewing national environmental protection plans, and organizing, coordinating, supervising, and inspecting the environmental protection work of various regions and departments. In 1982, China used “environmental protection” as the name of a government agency for the first time. In May 1982, the 23rd meeting of the Standing Committee of the Fifth National People’s Congress decided that the State Administration of Urban Construction, State Administration of Construction Engineering, State Administration of Surveying and Mapping, and some agencies of State Capital Construction Committee were merged with the office of the State Council Environmental Protection Leading Group and became the Ministry of Urban and Rural Construction and Environmental Protection, and the Environmental Protection Bureau was established within the Ministry. Its function was very single: primarily to manage the wastewater, waste gas, and waste residues of industrial enterprises. In May 1984, according to the Decision of the State Council on Environmental Protection Work, the State Council Environmental Protection Committee was established. Its tasks were to study and approve environmental protection guidelines and policies, put forward planning requirements, and lead, organize, and coordinate national environmental protection work. The post of director of the committee was assumed by a vice premier, and the administrative office was under the Ministry of Urban and Rural Construction and Environmental Protection (whose power was then performed by the Environmental Protection Bureau). In December 1984, the Environmental Protection Administration of the Ministry of Urban and Rural Construction and Environmental Protection was changed to the State Environmental Protection Administration. It is still under the leadership of the

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Ministry of Urban and Rural Construction and Environmental Protection. It is also an office of the State Council Environmental Protection Committee. Its main task was to plan, coordinate, supervise and guide national environmental protection work.

2.2 State Environmental Protection Administration (Vice-Ministerial Level Directly Affiliated to the State Council) → State Environmental Protection Administration (Ministerial Level Directly Affiliated to the State Council) In July 1988, according to relevant official documents, the environmental protection work was separated from the Ministry of Urban and Rural Construction, and an independent State Environmental Protection Bureau (deputy ministerial level) was established, which was stipulated as a functional department of the State Council responsible for the comprehensive management of environmental protection. It was an agency affiliated with the State Council and was also the administrative office of the State Council Environmental Protection Committee. The State Environmental Protection Bureau thus had independent personnel, finances, and materials, and could perform the functions of policy formulation and supervision of pollution discharge. In June 1998, according to “Notice of the State Council on the Establishment of Institutions” and “Notice of the General Office of the State Council on Issuing the Provisions on the State Environmental Protection Administration’s Function Configuration, Internal Bodies and Staffing”, the State Environmental Protection Bureau was upgraded to the State Environmental Protection Administration (at the ministerial level), which was the agency affiliated with the State Council in charge of environmental protection work. The State Council Environmental Protection Committee was abolished. Responsibilities were: drafting guidelines, policies, and regulations on national environmental protection, formulating administrative regulations; conducting environmental impact assessments on major economic and technological policies, development plans, and major economic development plans as entrusted by the State Council; drafting national environmental protection plans; organizing the formulation of and supervising the implementation of pollution prevention and control plans and ecological protection plans for key areas and key river basins determined by the state; organizing the formulation of environmental functional zoning.

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2.3 Ministry of Environmental Protection (A Department at the Ministerial Level of the State Council) → Ministry of Ecology and Environment (A Department at the Ministerial Level of the State Council) In July 2008, according to “Notice of the General Office of the State Council on Issuing the Provisions on the Main Duties, Internal Bodies and Staffing of the Ministry of Environmental Protection” and the State Council’s reform program of Party and government institutions deliberated and approved by the First Session of the Eleventh National People’s Congress, the State Environmental Protection Administration was upgraded to the Ministry of Environmental Protection and became an agency under the State Council. Its responsibilities were to formulate and implement environmental protection plans, policies, and standards, organize the formulation of environmental functional zoning, supervise and manage environmental pollution prevention and control, coordinate and solve major environmental protection issues, formulate and implement environmental policies, supervise and implement laws, coordinate inter-administrative-region environmental affairs, etc. In March 2018, according to the State Council’s reform program of Party and government institutions approved by the First Session of the 13th National People’s Congress, the responsibilities of the Ministry of Environmental Protection, the responsibilities of the National Development and Reform Commission of China on responding to climate change and emission reduction, the responsibilities of the Ministry of Land and Resources on the supervision and prevention of groundwater pollution, the responsibilities of the Ministry of Water Resources on the preparation of water function zoning, sewage outlet setting management, and river basin water environmental protection, the responsibilities of the Ministry of Agriculture on the supervision and guidance of agricultural non-point source pollution control, the responsibilities of the State Oceanic Administration on marine environmental protection, and the responsibilities of the Office of the South-to-North Water Diversion Project Commission of the State Council on the environmental protection of the South-toNorth Water Diversion Project area were integrated. The Ministry of Ecology and Environment was formed as a component of the State Council. The Ministry of Ecology and Environment retained the brand of the National Nuclear Safety Administration. Its main responsibilities are to formulate and organize the implementation of ecological environmental policies, plans, and standards, be responsible for ecological environmental monitoring and law enforcement, supervise and manage pollution prevention and nuclear and radiation safety, organize central environmental protection inspections, etc. The Ministry of Environmental Protection came to an end.

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The establishment of the Ministry of Ecology and Environment integrates all aspects of responsibilities involving environmental pollution control of existing relevant ministries and commissions: the National Development and Reform Commission of China, the Ministry of Land and Resources, the Ministry of Water Resources, the Ministry of Agriculture, the State Oceanic Administration, and the Office of the South-to-North Water Diversion Project Commission of the State Council. Li Ganjie, Minister of the Ministry of Ecology and Environment, said that the establishment of the Ministry of Ecology and Environment would achieve “five connections”: the first was to connect the ground and the underground; the second was to connect the shore and the water; the third was to connect the land and the sea; the fourth was to connect cities and rural areas; the fifth was to connect carbon monoxide and carbon dioxide, which was to connect air pollution control and response to climate change. Such integration can truly realize the overall protection, systematic restoration, and comprehensive management of mountains, rivers, forests, fields, and lakes. The strengthening of institutional functions is conducive to improving the two shortcomings of the original environmental governance: First, the horizontal decentralization of environmental protection functions, resulting in overlapping responsibilities, multi-head governance, and ill-defined accountability; second, regulators and owners were not well separated, resulting in lower efficiency, inadequate supervision, and “the tragedy of the commons”. The establishment of the Ministry of Ecology and Environment will greatly improve the waste of resources caused by overlapping functions of the previous departments, reduce the occurrence of blind spots in supervision, and concentrate efforts on increasing environmental law enforcement and pollution remediation.

3 Continuously Strengthening Green Governance Environmental-protection-related governance systems and mechanisms have been continuously improved. In 2017, central environmental inspections continued to deepen, completing the third and fourth batches of inspections in 15 provinces, and 26 provinces across the country had started or were carrying out provincial-level environmental inspections. The country has been resolutely prohibiting the entry of foreign waste, adjusting the catalog of imported waste management, carrying out special campaigns to combat environmental violations in the imported waste processing and utilization industry, and carrying out special rectification campaigns on solid waste distribution centers. The annual import volume of restricted solid wastes decreased by 11.8% year-on-year. The General Office of the CPC Central Committee and General Office of the State Council issued a pilot plan for setting up environmental supervision and administrative law enforcement agencies according to river basins and setting up cross-regional environmental protection agencies. The

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implementation plan for the vertical management system reform of environmental protection agencies under the provincial level in nine provinces (municipalities) including Jiangsu, Shandong, and Hubei was newly filed. To improve environmental and economic policies, relevant ministries of the State Council issued 22 supporting policies, including environmental electricity prices and raising pollution charges. The environmental awareness of the whole society thus increased, the enthusiasm of the general public to participate in environmental protection became high, and civilized, economical, and green consumption methods and living habits gradually became the code of conduct of the whole society. The country should deal with some problems scientifically and rationally, bring the existing environmental protection achievements to more people, and continuously improve the quality of the ecological environment, so that the people’s satisfaction with the quality of the ecological environment will be further improved. To do so, the country should explore and strengthen green governance capabilities in three respects: broader, wider, and more comprehensive. Broader scope. On February 2–3, 2018, Li Ganjie emphasized at the 2018 National Environmental Protection Work Conference: “We should make China’s skies blue again. With the Beijing-Tianjin-Hebei region and surrounding areas, the Yangtze River Delta, the Fenwei Plain, and other key areas as the main battlefield, we should resolutely speed up adjusting the industrial mix, energy structure, and transportation structure, and pay close attention to the severely polluted weather.” As the average concentration of fine particulate matter (PM2.5) in the Pearl River Delta region has reached the standard for three consecutive years and Beijing’s PM2.5 has dropped significantly, the country has included the Fenwei Plain (where urban air pollution has rebounded or worsened) into the key areas. It will further improve the pollution prevention and control cooperation mechanism in the Beijing-Tianjin-Hebei region, the Yangtze River Delta, and the Fenwei Plain region, and steadily promote crossregional joint air pollution prevention and control in the Chengdu-Chongqing region, Northeast China, and the city cluster in the middle reaches of the Yangtze River. The central government should coordinate the development between regions, transform the province-level industrial mix, form a synergy of joint prevention and control between cities, and ensure that the “happiness based on a blue sky” of the masses in a larger area is significantly improved. Wider field. On the basis of consolidating the obvious results of air quality improvement, the country should further deepen the pollution control and restoration of water and soil and better protect the ecosystem. To make China’s skies blue again, the country should, according to the deployment, arrangements, and requirements of the 19th National Congress of the CPC and the Central Conference on Economic Affairs, speed up the formulation and implementation of the “three-year plan of making China’s skies blue again” to ensure greater progress in three years,

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better implement air pollution prevention and control in key areas, and steadily popularize clean heating in the northern region. The country should carry out clean water operations and thoroughly implement the newly revised “Water Pollution Prevention and Control Law”. With the State Council (2015) Water Pollution Prevention and Control Action Plan as the outline, the country should adhere to the management of the landscape, forest, field, lake, and grass system, steadily implement the river and lake chief system, clean up and remedy sources of drinking water from surface water, eliminate urban black-odorous waterbodies, comprehensively improve the rural environment, popularize pollution prevention and control in key estuaries and bays, and further increase the proportion of Class I to III surface waters across the country. The country should solidly support clean soil actions, fully implement the Action Plan for Soil Pollution Prevention and Control, build more pilot areas for the comprehensive prevention and control of soil pollution and the application of soil pollution control and restoration technology, improve the safety of agricultural land and construction land, strengthen the prevention and control of solid waste pollution, promote garbage classification and disposal, optimize the layout of hazardous waste disposal facilities, thoroughly advance detailed investigations of soil pollution, and develop pilot projects for building “waste-free cities”. The country should accelerate ecological system protection and restoration, delineate and strictly observe ecological protection red lines, implement major ecological system protection and restoration projects, strengthen the construction and management of nature reserves, establish a protected areas system with national parks as the main body, and optimize urban green spaces. More comprehensive development. The country should strengthen inspections of environmental law enforcement, make full use of the central environmental protection inspection, monitor the rectification works, and further consolidate the inspection results. The country should carry out mobile and point-point special inspections for key areas in the fight against pollution. On the basis of pilot projects, the country should comprehensively reform the vertical management system of environmental protection agencies at and below the provincial level, and form a local environmental protection management system that is comprehensive, performs respective duties, has clearly-defined rights and responsibilities, provides strong guarantees, and is authoritative and efficient. On top of that, the country should effectively strengthen the independence, coherence, authority, and effectiveness of environmental monitoring, supervision, and law enforcement. The country should give play to the decisive role of the market in resource allocation, further use a series of fiscal, taxation, financial, and other means to improve the incentive mechanism of resource allocation, give play to the leverage of green finance, and channel social funds to green industries such as pollution control, energy

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conservation, and emission reduction, so that the economic structure, energy structure, and transportation structure can be cleaner and greener and the vision of “green water and green mountains are golden mountains and silver mountains” can become reality. The country should support banking sector financial institutions to increase lending support to the green industry, further clarify the assessment requirements for green finance in the Macro Prudential Assessment (MPA), implement “giving priority to accepting green loan assets as collateral for credit-policy-supported re-lending and standing loan facilities”, further explore targeted reductions in green credit, reduce the weight of green credit risk, etc. The country should intensify the fiscal interest discount for green credit, improve environmental credit evaluation, and improve the information communication and sharing mechanism of finance, banking, environmental protection, and other departments. The country should support the growth of the green bond market and make good use of the bond market to further serve the development of the domestic green industry and green Belt and Road Initiative construction. The country should strengthen the disclosure of green bond information, and strictly prevent “greenwashing” projects from obtaining financing through green bonds. The country should issue green-bond-index-based green financial products and expand the investor base of green bonds. The country should build a unified national carbon market, and appropriately carry out carbon finance on the basis of preventing market financial risks. On the basis of pilot work in the power industry, the country should gradually incorporate the seven high energy consumption industries, namely the petrochemical, chemical, building materials, steel, non-ferrous metals, paper, and aviation industries, and effectively transmit the pressure of carbon prices on corporate costs to other places through market mechanisms, thereby promoting greenhouse gas emissions reduction and effectively reducing the emission reduction costs of the whole society. The country should improve the mandatory disclosure system of environmental protection information, follow the requirements of the “Opinions on Promoting the Disclosure of Government Information in the Field of Public Welfare Construction” issued by the General Office of the State Council, further improve the disclosure of information on issues of widespread public concern such as air pollution prevention and control, water pollution prevention and control, soil pollution control and restoration, etc., and focus on the information disclosure of policies and implementation effects of environmental pollution prevention and ecological protection, pollution source monitoring and emission reduction, assessment and approval of the environmental impact of construction projects, investigation and handling of major environmental pollution and ecology destruction incidents, supervision and complaint handling of environmental protection law enforcement, etc. The disclosure of environmental information of listed companies should be made mandatory step by step.

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4 Continuous Improvement of Green Development General Secretary Xi Jinping stated in the report of the 19th National Congress of the CPC: “We have achieved remarkable results in ecological development. As a result, the entire Party and the whole country have become more purposeful and active in pursuing green development, and there has been a clear shift away from the tendency to neglect ecological and environmental protection. Efforts to develop a system for ecological development have been accelerated; the system of functional zoning has been steadily improved, and progress has been made in piloting the national park system. Across-the-board efforts to conserve resources have seen encouraging progress; the intensity of energy and resource consumption has been significantly reduced. Smooth progress has been made in major ecological conservation and restoration projects, and forest coverage has been increased. Ecological and environmental governance has been significantly strengthened, leading to marked improvements in the environment. Taking a driving seat in international cooperation to respond to climate change, China has become an important participant, contributor, and torchbearer in the global endeavor of ecological development.” It is worth noting that Beijing residents troubled by smog became accustomed to good weather in 2017 and became less and less prone to share photos of the blue sky in WeChat Moments. The effort to make China’s skies blue again achieved phased results. Since the CPC Central Committee and the State Council promulgated and implemented the “Air Pollution Prevention and Control Action Plan” in 2013, all air quality improvement goals set by the plan have been fully realized, and the air quality in key areas has improved significantly. In 2017, inhalable particulate matter (PM10) in prefecturelevel and above cities across the country decreased by 22.7% compared with 2013, and PM2.5 in key areas such as the Beijing-Tianjin-Hebei region, the Yangtze River Delta, and the Pearl River Delta decreased by 39.6%, 34.3%, and 27.7%, respectively; the average concentration of PM2.5 in the Pearl River Delta region reached the standard for three consecutive years; Beijing’s PM2.5 dropped from 89.5 µg/m3 in 2013 to 58 µg/m3 in 2017. Among the 338 prefecture-level and above cities monitored, 29.3% of the cities have met the air quality standards, a year-on-year increase of 4.4%. The annual average concentration of PM2.5 in cities that did not meet the standard was 48 µg/m3 , a year-on-year decrease of 5.9%. The growth trend of major pollutants and carbon dioxide emissions has basically been curbed. According to a study conducted by the Chongyang Institute for Financial Studies at Renmin University of China and the Research Institute of Regional Economy of Renmin University of China: (1) China’s per capita sulfur dioxide emissions were 137 kg in 1981, peaked at 97 kg in 2006, and dropped to 80 kg in 2016, 41.61% lower than that in 1981 and 59.39% lower than that in 2006. (2) China’s per capita nitrogen oxide emissions were 116 kg in 2006, peaked at 178 kg in 2011, and dropped to 101 kg in 2016, a decrease of 12.93% from 2006 and a decrease

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of 43.26% from 2011. (3) China’s per capita COD emissions were 142 kg in 1997, peaked at 186 kg in 2011, and dropped to 76 kg in 2016, a 46.48% decrease from 1997 and a 59.14% decrease from 2011. (4) China’s per capita ammonia nitrogen emissions were 1 kg in 2001, peaked at 1.9 kg in 2011, and dropped to 1.5 kg in 2016, an increase of 50.00% compared to that in 2001 and a decrease of 21.05% compared to that in 2011. (5) China’s per capita carbon dioxide emissions were 2.370 kg in 2000, peaked at 7.007 kg in 2013, and dropped to 6.740 kg in 2016, an increase of 184.39% compared to that in 2000 and a decrease of 3.81% compared to that in 2013. The efficiency of energy resource utilization has been further improved, with outstanding achievements in energy conservation and emission reduction. In 2017, the national energy consumption per 10,000 yuan of GDP decreased by 3.7% compared with the previous year, and the annual target task was completed. The carbon dioxide emissions per 10,000 yuan of GDP decreased by 5.1%. In the total energy consumption, the proportion of clean energy consumption increased: natural gas, hydropower, nuclear power, wind power, and other clean energies accounted for 20.8%, a year-on-year increase of 1.3%. The comprehensive energy consumption per unit of caustic soda in key energy-consuming industrial enterprises decreased by 0.3%, the comprehensive energy consumption per ton of cement decreased by 0.1%, the comprehensive energy consumption per ton of steel fell by 0.9%, the comprehensive energy consumption per ton of blister copper fell by 4.8%, and standard coal consumption rate in power generation fell by 0.8%. The national water consumption per 10,000 yuan of GDP dropped by 5.6% over the previous year, the water consumption per 10,000 yuan of industrial added value dropped by 5.9%, and the newly increased efficient water-saving irrigation area reached 1.44 million hectares. Afforestation area of 7.36 million hectares was completed throughout the year, and 56,000 square kilometers of area of controlled soil erosion was newly increased. China has effectively developed its green finance and improved the financial support and supporting capabilities for green industries, which has also strongly supported the global green finance to make great strides and has become the flagbearer of the development of global green finance. According to data from CBRC, the green credit scale of 21 major domestic banking institutions has increased from 5.20 trillion yuan at the end of 2013 to 8.22 trillion yuan at the end of June 2017. As of the end of June 2017, energy-saving and environmental protection projects and service loans are expected to save 215 million tons of standard coal each year and reduce carbon dioxide emissions by 491 million tons, which is equivalent to 336 years of service suspension of 70,000 taxis in Beijing or the carbon dioxide emissions reduction equivalent of 8.4 years of power generation from the Three Gorges Hydropower Station. According to relevant statistics, in 2017, China’s cumulative issuance of green bonds (including green bonds and green asset-backed securities) at home and abroad totaled about 240 billion yuan, accounting for about 25% of the global green bond issuance in the same period, making China a leader in this aspect in the world.

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Since the launch of pilot carbon emissions trading in 2011 and the establishment of nine pilot regions for carbon trading, a unified national carbon market was officially launched on December 19, 2017, which will surpass the EU and become the world’s largest trading system of the right to regional carbon emissions. In order to increase financial support for improving the ecological environment and resource conservation and efficient use, on June 14, 2017, a State Council executive meeting decided to select some places in the five provinces of Zhejiang, Jiangxi, Guangdong, Guizhou, and Xinjiang to build new experimental area for green financial reform to conduct pilot exploration for fully implementing the country’s green finance, marking that China’s local green financial system construction has officially entered the stage of implementation. In the past 40 years, China has made positive progress in the field of ecological environment, the quality of the ecological environment represented by air quality has been significantly improved, and the landmark projects and measures for ecological development, such as adjusting energy structure and eliminating outdated production capacity, have basically been completed ahead of schedule. However, opinions were once rampant that China’s environmental protection measures were “one size fits all”, “environmental extremism”, “environmental fundamentalism”, and “a focus on environmental protection, disregarding people’s livelihood”. It should be said that the entire country has made great efforts to protect the environment with an unprecedented intensity of pollution control, an unprecedented frequency of system introduction, unprecedentedly strict standards of law enforcement and supervision, and an unprecedentedly fast speed of environmental improvement. The fundamental purpose of improving environmental quality is to provide a better environment and ecology for the people and to meet everyone’s requirements for a better living environment. Actively carrying out environmental protection work and vigorously developing green industries can provide a good policy environment and industrial foundation for environmental quality improvement, form new growth areas for economic development, provide better guarantees for improving people’s livelihoods and increasing employment, and create a comprehensive and complete institution, system, policy, awareness environment, and atmosphere for the realization of “green water” and “golden mountains”. General Secretary Xi Jinping solemnly declared to the world at the 19th National Congress of the CPC that “socialism with Chinese characteristics has ushered in a new era”. China’s ecological development has also entered a new era. With the expectation of high-quality development, the people’s requirements for the quality of the ecological environment have further increased. Some doubts about environmental protection also reflect the public’s concern about the ecological environment. It requires that the work related to the ecological environment should make steady progress at a higher level, maintain a balance, consolidate the achievements in ecological environment protection, continue to make progress, take the people’s feelings about the continuous improvement of environmental quality and the people’s

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increasing needs for the beautiful ecological environment as a measure of the quality of policy measures, implement policies from the above-mentioned three respects (broader, deeper, and more comprehensive), mobilize all sectors of society to participate in ecological environment management and protection, ensure that all sectors of society can feel the benefits of a better ecological environment, strive to make China’s carbon dioxide emissions reach the peak as soon as possible, cross the turning point of the environmental Kuznets curve (EKC) as soon as possible, and embark on a bright path of the evolution of ecological development that can be shared by both China and the world.

From “Taking the Lead to Achieving a Better Quality of Life” to Fairness: The Road to Optimizing the Income Structure

With the convening of the 19th National Congress of the CPC, the eyes of people from all over the world are focused on China. How China will thoroughly implement the development concept of “innovative, coordinated, green, and open development that is for everyone”, and constantly adapt, grasp, and alleviate the conflict between unbalanced and inadequate development and the people’s ever-growing needs for a better life has been the main concern of people at home and abroad. The issue of income, as a core topic that Chinese people have been paying attention to, is also an important issue that China has been committed to solving. During the 40 years of reform and opening-up, China carried out various reforms on income and achieved certain results. This article will review the income reform during the 40 years of reform and opening-up, and analyze how China will continue to deepen the reform of income distribution and share the results of economic development under the new economic normal.

1 For the World’s Largest Middle-Income Community During the 40 years of reform and opening-up, Chinese society entered a new era. Guided by a new vision for development, China’s economy and society have made new progress in a number of ways. From 1978 to 2011, the per capita net income of rural households nationwide increased from 133.6 yuan to 6977.29 yuan, an increase of 51.2 times, with an average annual increase of 12.67%; the per capita disposable income of urban households increased from 343.4 yuan to 21809.8 yuan, an increase of 62.51 times. The average annual increase was 13.35%; the average annual salary of urban employees increased from 615 yuan to 41,799 yuan, an increase of 66.97 times, with an average annual increase of 13.59%. This period became the period of the fastest increase in residents’ income and welfare since 1949, and the quality of life of residents continued to improve. There is a historic leap in the life quality of

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the majority of residents: from being in poverty to having adequate food and clothing and to having an overall well-off life, and fundamental changes have taken place. [1] After 40 years of development, the fearless and determined Chinese people have successfully embarked on a path of socialism with Chinese characteristics. Socialism with Chinese characteristics has ushered in a new era. This is a solid foundation for deepening reforms and realizing prosperity for all. In the past 40 years, economic development has made remarkable achievements, the new urbanization process has also been steadily advanced, and residents’ income has shown diversified growth. In 2017, China’s urbanization rate reached 58.52%, an increase of 1.17% points from the end of the previous year. From 2013 to 2017, urban new jobs remained above 13 million for four consecutive years, and the surveyed unemployment rate dropped to the lowest point in the past five years. The urbanization process has brought about an increase in residents’ income year by year. In 2017, the national per capita disposable income of residents was 25,974 yuan, an increase of 7.3% over the previous year. According to the latest income grouping standards announced by the WB in 2015, China is approaching being a “high-income country” by a large margin. From the perspective of income sources, in 2017, the proportion of per capita wage income of national residents in disposable income was 56.3%, net operating income accounted for 17.3%, net property income accounted for 8.1%, and net transfer income accounted for 18.3%. Income sources are increasingly diversified. Reform and opening-up have been highly supported by the broad masses of the people. In the past 40 years, China’s economic development has faced the problems of deprivation, poverty, and shortage, but now, such problems have been basically resolved and China is now the second largest economy in the world. In addition, the people’s living standards have improved significantly, with a per capita GDP approaching 9000 USD, which has fundamentally overturned the erroneous assertion that “a shortage economy is the main feature of a socialist economy” and has greatly improved China’s international status. [2] Especially from 2013 to 2018, China formed the world’s most populous middleincome group. The per capita disposable income of residents increased by more than 9000 yuan, and the people became richer. The cumulative number of new urban jobs was more than 65 million, close to France’s population of 67.2 million. In the meantime, a total of 68.53 million rural people have been lifted out of poverty, with an average annual rate of more than 13 million people. This battle against poverty, which has been the biggest in the world, has created a historic record of about 1500 people per hour or 25 people per minute being lifted out of poverty. On January 18, 2018, the National Bureau of Statistics released the 2017 national economic performance report, which showed that the national per capita disposable income increased by 7.3% in real terms, which was 1.0% point higher than the previous year and 0.4% point faster than the GDP growth rate. At the end of 2017, the rural poor population decreased by 12.89 million compared with the end of the previous year, exceeding the annual target and task. According to calculations, in the next three years, the national average annual per capita disposable income of residents will increase by more than 4.7%, and the goal of doubling the actual increase in per capita disposable income of residents by 2020 can be achieved.

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As the economy develops and income levels increase, the consumption level and demand of Chinese residents continue to increase. From 2012 to 2016, the per capita consumption expenditure of urban residents increased by 38.4%, while the per capita consumption expenditure of rural residents soared, reaching a surprising 71.5%. In 2017, the national per capita consumption expenditure of residents was 18,322 yuan, a year-on-year increase of 5.4%, of which the per capita consumption expenditure of rural residents increased by 6.8%. The increase in residents’ spending power has also brought the quality of consumption to a new level. The upgrading of the consumption structure is oriented to improving happiness and to new types of consumption such as developmental consumption and service consumption. People’s demands for tourism, culture, sports, health, elderly care, education, and training have been unleashed. The consumer demand of urban and rural residents is constantly upgrading, and the people’s call for meeting the ever-increasing needs for a better life has become stronger. That said, it should be noted that the quality and efficiency of China’s economic development are not high, and there are still many shortcomings in the field of people’s livelihoods. There are still obvious development imbalances between east and west, between urban and rural areas, between large cities and small and mediumsized cities, and within and outside the political set-up. There is still a wide income gap between urban and rural areas. The income gap between industries is obvious, the income in monopolistic industries is prominently high, and the industry income gap has aggravated unfair social distribution. China currently has more than 43 million rural poor people, and the task of poverty alleviation is still severe. Unbalanced and inadequate development has become the main hindrance to satisfying people’s ever-growing needs for a better life. The report of the 19th National Congress of the CPC stated that as socialism with Chinese characteristics has ushered in a new era, China’s main social conflict has changed. What we now face is the conflict between unbalanced and inadequate development and the people’s ever-growing needs for a better life. To understand how China’s main social conflict changes, we should have a new development concept, the use of the new development concept to lead development actions, and the grasping of historical opportunities in the new era.

2 The Course of Income Distribution Reform Since 1978, China’s reform of income distribution has been closely related to economic structural reform, has always been the focus of economic structural reform, and has always been centered on the mainline of improving the principle of distribution according to work. How to meet the interests of most of the people and how to deal with the relationship between efficiency and fairness have always been the core issues of reform. Due to the constant changes of the times and the emergence of new problems and new situations, the reform of the income distribution system is a process of advancing with the times and constantly improving. A review of China’s

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income distribution system reform can lay the foundation for the current and future in-depth income reform and improvement of the distribution system. In 1945, the guiding ideology of the 7th National Congress of the CPC in terms of the income distribution was “China should be a new democratic country that honors equal wealth, that is under the leadership of the proletariat, and where the wealth is shared by the common people”. From 1949 to 1978, influenced by the planned economic system, it mainly implemented a single “distribution according to work” income distribution system. As of the end of 1956, in terms of the ownership structure of the means of production, there was only a single public ownership and a highly centralized planned economic system. [2] Under the conditions of traditional public ownership and the planned economy, this distribution according to work was essentially a single egalitarian distribution without much difference among the people. The long-term absolute egalitarianism and “meal from a big pot” practices severely weakened the enthusiasm and creativity of the majority of laborers, directly affected the development of the national economy, and led to a low-level and slow state of economic development in China, and the people’s lives were generally poor. In order to improve the backward state of the national economy, the Third Plenary Session of the Eleventh Central Committee of the CPC proposed in 1978 to shift the focus of work to economic construction. In order to better stimulate the enthusiasm and creativity of workers and liberate productivity and develop vitality, Comrade Deng Xiaoping stated in a speech: “In terms of economic policy, some regions, some enterprises, and some workers and peasants are allowed to earn income due to hard work and great achievements and to live a better-off life earlier than others. It will inevitably produce a great demonstration force that will affect their neighbors and encourage people in other regions and other working units to learn from them.” While establishing the idea of “Letting Part of the People Achieving a Better Quality of Life First”, the country formulated the strategy of “two overall situations”: the first step was to let the coastal areas develop first, and the second step was that the coastal areas should help inland regions to develop and achieve prosperity for all. At the same time, this conference also officially proposed for the first time the socialist principles of overcoming egalitarianism and implementing distribution according to work when discussing agricultural issues. As the household contract responsibility system with remuneration linked to output was promulgated, China entered a period of rapid growth in agriculture. In 1984, the focus of China’s economic structural reform gradually shifted from rural to urban areas. [3] With the continuous advancement of economic structural reform, economic components other than the public sector also gradually increased, presenting a situation in which multiple ownership systems develop together and establishing a distribution method in which “distribution according to work is the leading principle and other factors are taken into consideration”. [4] As the reform goal of the socialist market economy was set up, between the 14th National Congress of the CPC and the 16th National Congress of the CPC (1992–2002), the income distribution system reform at this stage mainly established a distribution system in line with the socialist market economy. “We should adhere to the principle of giving priority to efficiency with due consideration to fairness” was

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the income distribution principle at this stage. On the premise of adhering to the basic economic system to keep public ownership in a dominant position and have diverse forms of ownership develop side by side, the income distribution system was mainly “distribution according to work is the leading principle and other factors are taken into consideration”. The distribution policy of “combining distribution according to work and distribution according to production factors” was also proposed, which provided policy support for solving the legality of production factors under the conditions of the socialist market economy. During the period from the 16th National Congress of the CPC to the 18th National Congress of the CPC (2002–2012), with the gradual improvement of the socialist market economy, the policies of combining distribution according to work and distribution according to production factors were also gradually improved. The principle of allowing production factors to play a role in distribution was clarified, and fairness in income distribution won more attention. “A proper balance should be struck between efficiency and fairness in both primary and secondary distribution, with particular emphasis on fairness in secondary distribution.” On the whole, with the changes in China’s socio-economic conditions in different periods and the deepening of reform and opening-up, new challenges began to emerge in the new stage, such as deteriorating income distribution and widening regional gaps. The economic system has experienced “the planned economy”, “the planned economy, supplemented by market regulation”, “planned commodity economy”, “establishing a socialist market economy”, and “the market is fundamental to the resource allocation under the macro-control of socialist countries”, “the basic role of the market in allocating resources”, and “the decisive role of the market in allocating resources”. The market economic system has been continuously improved. After 40 years of reform and opening-up, income distribution developed from egalitarianism in the beginning to “those who achieve a better quality of life first should push to achieve a better quality of life” to “giving priority to efficiency with due consideration to fairness” to “giving priority to efficiency and fairness”. The prominent unfairness problem was due to the deteriorating income distribution in the country [4]. At the present stage, China’s main social conflict has changed into “the conflict between unbalanced and inadequate development and the people’s evergrowing needs for a better life”, which is also accompanied by new development concepts and countermeasures.

3 Incremental Reform: Expanding the Middle-Income Community Income reform is not unique to socialist countries. Any country will face an income gap problem after entering a certain stage of development. American economist and Nobel Laureate in Economics Simon Smith Kuznets stated in a classic paper in 1955 that economic growth will increase income inequality in the early stage

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of development, maintain it in a certain stage, and reduce it in the mature stage of development. [5] This is the famous Kuznets Hypothesis. After 40 years of reform and opening-up, China’s economic development has gradually entered a period of rapid growth, and the income gap problem cannot be avoided. The Kuznets Hypothesis also exists in China, and China’s income distribution inequality is mainly caused by uneven economic development. China’s unique economic development model, driven by its new type of socialist market mechanism, combines market allocation of resources and macro-control. In the Third Plenary Session of the Eighteenth Central Committee of the CPC, General Secretary Xi Jinping proposed to improve the socialist market economy system to “make the market play a decisive role in resource allocation and give better play to the role of the government.” Only by combining the laws governing the market and macro-control on this basis, can we make economic development more balanced. Based on China’s national conditions, some scholars have analyzed the process of income distribution in various countries. Many of the developing countries and some developed countries have not jumped out of the “middle-income trap”. Therefore, economic growth spontaneously narrows the excessive income distribution gap, and the invisible hand of the market is necessary and practical. At present, China’s income reform mainly changes in the two directions of increment and stock. On the one hand, it maintains economic growth, expands the population of “equal wealth”, and allows more people to continue to share the fruits of reform and development; on the other hand, it starts with income adjustment and adjusts income inequality to narrow the gap between the poor and the rich. At the 48th Annual Conference of the World Economic Forum, Liu He, a member of the Political Bureau of the CPC Central Committee and Director of the Office of the Central Leading Group on Financial and Economic Affairs, said, “After years of development, the world’s most populous middle-income group of 400 million people has emerged in China.” China has become a middle-income country. Facing the warnings issued by some domestic and foreign institutions and individuals to cautiously avoid the “middleincome trap”, General Secretary Xi Jinping stated that China must cross over the “middle-income trap”, which has strengthened our confidence and expressed the urgency for further development. At present, China’s main social conflict is undergoing transformation. As socialism with Chinese characteristics has ushered in a new era, China’s main social conflict has morphed into the conflict between unbalanced and inadequate development and the people’s ever-growing needs for a better life. Unbalanced and inadequate development hinders the improvement of “the sense of fulfillment, happiness, and security” of the general public. To achieve the goal of making the people happy, only the government-led income reform can increase the people’s income and adjust the income gap. Building a harmonious society in which the economy, society, and environment can develop in harmony is the goal we have been pursuing. It is not easy to achieve such a goal. It will be a difficult journey from disharmony to harmony. The reform and opening-up in China over the past four decades shows that the existence of the

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Kuznets hypothesis is an objective law independent of human will. In the early stage of reform and opening-up, the strategy of giving priority to efficiency was an urgent requirement of the actual situation. After 40 years of reform and opening-up, after entering the new era, the development concept of “balance” and “coordination” and promoting income balance is also very important. The external manifestations of the outstanding problems in China’s current income distribution are two low proportions (one refers to the low proportion of residents’ income, which has continued to decline from the peak of 67.2% in 1996 to the trough of 57.7% in 2004; the other is that the proportion of labor remuneration is low, from the peak of 54.6% in 1992 to 47.2% in 2004; by 2013, these two proportions only reached 60.7% and 50.8%, respectively, and neither recovered to their historical peaks), and the income gap in many areas is too wide. [6] Therefore, deepening the reform of the system of income distribution is an urgent need to solve the outstanding problems in China’s current income distribution. After years of development, China has ensured that people’s basic needs are met and that people’s lives are generally decent. The country has entered the final stage of finishing the building of a moderately prosperous society in all respects. At the same time, it must be recognized that most of China’s population still consists of low-income earners. By making more effective institutional arrangements, increasing the income level of low-income groups and allowing more people to enter middleincome groups is the essential requirement for finishing the building of a moderately prosperous society in all respects, and it is also the essential requirement of socialism. This fully reflects people-centered thinking and the concept of shared development. Compared with the low-income community, the middle-income community is in the middle class of society, and it is more satisfied with society in terms of economic conditions, values, and living habits. The pursuit of stability and tranquility is the general consensus of the middle-income community [7]. The increase of the middleincome community plays a pillar role in alleviating social conflicts and promoting social stability. Constructing an “olive-shaped” distribution pattern in which the middle-income community accounts for the majority is an urgent need to restructure China’s economy and to expand domestic demand, as well as an urgent need to form a reasonable social structure and maintain long-term social stability.

4 Stock Reform: Upgrading the Income Structure and Narrowing the Wealth Gap Since 2012, China’s income reform began to focus more on income fairness. In 2015, the Fifth Plenary Session of the Eighteenth Central Committee of the CPC deliberated and approved the “The Proposal of the CPC Central Committee for Formulating the Thirteenth Five-Year Plan for National Economic and Social Development”, stating that: “Sharing is the essential requirement of socialism with Chinese characteristics. The country should ensure that development is for the people, by the people, and

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with the people sharing in its fruits. More effective institutional arrangements must be made to enable all people to have more sense of gain in joint construction and shared development, strengthen momentum for development, enhance unity among people, and steadily move towards prosperity for all.” This means that China’s income reform will enter a new stage of shared development with prosperity for all as the goal, and optimize income distribution with shared growth. Sharing is a new vision for development proposed by the Third Plenary Session of the Eighteenth Central Committee of the CPC, the fundamental point of the five development concepts in the new era, and a manifestation of the intrinsic nature of our socialism with Chinese characteristics. The shared development concept has obvious guiding significance for the current income distribution and clarifies the direction of the reform of income distribution in the future. [8] “Sharing is an ideal as well as something tangible. It is based on the premise of promoting social fairness and justice, taking poverty alleviation and reducing income disparity as the means, promoting the equalization of regional, urban, and rural basic public services as a guarantee, and promoting prosperity for all as the goal.” [9] The social development of the sharing economy is a basic right of the people. Under the vision of shared development, the improvement, adjustments, and reforms of the income distribution mechanism need to be based on the role of different income distribution mechanism entities, the market, and the government. In February 2013, the State Council officially announced the “Several Opinions on Deepening the Reform of the Income Distribution System”, stating that it is necessary to effectively improve the primary distribution mechanism of production factors according to their contribution and to establish a redistribution mechanism regulated by transfer payments, social security, and taxation, so as to increase residents’ income and expand the national economy. [10] The market mechanism of income distribution should be aimed at participatory sharing. There is a clear boundary between the government and the market. During the operation of the mechanism, the power of the government should be used to create a fair and orderly market environment. It is necessary to actively adjust the national income distribution pattern, increase redistribution adjustments on the basis of standardizing the primary distribution, and synchronize residents’ income growth with economic growth as well as the increase in payment for labor with the increase in labor productivity, effectively increase the labor income of low-income people, expand the proportion of middle-income earners, and gradually reduce income disparity. When the government is the main participant in the distribution mechanism, it mainly starts with the taxation system and the social security system and uses redistribution policies such as taxation, social security, and social assistance to regulate extreme income. In the process of giving play to the role of the government, the modern transformation of a service-oriented government to promote social fairness and justice, especially the expansion of middle-income groups, is related to the realization of prosperity in all respects. Xi Jinping chaired the 13th meeting of the central financial work leading group on May 16, 2016, and proposed to adhere to the “six musts” for expanding middle-income groups: “We must adhere to quality and effective development, maintain macroeconomic stability, and lay a stronger foundation for improving

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people’s lives; we must endorse the spirit of becoming rich through sweat and toil, and encourage people to create a better life through work; we must improve the income distribution system, adhere to the system whereby distribution according to work remains the predominant mode and coexists with various other modes, combine distribution according to work and distribution according to production factors, and handle the distribution relationship among the government, enterprises, and residents; we must strengthen human capital, increase human capital investment, strive to improve the quality of education, and build a modern vocational education system; we must give good play to the role of entrepreneurs to help enterprises solve difficulties and resolve confusion, and to ensure that various element inputs are rewarded; we must better protect property rights, improve a modern system of ownership, better protect state-owned asset ownership, management rights, and corporate legal person property rights, better protect the property rights of the non-public sector of the economy, better protect intellectual property rights, and enhance the people’s sense of property security.” [11] In terms of income reform measures, there are both quality and stock issues. The major challenges in primary distribution are to cut off the inequality of incremental income distribution, continue to expand employment, and carry out reforms to the household registration system so that more people can share the fruits of reform. The main task of the secondary distribution is to solve the problem of stock based on existing distribution methods to a certain extent. On the one hand, through tax system reform, unfair and unequal income should be regulated through laws and other methods. On the other hand, the poor and the lower-middle class should be entitled to better public services and social security so that they can have a life with dignity, and gradually the country can build a society with a shared economy and harmonious development. During the 40 years of reform and opening-up, China has undergone earth-shaking changes, its economic growth has jumped to the forefront of the world, and people’s living standards have also improved. In addition, China has also become the largest middle-income country. However, due to the uneven economic development, unbalanced and inadequate development hinders the improvement of people’s happiness. In the face of China’s changing main social conflict, how to better implement the shared development concept and make reform and opening-up fairer is important for reforming the income distribution system. At the end of 2017, the 19th National Congress of the CPC clarified the goal of realizing basic socialist modernization by 2035 and becoming a modern socialist country by the mid-twenty-first century, but the report did not propose targets for GDP growth or a doubled GDP. [12] This reflects the new normal conditions of the economy. More importantly, it is possible to direct the grand goal directly to the development goal itself, to highlight improving people’s income and living standards, to improve people’s livelihood, to ensure that the fruits of reform and opening-up can be brought to more people and in a more equitable manner for all people, and to truly realize the development concept of enabling the people to share in the fruits of development and the goal of building a harmonious society.

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In the report of the 19th National Congress of the CPC, it is stated, “We will continue to follow the principle of distribution according to one’s work while improving our institutions and mechanisms for distribution based on factors of production, so as to make income distribution fairer and more orderly. We will encourage people to make their money through hard work and legal means. We will expand the size of the middle-income group, increase income for the people with low incomes, adjust excessive incomes, and prohibit illicit income.”; “We will work to see that pay increases in tandem with increases in labor productivity”, “growth of urban and rural personal incomes should outpace economic growth”; “We will see that government does its job to adjust redistribution, move faster to ensure equitable access to basic public services, and narrow the income gaps.” [13] In the context of the new era, China’s income reform has shifted from focusing on efficiency to focusing on fairness. Faced with the largest middle-income community, we must improve the basic income distribution system while improving the social security system and giving full play to governmental macro-control. Only in this way can we adhere to the sharing of development results. To deepen the income reform (by expanding the middle-income community and the distribution mechanism), on the one hand, we need to open up new space for growth and draw a blueprint for the people’s needs for a better life; on the other hand, we must bring the benefits of reform and development to more people and in a more equitable manner, which is the guaranteed route to narrowing the gap between the poor and the rich and alleviating social conflicts. At this stage, only by insisting on deepening the income reform and enabling the people to share in the fruits of development can we improve “the sense of fulfillment, happiness, and security” and achieve the goal of “the Chinese people enjoying happier, safer, and healthier lives”.

References 1. Yejun, J. [江野军]. (2013). 收入分配制度改革历程、成效、问题与目标取向 [The reform process, achievements, problems and goals of the income distribution system]. 价格月刊 [Jiage Yuekan], (429), Feb. 2. Wei, L. [李伟]. (2018). 中国经济迈向高质量发展新时代 [China’s economy is moving towards a new era of high-quality development]. 中国经济时报 [China Economic Times], Jan 29. 3. Liang, Z. [张亮]. (2016). 我国收入分配制度改革的历程回顾及其经验总结 [Review of the reform of China’s income distribution system and its experience summary]. 发展研究 [Development Research], (11). 4. Xinye, Z. [郑新业]. (2018). 这五大发展理念将深刻改变中国 [These five development visions will profoundly change China]. In: 人大重阳网 [Chongyang Institute for Financial Studies, Renmin University of China (RDCY)], March 18. 5. Xibao, G. [郭熙保]. (2002). 从发展经济学观点看待库兹涅茨假说: 兼论中国收入不平等 扩大的原因 [Looking at the Kuznets hypothesis from the perspective of development economic and the causes of increasing income inequality in China]. 管理科学 [Journal of Management Science], (3). 6. Hainan, S. [苏海南]. (2016). 扩大中等收入群体意义重大 [Expanding the middle-income community is of great significance]. 专家视角 [Experts’ Perspective], Nov (224).

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7. Xibao, G. [郭熙保]. (2016). 在发展中不断扩大中等收入群体 [Continuously expanding middle-income groups in development]. 求是 [Qiushi], (19). 8. Jianghua, W. [吴江华]. (2017). 扩大中等收入群体的现实意义、难点与路径 [The practical significance, difficulties and paths of expanding middle-income community]. 行政管理改革 [Administration Reform], (9). 9. Lixuan, R. [任理轩 ]. (2015). 坚持共享发展: “五大发展理念”解读之五 [Insisting on shared development: Interpretation of the “Five development concepts”, V. 人民日报 [People’s Daily], Dec 24. 10. Lin, W. [王琳], & Zeng, Z. [张曾]. (2016). 经济新常态下我国收入分配制度改革路径研 究 [Research on the reform path of my country’s income distribution system under the new economic normal]. 经济理论与实践 [Economic Theory and Practice], (8). 11. Xi Jinping chaired the 13th meeting of the central financial work leading group, Xinhua News Agency, May 16, 2016. 12. Fang, C. [蔡昉]. (2017). 十九大报告中的提高人民收入水平 [Improving people’s income in the report of the 19th national congress of the CPC]. 就业与保障 [Employment and Security], (12). 13. Mei, B. [白玫]. (2017). 抓住新矛盾, 着力解决发展不平衡不充分难题: ‘十九大’报告学习 体会之新矛盾篇] [Grasp the new conflict and focus on solving unbalanced and inadequate development: New conflicts in the study and experience of the report of the 19th CPC national congress]. 经济理论与实践 [Economic Theory and Practice], (11).

From Docking to Leading: Road to the Center Stage of Global Governance

The 40 years of China’s reform and opening-up has been a process in which China opened its doors to the world and integrated itself into the world. With the gradual deepening and expansion of the reform and opening-up, China’s national strength has continued to increase and its international status and influence have risen significantly. The current rise of China and its impact on the future world have become the focus of attention of all countries in the world. Looking back at the interaction between China and the international community over the past four decades, we can find that China has been transforming from a learner and integrator of global governance to a creator and leader. Sorting out the historical process of this change and analyzing the domestic and foreign influencing factors behind the changes will help us correctly understand the current challenges China faces in participating in global governance and will provide useful consideration for the future to better respond to challenges and play a leading role.

1 China and the World in the Historical Dimension 1.1 1978–2000: From Prudent Participation to Full Participation During this period, China’s domestic political, economic, and social environment and the international system all underwent structural changes. As the focus of the entire country’s work began to shift to economic development, China began a vigorous domestic political-economic structural reform; in the meantime, China’s relations with the West improved because China and the United States established diplomatic relations in 1979. All these have laid the foundation for China’s integration into the current international society.

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In the first 10 years of reform and opening-up, as China’s judgment of the world’s general trend underwent a fundamental adjustment, China’s foreign policy concept also changed. Although the Cold War was not over yet, China had already begun to adjust its past guidelines on foreign affairs that were unilaterally oriented toward social systems and ideologies. Around 1984, Comrade Deng Xiaoping profoundly analyzed the great domestic and international changes that occurred during the same period and put forward the important idea that “peace and development are the two major themes of the world today”. As a result, the Fourth Session of the Sixth National People’s Congress, held in 1986, comprehensively expounded China’s independent foreign policy of peace in the new era from 10 respects. In the late 1980s and early 1990s, drastic changes occurred in Eastern Europe, the Soviet Union disintegrated, and the world socialist movement suffered serious setbacks. The bipolar pattern formed after the end of the Second World War collapsed, and the world entered a transitional period from the old pattern to a new pattern. At that time, as a “latecomer”, China did not fully understand and grasp the international order and its rules; various domestic reforms were also in their initial and exploratory stage, and a peaceful and stable external environment was urgently needed. In this context, Deng Xiaoping advised the following strategic behavior for China: “calm observation, steady stance, response with composure, keeping a low profile, following the doctrine of the mean and never taking the lead”. This strategy advocates doing something while not doing something else, avoiding involvement in international conflicts, maintaining the stability of the country’s external environment while making its contribution in terms of maintaining national independence, sovereignty, and national dignity, safeguarding the legitimate rights and interests of the third world countries, safeguarding world peace, promoting common development, and other major issues. [1] Under the guidance of the Five Principles of Peaceful Coexistence and the basic policy of “keeping a low profile and making due contributions”, China began to integrate into the international order and carefully participate in global governance. In terms of economic governance, China became open to the outside world, actively reformed its economic system to achieve international integration, and actively integrated into existing international economic governance mechanisms to promote its own economic development. At the beginning of 1980, China successively restored its legal seats in the IMF and the WB, and increased its special drawing rights twice; in 1982, China initiated negotiations to restore its status in the General Agreement on Tariffs and Trade. After 20 years of unremitting efforts, China finally acceded to the WTO and returned to the international trading system. In terms of security governance, China gradually changed its perception of UN peacekeeping operations. It stopped regarding them as tools manipulated by Western countries to interfere in other countries’ internal affairs, and started to recognize their irreplaceable role in easing regional conflicts and maintaining world peace and stability. Therefore, China began to participate in more peacekeeping operations: it formally joined the United Nations Special Committee on Peacekeeping Operations

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in 1988; it dispatched military observers to the United Nations Transitional Assistance Mission in Namibia for the first time in 1989; it dispatched the first organized engineering unit in 1992 to Cambodia for a mission. In general, on the basis of safeguarding its core national interests, China began to fully participate in the governance of global issues such as the formulation of trade rules, climate negotiations, the control of weapons of mass destruction, UN peacekeeping, and human rights protection. It started to build up an image of a responsible world power.

1.2 2001–2013: Deep Participation and Reform Since the dawn of the new century, with the further deepening of reform and openingup, China’s economy rose rapidly, and in 2010, it became the world’s second-largest economy—second only to the United States. As the country’s strength continued to increase, China’s ability to participate in global governance also continued to improve. Facing the current situation in which the existing global governance system is dominated by Western developed countries and developing countries are seriously under-represented, China seeks to reform its governance system in a gradual manner. Especially since the 2008 global financial crisis, China has been deeply involved in seeking reforms in the international governance system through the two-pronged approach of “restructuring” and “establishing”. [2] China, together with other developing countries, actively reforms the governance structure of the IMF and the WB, increases voting rights in emerging economies, and seeks a greater voice for itself and other developing countries. In 2009, China, Russia, Brazil, and India jointly began to set up the BRICS cooperation mechanism. South Africa joined it in 2010, marking an important step forward of this mechanism in strengthening win–win cooperation among emerging economies and promoting innovation in global multilateral mechanisms. Especially, the establishment of the New Development Bank and the BRICS emergency reserve fund embody a more equal and fair vision for global governance, which forces the reform of traditional governance mechanisms. China has been deeply involved in UN peacekeeping operations, the scale of its personnel has expanded rapidly, and the types of participating tasks have continued to diversify. As of April 2013, the Chinese People’s Liberation Army had participated in 23 UN peacekeeping operations and had dispatched a total of 22,000 peacekeepers. China is the country with the largest number of peacekeepers among the five permanent members of the UN Security Council. The proportion of peacekeeping expenditures has also increased significantly. According to the data in 2013, China would bear 6.64% of the United Nations peacekeeping operations from 2013 to 2015, behind only the United States, Japan, France, Germany, and the United Kingdom, ranking sixth in the world. The scope of peacekeeping missions has also expanded from Africa, the Middle East, and Asia to the Pacific and Europe. In the process of participating in peacekeeping, China recognized and accepted the concept of

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“responsibility to protect” as proposed by the United Nations, and assumed more international responsibilities for the protection of civilians in armed conflicts on the premise of adhering to the principle of “non-interference in internal affairs”. In the meantime, the concept of “development and peace” advocated by China has gained wider international recognition thanks to China’s own efforts. This shows that in the process of deep participation in global governance, China is both a recipient of international norms and a shaper of new ideas and norms.

1.3 2013 to Present: Actively Leading the Transformation of Global Governance After 2012, the overall development of China ushered in historic changes. With the modernization of the country’s governance system and governance capabilities and the in-depth advancement of various structural reforms, China has realized highquality and steady economic growth, and has increased its economic strength and political presence. China has seen the basic needs of over a billion people met, has significantly improved the level of social productivity on the whole, has reached a new level in economic, political, cultural, social, ecological, and other advancements, and leads the world in many respects. The 19th National Congress of the CPC proposed that China’s entrance into a new era of development is at a new historic juncture in China’s development. China, with a better overall national strength and international presence, has witnessed a fundamental change in its relationship with the rest of the world. While participating more actively in global governance, China proposes governance concepts and governance plans that adapt to the current international political and economic landscape, and has transformed its status from a “follower” to a “leader”. Besides this, the world also has more expectations for China’s experience, wisdom, and approach. On the one hand, China is actively updating its vision for global governance and explicitly taking the lead in shaping a new type of international relations featuring win–win cooperation. The concept of a community with a shared future for mankind as advocated by China, the new outlook on global governance with the principle of wide consultation, joint contribution, and shared benefit at the core, and the practice of building the BRI all embody a new global vision under the new concept of holistic thinking. The new outlook on global governance that is centered around the principles of wide consultation, joint contribution, and shared benefits is the guiding ideology. It answers the major questions of “who governs”, “how to govern”, and “why to govern”, and emphasizes the multiple players, openness, inclusiveness, and fairness and justice of governance. It aims to build a new form of international relations, building a community with a shared future for mankind. The BRI, as a Chinese approach to realizing the common development of global peace and cooperation, fills a major gap in public goods of global governance and makes economic globalization more open, inclusive, equitable, balanced, and win–win. [3]

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On the other hand, China actively innovates global multilateral mechanisms. For example, at the 2016 G20 Hangzhou Summit, China gave full play to the advantages of diplomatic events at home, invited a record number of developing countries in the history of the G20 summit to attend the meeting, and formulated an action plan for implementing the United Nations “2030 Agenda for Sustainable Development” for the first time. The “G20 Initiative on Supporting Industrialization in Africa and Least Developed Countries” was also proposed for the first time, which was the G20’s first comprehensive and holistic policy vision for low-income developing countries. The “Global Infrastructure Connectivity Alliance Initiative” was launched for the first time to strengthen the synergy of inter-regional programs and monitor and evaluate global connectivity. These three pioneering initiatives show that China can lead the agenda-setting for global governance and prioritize common development. [4] In addition, the Asian Infrastructure Investment Bank led by China, through innovations in share allocation, voting rights, and management selection mechanisms, for the first time reflects the structural changes in the world economic landscape in international multilateral institutions and also realizes the new principles of governance of an open regionalism. Cross-regional multilateral cooperation forums and sub-regional cooperation mechanisms initiated by China have also successfully incorporated the new outlook on global governance advocated by China into the international multilateral cooperation agenda. Take the Forum on China-Africa Cooperation, China-Arab States Cooperation Forum, China-Central and Eastern Europe “16 + 1” Cooperation Mechanism, etc., as examples. Such cooperation forums have broken through traditional international organizations’ practice of imposing hard constraints through legally binding treaties against member states, established cooperation on the basis of mutual trust and consensus among member states, and implemented the principle of voluntary participation, and the decision-making mechanism is by consensus instead of resorting to voting. The Lancang-Mekong cooperation mechanism established in 2015 includes countries along the entire Lancang-Mekong river basin. As an effective platform for exploring and promoting South-South cooperation, it is the first specific action in the world to respond to the “Post-2015 Development Agenda” adopted by the United Nations Development Summit. This cooperation mechanism is “based on the principles of consensus, equality, mutual consultation and coordination, voluntarism, common contribution and shared benefits, and respect for the United Nations Charter and international laws” and is “tailored” for the six countries to build a community of a shared future for the Lancang-Mekong countries of mutual benefit and win–win cooperation. This cooperation mechanism is not closed and exclusive, but features openness and inclusiveness. It promotes, coordinates, develops in parallel, and complements each other with existing sub-regional cooperation mechanisms such as the Greater Mekong Sub-region’s Working Group on Health Cooperation (GMS) and ASEAN-Mekong Basin Development Cooperation (AMBDC). [5] Through the successful operation of the above-mentioned cooperation mechanism, China seeks to enhance its international institutional discourse power. China does not insist that all countries be consistent on all issues, but, based on the reality

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of solving common problems, seeks to carry out practical cooperation in all fields with all its might. This reflects China’s creativity and leadership and helps shape the world’s recognition of the new outlook on global governance.

2 China’s Views on and Propositions to the World 2.1 An Outlook on Global Governance that Advances with the Times After 1978, China’s role on the international stage changed with the changes in China’s national strength and international presence. The strategic needs of different development stages in China have different requirements for the surrounding and international environment; at the same time, the changes in the country’s perception of its own interests, roles, and roles brought about by changes in its national strength and international status are also constantly updating China’s outlook on global governance. The reform and opening-up in 1978 symbolizes the transformation of China’s national strategy and its own positioning. Internally, China started the socialist modernization of keeping economic development as the central task; externally, China started to re-examine changes in the international situation and world development trends, positioned itself as a developing country, and participated in and integrated itself into the existing international order. It is precisely because of the repositioning of identity that China’s national interest outlook started to undergo major changes—from the previous outlook led by ideological struggle and international revolution to the outlook oriented toward the maintenance of national sovereignty, independence, and security and promotion of national development. [6] Since the beginning of the twenty-first century, with the reform of the socialist market economy, the accession to the WTO, and rapid economic development, China gradually emerged as an emerging power in the world and its international status increased significantly. The 2008 global financial crisis exposed the existing unfair, unreasonable, and inherent flaws in the existing global governance mechanism, and traditional concepts were unable to effectively respond to the new conditions and demands. In the face of the increasingly severe challenges, as the largest developing country, China’s status as a “responsible power” began to have an impact on its foreign policy. After 2012, the overall development of China has ushered in historic changes. China has seen the basic needs of over a billion people met, has significantly improved the level of social productivity on the whole, has reached a new level in economic, political, cultural, social, ecological, and other advancements, and leads the world in many respects. The 19th National Congress of the CPC proposed that with China’s entrance into a new era of development, the country is at a new historic juncture in its development. China, with a better overall national strength and international

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presence, has witnessed a fundamental change in its relationship with the rest of the world. China has reached the center stage—from being an integrator and participant in the global governance mechanism to a leader. The world has more expectations for China’s experience, wisdom, and approach. During this period, China’s world outlook has undergone significant changes. On October 12, 2015, and September 27, 2016, General Secretary Xi Jinping organized collective study programs of the Political Bureau of the CPC Central Committee on China’s participation in global governance, clarifying the overall thinking and basic principles of global governance. The in-depth development of globalization has deeply intertwined the interests of all countries in the world and deepened their future. The increase in global challenges requires all countries in the world to work together to deal with such challenges. General Secretary Xi Jinping stated that strengthening global governance and advancing the reform of the global governance system are relevant to setting the rules and directions for the international order and the international system, as well as to the status and role of countries in the international order and the long-term institutional arrangements of the international system. For this reason, China advocates the new outlook on global governance centered on the principles of wide consultation, joint contribution, and shared benefits, promotes building a community with a shared future for mankind, and is committed to building global consensus and promoting concerted action. This shows that China’s identity in global governance has transformed from a passive integrator and participant to an active builder and leader. [7]

2.2 Reasons for the Change of Ideas At present, the world-system has undergone structural changes. For a long time, the global governance system led by the West has been ineffective in handling severe challenges such as the cyclical outbreak of the global financial crisis, weak growth in developed economies, weak markets, and increasing international development deficit and divide. It cannot solve the endless new problems. In the last round of globalization, the gap between developed countries and developing countries grew wider and wider, and the international community faced a severe development deficit. The European debt crisis dispelled the euromyth and exposed the rifts in Europe; the subsequent refugee crisis and terrorist attacks declared the weakness of the EU government and political parties in dealing with new situations and new threats; the EU’s confusion and weakness in internal governance reflect the confusion and weakness of the global governance system dominated by the West. In the process of power transition, with the rise of emerging developing powers, global governance by the United States and Europe has gradually shrunk, global governance lacks new leadership motivation, and the ability of traditional great powers to propose and set agendas has declined. First, the relative strength of Western developed countries has declined, leading to an insufficient supply of international public goods. Since Trump took office in 2017, the United States has implemented

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a strategic contraction in global affairs, focused on domestic issues, wielded the tool of trade protectionism, ignored international multilateral cooperation, and did not intend to assume international responsibilities in tackling climate change. On the other hand, Europe, weak in leading global governance, has been slow to emerge from the European debt crisis and has plunged into internal governance crises such as the wave of populism, the large-scale influx of refugees, and frequent terrorist attacks. Secondly, with the rise of emerging market countries, especially the rapid and sustained growth of China’s economy, Asia’s GDP has surpassed that of North America and Europe in terms of its share of the global economy, and the world’s economic center has shifted from the West to the East. With the further expansion of the economic scale, the public nature of the rise of emerging countries will become more and more prominent. However, the existing international institutional system has not been able to reflect such changes in a timely manner, the governance structure and rules are unfair and unreasonable, and there is a serious lack of representation of non-Western countries. For developed countries with vested interests, maintaining the benefit distribution advantages of the existing global governance system and formulating a new round of high-standard global governance rule systems that are more restrictive to emerging markets and developing countries are their main pursuits for participating in global governance. For emerging markets and developing countries, enhancing their representation and discourse power and improving the existing global governance system are their basic demands for participating in global governance. In this context, the transformation of global governance is a prevailing trend.

3 Opportunities and Challenges Facing China in Its Participation in Global Governance 3.1 The Road to Global Governance with Both Opportunities and Challenges The process of China’s participation in global governance is always a combination of opportunities and challenges. China has always been an integrator and participant in the existing global governance system. In this system, China has realized two major strategic goals of economic rise and security maintenance at the same time. In the field of global economic governance, actively integrating into the global economic governance mechanism has enabled China to obtain important funds and various aids, and strongly developed China’s trade. In the security field, China has contributed to stabilizing and maintaining regional and global security by participating in UN peacekeeping operations and innovating multilateral security cooperation mechanisms. By doing so, it has gained good conditions for the realization of the two major goals of world peace and development, as well as its reform and opening-up. From explaining China to the world and letting the world understand China, to letting the world accept

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China and finally letting the world recognize China, China’s active participation in global governance has demonstrated to the world its image as a great power. In the new era, the relationship between China and the world has undergone a fundamental change—from an integrator and participant in the global governance mechanism, it is becoming a leader. The world also has more expectations for China’s experience, wisdom, and approach. The “Report on the Work of the Government” (2018) stated: “China will unswervingly follow the path of peaceful development toward a new type of international relations. China will actively participate in reforms and improve global governance and build an open economy. China will coordinate and cooperate with major countries, deepen good-neighborly friendship and common development with neighboring countries, and strengthen unity and cooperation with developing countries.” However, in the meantime, harsh international public opinions have also begun to increase. Especially, The Economist recently demonstrated the concept of “sharp power” newly created by two scholars from the American Democracy Foundation to maliciously speculate about the global infiltration of China’s presence. The German Foreign Minister accused the BRI at the 2018 Munich Security Conference. Faced with the negative public opinion environment deliberately created by the West, China should not just respond to it passively, but should produce new discourses that can truly represent the future development trend of the world, reshape the world’s understanding of the global governance discourse system, and enable China’s new vision for global governance to be widely recognized by the rest of the world.

3.2 The Friction Between China’s New and the West’s Old Outlooks on Governance Some Western developed countries’ attacks on the new outlook on global governance and the new international order advocated by China precisely reflect that, in today’s world, the international discourse system still dominated by the West has fallen behind the development of the vision for and practice of global governance. China’s vision for a community with a shared future for mankind, a new outlook on global governance with the principle of wide consultation, joint contribution, and shared benefits at the core, and the practice of building the BRI embody the new global outlook under holistic thinking. They transcend the traditionally narrow concept of nation-state and ideological differences, abandon the jungle rule of a zero-sum game mindset, are very different from Western individual-based thinking, and understand the world order from the perspective of the highly interdependent human society and the harmonious unity of humans and nature. The BRI, as the Chinese approach to realizing the common development of global peace and cooperation, fills a major gap in public goods of global governance and makes economic globalization more open, inclusive, equitable, balanced, and win–win.

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Since the BRI was proposed in 2013, the top-level design framework has been continuously improved, and practical cooperation has been achieved in all fields. More than 140 countries and more than 80 international organizations around the world actively support and participate in implementing the BRI. The United Nations Security Council and the UN General Assembly have successively included relevant content into resolutions. The BRI has received a wide range of responses worldwide—from an initiative to action, from a vision to reality. However, the long-standing conceptual hegemony has made it difficult for the West to eliminate the eurocentrism worldview or examine itself and China from an objective and fair perspective and with a peaceful attitude. Western developed countries are full of anxiety and panic that China is about to fill the power vacuum in the international system. They are deeply trapped in the discourse system they have shaped. They still examine China’s advanced vision for global governance and practice with an outdated and old world view. The discourse system shaped by the Western world itself examines China’s vision for global governance and practice with an outdated and old world view. The pressure of the current negative international public opinion facing China is essentially a competition between the old and new worldviews of the East and the West. On the other hand, this also means that the presence of China’s discourse is still far behind practice, and China’s soft power does not match its current international status and international responsibilities. Therefore, the challenge facing China’s future reforms is: how to transform China’s economic advantages into discourse advantages, transform the advanced concepts that advance with the times into international norms, and actively shape the international community’s recognition of Chinese culture and concepts.

3.3 China’s International Discourse Power is Weak, and Its Discourse Ability Lags Behind Its Ability to do Things In 2015, the Communiqué of the Third Plenary Session of the Eighteenth Central Committee of the CPC stated: “To insist on open development, we must follow the trend that China’s economy is deeply integrated into the world economy, pursue the open strategy of mutual benefit and win–win results, and develop an open economy of a higher level, actively participate in global economic governance and the supply of public products, improve China’s institutional discourse power in global economic governance, and build a broad community of shared interests.“ It is worth noting that the “institutional discourse power” appeared in the communiqué for the first time. Institutional discourse power refers to the guidance and presence of a country in the operation of international organizations, the formulation of international rules, the maintenance of international morality, and the organization of international order. It is a kind of discourse power solidified in the form of institution, that is, the institutional system protects the discourse power. In the current global governance system,

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the right to speak is still dominated by Western developed countries. The current power balance between developing countries and developed countries has undergone structural changes, and the ability and willingness of developed countries to provide international public goods have declined significantly. However, the changes in the global governance system still lag far behind changes in the world situation. After 1978, China’s interaction with international organizations has changed from cautious participation, to in-depth cooperation, and then to active shaping. Behind this process is China’s dynamic adjustment of its own international status and role recognition. In recent years, China’s economic development achievements are remarkable, and the country’s hard power has increased significantly. However, relatively speaking, China’s soft power does not match the country’s rapid development, and its ability to set international agendas, shape international norms, and spread international influence urgently needs improvement. Its ability to construct discourse on global governance lags far behind practical ability. There is a serious lack of China’s “institutional discourse power” in the existing governance system, which is not commensurate with China’s status as a major power and the international responsibilities it shoulders.

4 How China Leads Global Governance in the New Era 4.1 Relying on International Organizations to Reshape Its International Discourse System To reshape the international discourse system of global governance, it is necessary to enhance China’s leadership and voice in the international institutional system. As the core component of the system, international organizations lead the generation, dissemination, and promotion of new concepts, norms, and systems, and greatly influence the development trend of global governance. Therefore, international organizations are the most important platform for interaction and cooperation among other countries. They are also the core arena of influence competition among major powers. In the future, the spatial scope of global governance will continue to expand to public spaces like the deep sea, outer space, polar regions, and the Internet. China faces a major opportunity to fill the gaps in the current governance system. Therefore, China should firmly seize the opportunity to take precautions in areas where the existing governance mechanism has not yet been covered, is incompletely covered, is immature, or is seriously behind the times, actively reform the existing mechanism and establish more new international organizations, and shape the world’s recognition of Chinese discourse in the normalized international interaction and cooperation.

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4.2 Attach Great National Strategic Importance to the Training of Talents in International Organizations One of the main ways for international organizations to be relevant is to give play to the authority of experts on the basis of expertise and special technology, to form important rules, normative systems, and common values based on this, and to guide international interactive exchanges and cooperation in corresponding fields. During the operation of an international organization, its staff is responsible for transforming the organization’s legal mandate into specific operating procedures and actions. They are essential to policy formulation, lobbying member states to take actions, coordinating different positions, and ensuring the implementation of specific projects. At present, whether in comprehensive or professional international organizations, there is an extreme lack of Chinese experts and senior officials, which seriously affects China’s international discourse and presence. Take the secretariat of the UN General Assembly as an example. The SecretaryGeneral’s report released in July 2017 shows that the senior officials of the secretariat are composed of Principal Officers (D1), Directors (D2), Assistant SecretariesGeneral (ASG), and Under-Secretaries-General (USG), a total of 357 people. Among them, there are only 9 Chinese officials, while there are 45 from the US, 24 from the UK, and 14 from France. Among professional international organizations, the lack of Chinese authoritative experts is even more serious. For example, the Scientific Committee on Antarctic Research (SCAR), as the highest academic authority in international Antarctic science, leads the formulation, initiation, promotion, and coordination of Antarctic scientific research plans, and to a large extent, dominates the development direction of Antarctic governance. Since China joined the organization in 1986, only two scientists have entered the executive committee as vice-chairmen, and no new scientist has entered the management of the organization in the past 10 years. This phenomenon is not accidental, but rather, is widespread in various international organizations. To this end, China should give strategic priority to cultivating talents capable of working in international organizations, in order to fill the huge gap in the international talent pool. The internal promotion of most international organizations still follows the rules of the bureaucratic system. It takes a long time to accumulate professional skills and network resources for promotion from low-level positions to middle and senior management. Therefore, from a long-term perspective, a staged training mechanism is needed: On the one hand, the country should send more talents with international status and influence in their fields to the management of the corresponding international organizations, and provide subsidies such as wages and living expenses to meet their needs of the job of their spouse and education of their children. On the other hand, the country should provide more opportunities for young people aspiring to become international civil servants to work in international organizations. In 2014, the China Scholarship Council under the Ministry of Education first

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launched a program of the selection of outstanding young people to go to UNESCO for internships. Since then, the number of selected people has increased year by year. In 2017, the China Scholarship Council issued the “China Scholarship Council’s Management Measures for the Selection and Assignment of University and College Students to Fulfil an Internship in International Organizations (Trial)”, and detailed the recipient of the funds, the types of scholarship fees, and selection methods. In the future, in addition to providing financial support, the country can also consider using resources such as universities and research institutions to establish professional training programs for talents capable of working in international organizations.

4.3 Improve the Ability to Shape and Communicate International Discourse Reshaping the international discourse system and making good use of international organizations is an external approach, but equally important is internal innovation, which will enhance the ability of shaping and disseminating international discourse from oneself. In the new era, the Party and the country focus on improving the country’s cultural soft power, especially in foreign exchanges, and regard the cultural exchanges between China and foreign countries as an important pillar that is as important as political and economic cooperation. At present, with the deepening of globalization and China’s reform and openingup, people-to-people and cultural exchanges with other countries are showing trends such as diversification of players and diversification of forms and contents, which provides more opportunities for China’s discourse to be communicated internationally. Foreign exchanges are no longer monopolized by certain specific units or departments. Enterprises, universities, think tanks, and individuals can all become channels for the dissemination of China’s discourse. The “Report on the Work of the Government” (2018) emphasized that we must build a new type of think tank and deepen people-to-people and cultural exchanges with other countries. For this reason, China should pay special attention to tapping the potential of think tanks in the production and dissemination of China’s discourse, and improve think tank research level across the board, international communication level, and foreign communication level, so that they can produce high-quality thinking and knowledge products that conform to the laws of international communication, and use their own influence and appeal to mobilize a wide range of social resources, greatly extending the depth and breadth of the international dissemination of China’s discourse.

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References 1. Huaqiu, L. [刘华秋]. (2014). 邓小平外交思想永放光华 [Deng Xiaoping’s diplomatic thinking always shines]. In: 求是 [Qiushi], Aug 16. 2. Wei, L. [李巍]. (2017). 中国如何破除’金德尔伯格陷阱’ [How China can break through the ‘Goldberg’s trap’. In: 中美聚焦 [China-US-Focus], Feb 17. 3. Fan, H. [何帆]. (2017). 中国为何要参与全球治理 [Why should China participate in global governance]. In: 人大重阳网 [http://www.rdcy.org], Jan 20. See http://www.chinathinktanks. org.cn/content/detail/id/3012208. 4. Inan, F., Chongyang Institute for Financial Studies, & Renmin University of China. (2017). 全球治理新格局: G20的中国贡献与未来展望 [New pattern of global governance: G20’s contribution to China and its future prospects], pp. 118–163. 新世界出版社 [New World Press]. 5. Ministry of Foreign Affairs of the People’s Republic of China. (2015). 澜沧江-湄公河合作首 次外长会联合新闻公报 [Joint Press Communiqué of the Fifth Mekong-Lancang Cooperation Foreign Ministers’ Meeting], Nov 12. See http://www.fmprc.gov.cn/web/ziliao_674904/1179_6 74909/t1314308.shtml. 6. Zhenye, L. [刘贞晔]. (2015). 中国参与全球治理的历程与国家利益分析 [China’s participation in global governance and the analysis of national interests]. 学习与探索 [Study & Exploration], (9). 7. Xinhua News Agency. (2015). 习近平在中共中央政治局第二十七次集体学习时强调, 推动全球治理体制更加公正更加合理, 为我国发展和世界和平创造有利条件 [Xi Jinping stressed in the twenty-seventh collective learning of the Political Bureau of the CPC Central Committee that we should promote a more just and more rational global governance system and create favorable conditions for China’s development and world peace], Oct 13, http://www.gov. cn/xinwen/2015-10/13/content_2946293.htm.

From Initiative to Networking: The Belt and Road Initiative (BRI) Reshapes the Road of World Development

Since the BRI was proposed in 2013, it has received great attention and extensive discussion at home and abroad. However, there are still different understandings at home and abroad about what the BRI is, what it does, and what its future is. As a Chinese saying goes, “For a tree to grow tall, a strong and solid root is required; for a river to reach far, an unimpeded source is necessary.” To implement the BRI in the next five years, it is necessary to investigate and review what it is and what we should do, review China’s 40 years of reform and opening-up, including “bringing in”, “going global”, and international development cooperation, and constantly update the explanation of the BRI’s open development governance philosophy and evolutionary motivation.

1 The BRI Implies Open Development The core spirit of the BRI originated in ancient China. As President Xi Jinping said, the spirit of the Silk Road, with its core being peace and cooperation, openness and inclusiveness, learning from each other, and mutual benefit and win–win results, is crystalized on such a road of multiple channels of trade. From an ancient perspective, the BRI today implies “international cooperation and common development”. Common development is the goal and purpose of the BRI, and international cooperation is the way and means to realize the BRI. From “international cooperation and common development”, two core keywords can be summarized: “open” and “development”. Since the Third Plenary Session of the Eleventh Central Committee of the CPC, the word “open” has gradually become a high-frequency word of concern from all walks of life; after 40 years of theoretical exploration and social practice, the word “open” has gradually become a new social consensus. At the opening ceremony of the Belt and Road Forum for International Cooperation, President Xi Jinping made it clear: “We want to build the BRI into an open road. Openness brings progress © People’s Publishing House 2023 W. Liu (ed.), China’s 40 Years of Reform, Understanding China, https://doi.org/10.1007/978-981-19-8505-8_9

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while a closed-door policy leads to backwardness. For a country, opening-up is like a butterfly breaking through a cocoon; although temporary pain is inevitable, a new life will be born.” The BRI is China’s latest exploration of opening to the outside world under the context of the slow recovery of the world economy and the rise of anti-globalization thoughts. It will further enhance the level of China’s opening-up in terms of system and content, strengthen the connection and communication between China and the world, and integrate China and the world more closely to form a community of a shared future. Looking back at the progress of the BRI construction, China has demonstrated through a number of policies and practical actions that it is adhering to the concept of opening-up, changing the status quo of imbalances and frequent challenges, and building a more just and more reasonable world. This is not just a slogan, but also pragmatic action. From conception to implementation, the core of the BRI cannot be separated from the word “development”. Since the Third Plenary Session of the Eleventh Central Committee of the CPC, China has always adhered to keeping economic development as the central task, its economic strength has been greatly improved, and it has become the world’s second-largest economy. In spite of such brilliant economic achievements, we must remain rational, must not ignore the current potential bottlenecks and crises in global governance, and more importantly, must assume the corresponding responsibilities of a major country to open a breakthrough for the common development of the world. The BRI is a major strategic decision made by China by taking into account the domestic and ·foreign situations. It promotes the sustainable development of China’s economy through internal and external integration and improves China’s neighboring diplomacy and builds a stable and prosperous surrounding international environment. This is in line with China’s fundamental interests. In addition, the BRI is also a strategic concept proposed by China to improve the global governance system and ensure that the world economic development is sustainable. Such a vision takes into account the interests of individual countries, neighboring countries and countries with the willingness to open up and cooperate. We call on each other to respect the sovereignty of each other, respect each other’s social and political systems, strengthen joint anti-terrorism efforts, promote fairness and freedom of trade, and create a security pattern of joint construction and sharing. As President Xi Jinping said: “Development is fundamental to solving all problems. To further implement the BRI, we must focus on the fundamental issue of development, release the development potential of all countries, and achieve economic integration, development linkage, and sharing of results.” In short, the BRI implies the common development of China, all participating countries, and even all countries in the world through open international cooperation.

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2 China’s Contribution to World Development and Cooperation 2.1 40 Years of “Bringing in” At the beginning of the reform and opening-up, Comrade Deng Xiaoping once said: “It is impossible to succeed in development if the country remains closed. China’s development cannot be separated from the world.“ The process of opening up to the outside world began with “bringing in”. “Bringing in” mainly refers to the use of foreign capital to realize rapid domestic development and the upgrading of the industrial mix. Especially, it is the main manifestation of the initial stage of the reform and opening-up. In 1978, the Third Plenary Session of the Eleventh Central Committee of the CPC established the basic national policy of reform and opening-up, which opened the prelude to China’s use of foreign capital. The “Law of the People’s Republic of China on Chinese-Foreign Joint Ventures” was promulgated in July 1979, and the Foreign Investment Management Committee of the State Council was established in August to provide a mechanism for “bringing in”. The “bringing in” in the 1980s had very distinctive policy-oriented characteristics. On the one hand, China’s use of foreign capital was mainly through external borrowing. Before 1992, foreign borrowing accounted for about 60%–70%, and funds from Hong Kong, Macao, and Taiwan accounted for more than 70% of the introduced funds. On the other hand, China’s “bringing in” followed the evolution path from regional preference to comprehensive inclusiveness, attracting foreign investment through “super-national treatment” policies and the “2-Year Free and 3Year Half” taxation policies. At the same time, special economic zones and open coastal cities became the entry points and trial places for introducing foreign capital, and a regionally gradient promotion strategy was adopted. The 1982 version of the Constitution fundamentally established the legal status of foreign-invested enterprises in China. The promulgation of various policies on the use of foreign capital after 1986 marked the beginning of the initial stage of development of the use of foreign capital. In 1992, Deng Xiaoping’s southern tour talks opened a new milestone in reform and opening-up, which made it clear that the bold use of foreign capital was a brandnew undertaking. It opened a new page in the rapid development of the “bringing in” strategy. The relevant documents of the Third Plenary Session of the Fourteenth Central Committee of the CPC broadened the fields of foreign investment and the ways to utilize foreign capital. In addition to external borrowing, Sino-foreign joint ventures, cooperative operations, and wholly foreign-owned operations also started to be used. The construction and machinery industry has become a typical representative of joint ventures. For example, in 1995, Shantui Construction Machinery and Komatsu Limited jointly established the Komatsu Shantui Engineering Department. Foreign direct investment has become the main manifestation of China’s “bringing in”. From 1992 to 1996, China used US$488.96 billion of foreign capital, of which

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foreign direct investment was US$370.17 billion, foreign borrowing was US$94.59 billion, and other investments were US$24.2 billion. The “Catalogue for the Guidance of Foreign Investment Industries” formulated in 1995 re-planned the scope of foreign investment industries, and further guided foreign investment in basic industries and infrastructure such as agriculture, energy, transportation, and raw materials. The use of foreign capital was shifted from simply introducing capital to introducing technology and promoting the adjustment of the industrial mix. Since then, a series of policies have strengthened the most significant change of the diversified introduction of foreign investment in the 1990s. So far, China’s “bringing in” strategy has developed rapidly. Since China acceded to the World Trade Organization (WTO) in 2001, the focus of China’s opening-up has gradually shifted from “bringing in” to “bringing in and going global”. China’s laws on foreign investment have gradually become more in line with international standards, representing a big change. In 2000, the “Law of the People’s Republic of China on Foreign-Funded Enterprises” and the “Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures” were revised to implement “national treatment” for foreign investment enterprises. From 2002 to 2008, the “Catalogue for the Guidance of Foreign Investment Industries” was revised several times to further strengthen the guidance on the flow of foreign investment industries. China actively guided foreign businesses to invest in modern agriculture, high-tech industries, etc., to develop the western region and revitalize old industrial bases in the northeast, and to encourage foreign capital to enter these areas. For example, the restrictions on investment in coastal areas were appropriately relaxed in the central, western, and northeastern regions. By the end of 2007, accumulated foreign direct investment in China exceeded US$750 billion, ranking first among developing countries for 15 consecutive years. More than 200 countries and regions have invested in China, and more than 460 of the world’s 500 largest multinational companies have invested in China. The 2008 global financial crisis has caused a great impact on the world economy, requiring China’s “bringing in” strategy to be further improved and perfected, emphasizing providing a more optimized investment environment for foreign capital by improving the level of opening-up, promoting the facilitation of foreign investment, creating a level playing field, and optimizing the layout of regional opening-up. The BRI construction started in 2013 has also provided new opportunities for “bringing in”. The “bringing in” policy alleviated China’s lack of funds in the early stage of reform and opening-up, and helped optimize and upgrade China’s industrial mix in the later stage. It has made major contributions to China’s 40-year-long reform and opening-up.

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2.2 40 Years of “Going Global” If “bringing in” is the “A side” of opening to the outside world, then “going global” is the other side of opening up to the outside world, and it becomes more and more important over time. In 1978, the Third Plenary Session of the Eleventh Central Committee of the CPC decided that foreign investment should be one of the specific contents of opening-up. In 1979, the State Council at the time proposed “going abroad to set up enterprises”. This was the first time that encouraging Chinese companies to “go global” and make investments overseas had been a national policy. In 1980, the Friendship Commercial Services Corporation of Beijing joined with WanYi Itochu Corporation and established the JingHe company in Tokyo, Japan, which became a landmark event for Chinese companies to carry out foreign investment since the reform and opening-up began. Since then, with the continuous deepening of corporate reforms, more and more companies have begun to try foreign investments under the benefits of many reforms, such as the deregulation of corporate management rights, the implementation of the operating contract responsibility system, and the relaxation of corporate foreign business activities. Enterprises dealing with foreign investments were initially mainly composed of trading companies. Later, industrial and trade companies, industrial production companies, construction companies, and companies in the tertiary industry also joined their ranks. The investment distribution also expanded from the initial concentration in places like Hong Kong and Singapore to other parts of Asia and the world. At the beginning of the reform and opening-up, construction enterprises and labor export were a highlight of “going global”. After reform and opening-up started, the original foreign aid departments of various ministries and commissions began to be restructured. China Road and Bridge Corporation, China Civil Engineering Construction Corp, China Harbor Engineering Company, China Railway Group, China Hydropower, and other companies were established in this wave of reform and began to emerge in the international engineering contracting market. After Deng Xiaoping’s southern tour talk in 1992, the pace of Chinese companies’ “going global” accelerated, and the scale of overseas investments increased from tens of thousands or hundreds of thousands of dollars, to millions or tens of millions of dollars. The scale of overseas investments of some companies such as CITIC Group and Sinochem even exceeded 100 million dollars during this period. In addition to state-owned large and medium-sized enterprises, private businesses also joined the ranks of overseas investment businesses. A typical example is Huawei, which emerged during that time. In addition, on the basis of summarizing the experience of the 1980s, construction contracting companies began to use their own comparative advantages to vigorously develop foreign contracting projects and labor cooperation, and entered the field of EPC. Subject to the severe shortage of foreign exchange, capital, and supply at the time, the opening-up from the 1980s to the 1990s was mainly reflected in “bringing in”,

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with “going global” playing a supporting role. However, with the rapid growth of China’s economy, industrialization completed the stage of quantitative accumulation, the era of shortage economy ended, the manufacturing industry began to enter a stage of oversupply, and “going global” was put on the agenda ahead of time. In 1998, the CPC Central Committee proposed: “We must promptly study and implement the opening-up strategy of going global’, actively explore international markets, and utilize foreign resources.“ In 2000, China formally proposed the “going global” strategy as one of the opening-up strategies in the new era, which signified that “going global” had entered the era of massive development. The “going global” strategy was first proposed in a Five-Year Plan in the outline of the “Tenth Five-Year Plan” issued in 2001 to encourage foreign investment and expand international economic and technological cooperation. China’s accession to the World Trade Organization (WTO) provided a strong impetus for China’s “going global” efforts. In this context, Chinese companies’ foreign investment has shown a spurt of growth. From 2001 to 2007, in just seven years, the OFDI in the non-financial sector grew from about 700 million to 18.7 billion dollars. In 2008, the stock of foreign direct investment exceeded the benchmark of 100 billion dollars. The number of overseas Chinese-funded enterprises exceeded 10,000, and the number of foreign contracted engineering companies exceeded 2,000. It is worth noting that due to the rapid growth of foreign investment, many investments during this period were not included in official statistics, so the actual foreign investment amount was even bigger than the official statistics. In terms of fields and regions, overseas investment by Chinese companies also showed a diversified trend. The 2008 global financial crisis brought many challenges to Chinese companies’ “going global” efforts, but it also brought more opportunities. The “Twelfth FiveYear Plan” issued in 2011 stated that “we should accelerate the implementation of the ‘going global’ strategy.” The intensity, depth, and breadth of overseas investment by Chinese companies are unprecedented. The proposal of the BRI is a new boost to the “going global” efforts. “Going global” and “bringing in” are the two integral parts of China’s openingup efforts, improve the overall operational capability of “two markets and two resources”, and lay a comprehensive foundation for the continuous improvement of China’s opening-up.

2.3 40 Years of Development and Cooperation International cooperation and development is another important component of opening-up, which includes China’s acceptance of development cooperation from other countries or organizations, and China’s provision of development cooperation to other countries and regions. For a long time, China has been both a recipient country and an aid provider, contributing its strength to international development cooperation.

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Since the implementation of the reform and opening-up in 1978, China has successively received loan assistance from the United Nations, the WB, the IMF, and other international organizations. As one of China’s main foreign fund providers, the WB has provided China with effective support of funds and project technology. From 1981 to 2011, China used WB assistance to implement a total of 326 projects, with a total loan amount of 47.82221 billion dollars. The field has evolved from project management and technical cooperation in the early stage, to comprehensive and multi-sectoral cooperation, and then to a focus on poverty alleviation and environmental protection. As China’s national strength has continued to increase and people’s living standards have continued to improve, the WB’s assistance to China has completed its historical mission and gradually withdrawn from the world stage. The foreign aid China has received comes from international organizations as well as various developed countries. After 1978, China, as the world’s largest developing country, received economic assistance from 24 countries. Japan is the country that has provided China with the most official development assistance (ODA) since 1979, which has been important for the Sino-Japanese relations in a certain period. From 1979 to 2007, Japan’s total ODA to China amounted to approximately 3,300 billion yen (amount of agreement: approximately 164.9 billion yuan). China used 1,940 billion yen worth of Japanese yen loans. Yen loans were once an important source of funds for China’s economic development, and many infrastructure facilities were built with Japanese aid, such as airports and steel companies. Japan’s ODA to China has contributed to China’s agricultural development, environmental protection, poverty alleviation, and personnel training. In 2008, Japan’s ODA to China withdrew from the stage of history. Indeed, ODA has helped China’s development, but it has also greatly contributed to Japan’s own economic development. Therefore, Japan’s ODA to China and Japanese yen loans are China-Japan development cooperation. Japan encountered an economic crisis, domestic economic depression, and capital surplus in the 1970s and 1980s. China, which was open and in a period of rapid growth, provided good conditions for Japanese enterprises to grow and the Japanese economy to recover. The ODA to China was precisely the key for Japan to open the Chinese market, share the rapid growth of the Chinese economy, and break through the “bottleneck” of the Japanese economy. While receiving aid from the world and seeking development, China also does not forget to give back to the world and do its best to help other countries and regions in the world. After the reform and opening-up was started, China’s foreign aid efforts continued to reform and develop. The Third Plenary Session of the Eleventh Central Committee of the CPC in 1978 was a watershed in China’s outbound assistance. The formulation and implementation of the reform and opening-up policy demonstrate China’s clear attitude in handling international social relations issues. China’s foreign aid efforts entered a new stage of development. The rapid growth of China’s overall national strength after 1978 and the country’s increasing presence in international affairs promote the PRC’s undertakings of outbound assistance towards the goal of “diversity and win–win outcomes”.

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Throughout the past 40 years of reform and opening-up, China’s foreign aid efforts has experienced a change. In the first phase from 1979 to 1994, China explored and adjusted its foreign aid. In the second phase, from 1995 to the present, China furthered the reform of its foreign aid efforts and sought development and cooperation of outbound assistance. The overarching policy of reform and opening-up prompted China to make appropriate adjustments of its foreign aid efforts, and gradually reformed the management system for implementing the assistance project, with more flexible methods and more practical assistance projects. Due to the increasingly prominent status of economic factors during this period, new steps have been taken in economic and trade cooperation. China will provide assistance and mutually beneficial cooperation to achieve the goal of common development, which will help mobilize the enthusiasm of aid providers and recipient countries. At the same time, on the basis of reflecting on its foreign aid efforts in the past, China has made some exploratory adjustments in methods and policies of foreign aid. The foreign aid efforts during this period were given the dual meaning of politics and economy: politically, to continue to support the economic development and social progress of recipient countries, and to support the third world countries’ demands and struggles for the new international political and economic order; economically, through outbound assistance, which helps promote mutually beneficial economic and trade cooperation between two parties, to achieve common development and prosperity for all. With the implementation of the reform and opening-up policy being deepened and the changing situations in developing countries, China engaged with the world with a positive attitude. In 1995, China’s method of foreign aid was reformed again, implementing internationally accepted governmental discounted preferential loans and actively promoting joint ventures and cooperation in foreign aid projects. In addition to reforming China’s method of foreign aid, the number of emergency humanitarian aid efforts in China also greatly increased during this period. China provided timely emergency humanitarian aid to countries suffering from major natural disasters and socio-economic turmoil. For example, China has contributed to the stabilization of the Asian financial crisis, fighting against the SARS epidemic, providing aid to South Asian countries suffering from the earthquake and tsunami disaster, and helping African countries cope with natural and social crises. In 2006, the Forum on China-Africa Cooperation Beijing Summit was held, and eight measures to develop the new type of China-Africa strategic partnership were launched. The “Eight Measures” signified that China’s outbound assistance has ushered in a new stage of development. The BRI, which started in 2013, has brought new requirements and momentum to international development cooperation. As the number of projects grows, the projects become more serious. Improving the quality and efficiency of outbound assistance has become the focus of the reform of outbound assistance, and the call for the comprehensive integration of international development cooperation is also increasing. In 2018, the International Development Cooperation Agency was formally established, marking the beginning of a new era for China’s international development cooperation.

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China’s development has benefited from overseas assistance from various developed countries and international organizations. While receiving assistance to achieve its own development, China also does not forget other developing countries and does its best to help other countries and regions in their socio-economic development. China also continues to reform and develop the outbound assistance model in order to do its best to promote common development.

3 The BRI Promotes a Global Governance Featuring Open Development In September 2013, China proposed the BRI. This was the crystallization and a sublimation of the past development of openness. It brought the concept of open development to the field of global governance and offered Chinese wisdom. First, the BRI is a kind of governance of openness and inclusiveness. The past global governance mechanism was a “center-periphery” structure. The developed countries at the “center” of the international system emphasized “rules” and “standards”, while ignoring the development demands of “peripheral” countries. The “center-periphery” countries form a relationship between “governing” and “governed”. The BRI adheres to collaboration and common interests. All parties can participate in it to influence the multilateral cooperation agenda based on the needs of their own country. Ideology is not a dividing line, and beggaring thy neighbor and exclusive arrangements are rejected. This is why the BRI emphasizes “the alignment of development strategy”: such an alignment is voluntary, rather than implementing some rigid standards or rules. As a Chinese saying goes, “The ocean is vast for it refuses no rivers.” “Openness and inclusiveness on the basis of collaboration and common interests” are the BRI’s conceptual innovation in governance structure. The BRI is the governance of win–win cooperation. In the past process of globalization, developed countries mastered capital and core technology, and developing countries were sources of resources and markets. Since the 1980s, a “centerperiphery” circulation has gradually formed in which developed countries (especially the United States) control finance and developing countries produce products. Regardless of the model, the developed countries at the center have earned systemic benefits, while the developing countries at the periphery have difficulty in achieving their development goals. So far, few developing countries have completed their development tasks and become more advanced, and those who have achieved it have geopolitical particularity. This is the result of the repressive development of the old system. The BRI transcends the unbalanced regional development of oceanic globalization in the past, adheres to the principle of collaboration and sharing, focuses on land-sea connectivity, focuses on win–win cooperation, and advocates that other Belt and Road countries should draw on each other’s strengths. For example, we promote energy resources cooperation and focus on promoting industrialization and international production capacity cooperation based on the needs and actual conditions of

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various countries. In addition, the BRI encourages other Belt and Road countries to cultivate talents, strengthen national capacity building, and enhance independent development capabilities. This goes beyond the traditional theory of comparative advantage. “A single flower does not make spring, while one hundred flowers in full blossom bring spring to the garden.” Win–win cooperation and mutual learning are the BRI’s conceptual innovation in governance goals. The BRI is governance focused on development. The past global governance approach was effective in balancing short-term revenue and expenditure, but it did not fundamentally solve development problems. Underdevelopment and unbalanced development are the fundamental cause of the 2008 global financial crisis. After the crisis broke out, the G20 summit mechanism effectively responded to the crisis. However, until the 2016 G20 Hangzhou Summit, the G20 was defective in terms of restarting trade and investment and promoting long-term development. In contrast, the core of the BRI is to “focus on development” and “cure the root cause” through development. For example, by establishing the Asian Infrastructure Investment Bank (AIIB), which is an organization focusing on infrastructure and investment in the real economy, China aims to solve the fundamental problem of insufficient investment. “The superior man bends his attention to what is radical. That being established, all practical courses naturally grow up.“ Solving both the symptoms and the root cause and focusing on development are the BRI’s conceptual innovation in governance methods.

4 Towards a “Broader, Wider, and Deeper” BRI Starting from the meaning of openness and development, if the BRI construction wants to eliminate the “deficit of understanding” and gain more openness and inclusiveness, its extension meaning must be richer, and it must be “wider, broader, and deeper” in terms of scope, area, and degree.

4.1 A Broader Scope The BRI vision involves a wide range of areas that are worth more exploration. It is not just about building roads and bridges and other infrastructure (which was a cliche in the past). The BRI’s scope has expanded to the overall infrastructure, policy, trade, finance, financing, international production capacity cooperation, and maritime cooperation, etc., prominently represented as the “four silk roads”: . “A Blue Silk Road”. In June 2017, the National Development and Reform Commission of China and the State Oceanic Administration jointly issued the “Vision for Maritime Cooperation under the Belt and Road Initiative”, which closely integrated the building of a maritime power with the BRI.

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. “A Silk Road on Ice”. In December 2017, with the launch of the Yamal LNG project in Russia, the Sino-Russian joint construction of the “Ice Silk Road” officially set sail. The “Silk Road on Ice” crosses the Arctic Ocean and goes across the Arctic Circle, connecting East Asia and Europe. In addition, Antarctica also has the potential to become an important component of the BRI in the long term, closely integrating the building of China into a polar power with the BRI. . “Space-based Silk Road”. In March 2015, the “Space-based Silk Road”, supported by China’s aerospace program, was officially launched. Satellite communications, remote sensing, navigation, etc., connect different countries together through aerospace, closely integrating the building of China into a space power with the BRI. . “A Digital Silk Road”. In May 2017, President Xi Jinping stated in his speech at the opening ceremony of the Belt and Road Forum for International Cooperation that we need to pursue innovation-driven development and foster new areas of cooperation such as digital economy, e-commerce, artificial intelligence, and big data, so as to build a “Digital Silk Road” of the twenty-first century. This will closely integrate the building of China into an Internet power with the BRI. Although the scope of the field is expanding, it is not completely divergent. Things in this scope are still grouped into one theme: open development. The extension content of the BRI serves the meaning, and the expansion of extension content makes the depth and breadth of development continue to expand, so that it is no longer limited to economic growth in the narrow sense, but more importantly, it pays attention to the development of human beings and the balanced and sustainable development of the world.

4.2 A Wider Area When the BRI was first proposed, the popular view was that the BRI mainly involved western provinces and coastal provinces in China, and the concept of the 18 provinces of the BRI circulated for a long time. This is a misunderstanding. In fact, for the domestic part, the whole country, including Hong Kong, Macao, and Taiwan, have participated in the BRI as an important player. For the overseas part, Eurasia, Africa, Oceania, Latin America, and even the Caribbean are not excluded. Any country willing to join the BRI can participate in the joint construction of the BRI. The BRI is a concept of openness and inclusiveness. The “inclusiveness” means that China seeks cooperation with developing countries and developed countries alike, especially some key countries such as the United States, Japan, the United Kingdom, Canada, and Australia. Even if the governments of such countries hold attitudes of doubts, obstruction, or even opposition toward the BRI, China can still promote the BRI through enterprise cooperation and people-to-people cooperation. For those countries that have disagreements or even conflicts with China in traditional

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geopolitics, China can also accept them with openness and tolerance. This is of great significance. In short, the BRI covers a wide geographical area that does not have a clear boundary. It includes all provinces and municipalities in China and all countries and regions willing to participate in the BRI.

4.3 A Deeper Degree The success of the BRI will ultimately depend on specific projects. The projects must be well and concretely implemented and achieve good economic, political, and social benefits. A deeper degree also means dealing with the local society more, so that the local people can feel the benefits brought about by the BRI. In the past, we did not pay enough attention to this. In the future, foreign-related Chinese companies should be more down-to-earth and infiltrate corporate social responsibility (CSR) into all aspects of business activities. Only in this way can we create a good “Chinese brand” and reduce invisible resistance faced by China’s projects and other Chinese-funded enterprises. The deeper degree is also reflected in the way to promote cooperation, which requires bilateral and multilateral measures. The United Nations Development Program, the Shanghai Cooperation Organization, and the Lancang-Mekong Cooperation Mechanism led by China are all typical international multilateral mechanisms. Through these multilateral occasions full of uncertainties and opportunities, China can even seek to cooperate with some countries that have not established diplomatic relations with China to support the implementation of the BRI. Most countries that have not established diplomatic relations with China are in Latin America, the Caribbean region, and the South Pacific region. Aligning the BRI with other countries through multilateral forums such as the Pacific Islands Forum and the Community of Latin American and the Caribbean States will joint build the BRI between China and countries that have not established diplomatic relations with China. Going forward, it will also establish diplomatic relations between China and these countries. Panama will not be the last example. It is expected that more countries like Panama will establish diplomatic relations with China and participate in the building of the BRI in the future.

4.4 We Must Be Prepared to Overcome Difficulties With the advancement of the BRI entering the deep-water zone and “appropriating some people’s benefits”, conflicts in various respects are easily exposed and even intensified. Under such circumstances, we must be prepared to overcome difficulties

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and deepen the understanding and support of the BRI from all parties. Specifically, we must do the following things: First, we must be both domestic- and external-oriented, so as to give benefits to the people. China is still in and will remain in the stage of a developing country for a long time. The status quo of China’s development determines that the current priority is domestic development. On the other hand, China should pursue win–win outcomes rather than development in isolation, that is, to further promote full opening-up while developing itself, to further promote industrial upgrading and economic mix improvement through opening-up, to optimize the surrounding and even the world’s development environment, and to create convenience and opportunities for itself. In this process, the domestic and international parts of the BRI should interact more fully. It is necessary to get rid of the stereotype that the BRI is only about doing projects abroad, so that the Chinese people can truly see the benefits of the BRI and have a sense of fulfillment. Second, we must focus on providing “public goods” and promoting rulemaking. In the midst of global economic downturn and slow recovery, China has assumed the responsibility of a major country, invested in the Asian Infrastructure Investment Bank, and provided a large amount of capital, technology, and talent support to participating developing countries and regions. To a certain extent, China has provided “public goods”, and by doing so, China should obtain the power to make rules. The ability to master and apply international rules is already part of a country’s comprehensive strength. China will no longer adapt to the external situation. Instead, it should actively shape the external situation. For example, establishing the BRI disputesettlement mechanism will become a breakthrough point for China to formulate more rules involving civil and commercial disputes. Third, we must focus on coping with resistance and seek the broadest common ground. Since the BRI was formally proposed, it has faced doubts and even actual resistance from some countries. It is precisely because of the existence of these misunderstandings and accusations that the BRI has been seeking the broadest common ground and “de-geographicalization”. By seeking common ground while reserving differences, China seeks to achieve cooperation and forge greater synergy of China’s development strategy with that of other countries. Emphasizing geographical restrictions, connectivity, and geopolitics, the BRI will encounter stronger resistance and conflict and have its strategic vision and structure impaired. Therefore, emphasizing development, commonality, and universality beyond Eurasia are the correct directions that everyone calls for. Fourth, we must focus on giving play to the initiative and creativity of market entities. How the government and the market should interact and how to make the BRI a project of mutual benefit and win–win results project that is beneficial to the market and enterprises are huge challenges. In this regard, the China-Pakistan Economic Corridor is a success. The China-Pakistan Economic Corridor was originally conceived as a geographical connection project based on entities such as roads, railways, and energy pipelines. However, in its actual construction process, due to Pakistan’s urgent demand for power development and the profit-driven attitude of

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certain market entities (especially power companies), the significance of the ChinaPakistan Economic Corridor has been indirectly shaped. Therefore, such a corridor that originally linked Kashgar and Gwadar geographically has evolved into a corridor where most of the investments are concentrated on the power sector. Respecting the initiative of market entities can bring unexpected gains that are beyond planning.

From Processing to Importing: The Transformation of the Opening-Up Pattern

Trade is an important factor in economic development and an important indicator of economic development. Above all, it is an indispensable to national development. In the post-financial crisis era, the world economy has entered in a period of profound adjustment, and global trade has subsequently shown some new changes and development characteristics in terms of growth rate, driving mechanism, and development mode. These changes and characteristics have also long defined the global trade and presented a new normal of global trade. Meanwhile, socialism with Chinese characteristics has ushered in a new era, and China’s reform has entered the deep-water zone. China’s trade presents new characteristics that are different from those in the past.

1 From “Processing Raw Materials on Clients’ Demands, Assembling Parts for the Clients, and Processing According to the Clients’ Samples” to the World Industrial Center In the past 40 years of reform and opening-up, China has fully participated in the international division of labor through foreign trade and has become integrated into the global value chain through manufactured goods, intermediate goods, and production links. Its status of the international division of labor has been significantly improved, sharing the benefits of economic globalization, which has become one of the important driving forces for China’s economy to maintain sustained and rapid growth. In the early stage of reform and opening-up, China had sufficient and cheap labor factors but lacked capital factors. The development of labor-intensive processing trade conforms to the factor endowment theory and is the only way for China to achieve leap-forward economic development. China’s processing trade started in Guangdong. In the process of developing labor-intensive processing trade, a business model of “processing raw materials on clients’ demands, assembling parts for the © People’s Publishing House 2023 W. Liu (ed.), China’s 40 Years of Reform, Understanding China, https://doi.org/10.1007/978-981-19-8505-8_10

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clients, and processing according to the clients’ samples” was formed. “Processing raw materials on clients’ demands, assembling parts for the clients, and processing according to the clients’ samples” was an important feature of mainland enterprises engaged in processing trade. In the context of the large-scale transfer of East Asian industries, China seized the opportunity to actively undertake the transfer of laborintensive industries from Japan, South Korea, Hong Kong, and other economies, and enterprises in the field of “processing raw materials on clients’ demands, assembling parts for the clients, and processing according to the clients’ samples” mushroomed. The emergence of such enterprises helped China’s export trade to develop and created the “Chinese export miracle”. With its huge and cheap labor force, China quickly occupied the middle and low end of the international value chain, trained a large number of skilled workers at low remuneration, and realized technology transfer, which has become an important foundation for China’s adjustment of the industrial mix and moving toward the high end of the industrial chain. However, it must be noted that the past 40 years have not been occupied by only export trade. Import trade has also been important for China’s growth. In the past 40 years, the import-induced export mechanism has been crucial, that is, through direct or indirect spillover effects of advanced production equipment and management levels brought about by imports, helping domestic companies gain productivity advantages that are not subject to gaps in technology. Under the “self-selection effect”, China’s exports were eventually expanded. After 40 years of reform and opening-up, China has gradually become a “world factory”. In 2017, the output value of China’s manufacturing industry was 24,270.7 billion yuan, about the sum of that of the United States, Japan, and Germany. China’s economy has developed rapidly. In 2017, China’s GDP reached 82712.2 billion yuan, an increase of 6.9% over 2016. However, under the new normal conditions, China’s economic development structure has ushered in a period of profound adjustment. On the one hand, China’s factor structure has changed: capital factors are relatively abundant, the price of labor factor rises, and processing trade characterized by “processing raw materials on clients’ demands, assembling parts for the clients, and processing according to the clients’ samples” has entered the special period of “lack of capital and surplus of labor” and “lack of money and surplus of labor”, becoming increasingly unsuitable for the development of contemporary China. On the other hand, the contribution rate of exports to economic development is on a downward trend. In the meantime, the contribution rate of consumption to development continues to increase, and domestic demand has increasingly become a decisive factor for economic development. In recent years, the consumption level of the Chinese people has continued to increase. Modern consumption methods represented by consumer credit and e-commerce are developing rapidly in China. According to statistics, in 2017, short-term loans to residents increased by 1.83 trillion yuan, an increase of 181.8% year-on-year, showing explosive growth. The Chinese people’s (who are richer than before) pursuit of a better life is reflected in imports, especially in crossborder e-commerce data. In 2016, China’s cross-border import e-commerce transactions reached 1.2 trillion yuan, a year-on-year growth of 33.3%, and cross-border online shopping users reached 42 million, a year-on-year increase of 82.6%. With

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economic development and a higher consumption level, the main social conflict has changed. The report of the 19th National Congress of the CPC stated: As socialism with Chinese characteristics has ushered in a new era, the main social conflict has evolved. What we now face is the conflict between unbalanced and inadequate development and the people’s ever-growing needs for a better life. Complying with the people’s ever-growing needs for a better life and expanding imports has become a defining trend. China is in a new round of economic growth cycle. Under the general environment of slowing international economic growth and domestic economic restructuring, it is necessary to continue to strengthen the transformation of domestic and foreign resources through trade and to rationally use and allocate resources on a global scale in order to support the sustainable economic development. Promoting a new type of trade development method and balancing import and export is the only way for China to change from a major trader in the world to a strong trader in the world. From a strategic perspective, the development logic of a major trader in the world is mainly reflected in relying on domestic resources to develop the international market, while the development logic of a strong trader in the world is manifested in relying on international resources to develop the domestic market. At present, China’s trade is facing the dual challenge of the imbalance of international and domestic trade. Therefore, it is necessary to adjust the trade structure, and especially import growths should be the main direction of new trade development.

2 The Current International and Domestic Trade Layout On the one hand, the rise of the anti-globalization wave is economically manifested in the prevalence of trade protectionism. Freedom of trade is an important component of economic globalization. The General Agreement on Tariffs and Trade (GATT) established after World War II and the World Trade Organization (WTO), which was born out of the GATT, are the institutionalized products of free trade. But since the 2008 global financial crisis, the world economic development has suffered setbacks. At the international level, the growth rate of the global trade volume has slowed down. In 2015 and 2016, the global trade volume fell into negative growth of −13.2% and −3.2%, respectively. Although global trade picked up in the first half of 2017, the international trade situation remained severe. At the national level, some countries believe that their interests in international trade have been frustrated, which is manifested as a huge trade deficit with other countries, and thus have embarked on the road of trade protectionism. Trade friction between countries has become more frequent and the free trade system has been severely challenged. On March 8, 2018, US President Trump held a meeting with senior executives and workers in the steel and aluminum industry at the White House and formally signed an order at the meeting to impose a tariff of 25% and 10% on US imports of steel and aluminum, respectively, 15 days later, which caused turmoil and even panic in the international market. On March 22, he signed a presidential memorandum against

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China’s “intellectual property infringement”, which included additional tariffs on US$50 billion (about 316.55 billion yuan) worth of imports from China, which might affect approximately 1300 commodities imported from China. Faced with the US trade weapon, China initially responded. The Ministry of Commerce of the People’s Republic of China issued the “List of Discontinuation Concessions against the US Section 232 Measures for Imported Steel and Aluminum Products” at around 7 am on March 23, which planned to impose tariffs on approximately US$3 billion worth of imports from the United States. The country also studied the second and third batches of such a list. The recent trade interaction between China and the United States is, to a certain extent, the consequence of trade imbalances. On the other hand, over the past 40 years of reform and opening-up, China has fully participated in the international division of labor through foreign trade, and its status of the international division of labor has significantly increased. It thus shares the benefits of economic globalization, and foreign trades have become one of the important momenta that maintain the rapid growth of the Chinese economy. Export trade is a guarantee for the continuous extension of a country’s domestic market and the sustainable development of import trade, and, together with consumption and investment, constitute the “troika” that drive national economic growth. At the same time, export trade is also an important means for domestic enterprises to broaden their horizons, participate in international competition, and enjoy spillover effects. However, China’s types of import and export commodities are not reasonable: China’s export commodities are mainly middle and low-end commodities with low added value; the lack of planning for commodity imports makes its import disconnected from the national strategy; extensive economic growth model makes the trade growth mode rely heavily on exports, and the trade structure has deep-rooted problems, which will directly affect China’s strategic position in the global economic pattern. The goods trade surplus reveals that China’s economic structure is lagging in the global economic development trend, the entry point for enhancing China’s international competitiveness is misaligned with developed economies, and there is an imbalance between China’s exports and imports. These problems reflect the issue of trade surplus but also reflects China’s inability to make a reasonable allocation between domestic and international resources.

3 The Transformation of China’s Import and Export Layout and Policy Adjustment In the face of the domestic and international trade imbalance, China must do something. Faced with the new situation of domestic and international trade imbalance, China can make the following adjustments to imports and exports.

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3.1 Formulate Suitable and Appropriate Trade Policies at the Macro Level Whether it’s the 25% and 10% tariffs on imported steel and aluminum from the US signed on March 8, 2018, or the tariff increase on US$50 billion worth of imports from China signed on March 22, the tariff adjustments are small, and the areas involved are relatively concentrated. Although the Trump administration may still step up with more follow-up policies, the trade interaction between China and the US has not yet reached the level of a high-intensity trade war compared to the intensity of the US-Japan trade war in the twentieth century. It is more like a strategic game and bargaining between China and the US. Overstating the intensity of the trade war could have serious consequences on all fronts. This is because the term “trade war” has a psychological implication that can lead to market fears and panic, which in turn can undermine market order. In reality, market entities are indeed extremely sensitive to the term “trade war”. With Trump’s new tariff policy not yet reaching the intensity of a “trade war”, market entities are fleeing the stock market and buying assets in safe havens instead. After Trump threatened a “trade war”, the Dow Jones Industrial Average fell 340 points, or 1.4%, to 24,269; the S&P 500 fell by 0.9%, and the Nasdaq Composite Index also fell by 0.9%. Besides, “trade wars” may lead to social unrest. The abuse of the expression “trade war” can also harm the social order. The Eurozone is the focus of Trump’s tariff policies. The expression “trade war” is likely to intensify the panic in European society and the spread of populism in Europe. Finally, the term “trade war”, if used generically, can affect decision-making at the national level. If the intensity of the other side’s trade policy is overestimated, it may result in two political consequences: First, compromise, forced adjustment of policies, damaged trade interests, and benefit maximization of the other side through trade policies that are not as intensive as a trade war; Second, confrontation, adoption of more drastic policies to counteract, thus leading to “security dilemma” in the field of trade. In the second case, a real “trade war” will emerge, thus forming a “self-fulfilling prophecy”. Therefore, in the face of the consequences of the trade dimension at the international level, China must develop appropriate countermeasures. It should learn to take preventive measures and use both hard and soft tactics. On the one hand, we should continue to seek space for dialogue with the United States, maximize the consensus between the two sides, and continue to implement the Comprehensive Economic Dialogue, one of the four high-level dialogue mechanisms between China and the United States. On May 12, 2017, China and the United States announced a 10-point consensus on the “China-US. 100-day Action Plan” for economic cooperation. In this list of “trade gifts”, the most exciting thing for Americans was that US beef was allowed to return to the Chinese market after 14 years. In the face of China’s beef market of more than 400 billion yuan, the US industry was excited and President Trump, the White House spokesperson, and

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the American National Cattlemen’s Association publicly expressed their joy and anticipation. The details of the 10 early consensuses were: China would allow imports of US beef no later than July 16, 2018, allow wholly foreign-owned financial service companies in China to provide credit rating services, and allow wholly US-funded electronic payment service providers to apply for licenses; the US would welcome Chinese imports of liquefied natural gas from the US and direct investment from Chinese entrepreneurs. According to Reuters, a new report by internationally renowned consulting firm Boston Consulting Group (BCG) and Alibaba’s Ali Research Institute estimates that the Chinese mainland consumer market will continue to grow at an average annual rate of 10%, with the market size expected to reach US$6.1 trillion by 2021 and with an increase of about US$1.8 trillion over the next five years, equivalent to the size of a British consumer market. Pragmatic American businessmen will not turn a blind eye to the “soft measures” that China continues to introduce. On the other hand, in the face of the US trade policies, we should improve China’s countermeasures and measures in international trade to prevent the US from continuing to pressure China in a “sausage slicing” manner. In November 2017, just after taking away more than US$250 billion worth of orders from China during a visit to China, the US side refused to recognize China’s status as a market economy, which forced China to take a strong stand in response. On February 4, 2018, China began an anti-dumping and anti-subsidy investigation into sorghum imports from the US. On February 17, the Ministry of Commerce responded strongly to the US’s Section 232 investigation, saying that it was “groundless”. This made the US aware that unilateral trade attacks on China were risky and presumptuous. The US should recognize the indisputable fact that China’s economic structure has changed compared with that in 1979 when diplomatic relations between China and the US were normalized, and China’s reliance on exports has declined significantly, with net exports contributing −7.8% to the economy in 2016. Unlike the US’s other trading partners, such as Canada and Mexico, China’s position in the international arena is not what it used to be. If the China-US economic and trade relations are not considered within the larger strategic framework of ChinaUS relations, the losses incurred by the US side may go beyond trade data. At the same time, China will not be like Japan, which lost badly to the US in the trade war in the 1980s, because we have powerful overall national strength and we can be independent in our foreign relations.

3.2 Continue to Deepen the Reform of the Trade Structure To deepen the reform of the trade mix, it is necessary to focus on both exports and imports. In terms of exports, the first thing we should do is to strengthen policy research to ensure the healthy development of foreign trade. According to the requirements of WTO rules and China’s foreign economic and trade structure adjustment, we should

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continuously improve foreign trade policies, guide the transformation of trade development mode, and support enterprises to do such things on their own: innovate, achieve technological transformation, and build export brands. Second, we should improve the quality of foreign trade by adjusting the trade mix. We should further optimize the structure of export commodities, continue to expand the export of mechanical and electrical products and high-tech products, and increase the grade and price of traditional export commodities. Third, we should enhance the competitive advantage of general trade and restructure the general trade. The focus of development should be on areas with greater added value, increasing the scientific and technological content and added value of general trade export commodities, further increasing investment in technological research and development, and actively expanding the export of independent innovation and independent brand products. In terms of exports, it is necessary to change the traditional foreign trade structure that is dominated by processing trade, adjust the economic structure, extend to the middle and higher end of the industrial chain, achieve a balance between general trade and processing trade, and change products exported through processing trade from low added value to high added value. To achieve the extension to the mid-to-high end of the industrial chain, on the one hand, we must thoroughly implement the supply-side structural reform. After 2012, the CPC Central Committee with Comrade Xi Jinping at the core proposed the strategic layout of building a well-off society in an all-round way, comprehensively deepening reform, exercising law-based governance, and ensuring strict Party self-governance. Comprehensively deepening reform occupies an important position in the strategic layout, economic reform is the focus of comprehensively deepening reform, and the focus of economic reform is supply-side structural reform. The imbalance between supply and demand in China’s economy is mainly manifested in three respects: supply without demand, demand without supply, and inefficient supply suppressing effective demand. The problems are concentrated on the supply side. Therefore, it is necessary to promote supply-side structural reform, eliminate outdated productivity, free resources from low-end industries and make them flow more to high-end industries, optimize and upgrade the industrial mix, and improve the quality of export trade. On the other hand, we must thoroughly implement the innovation-driven development strategy. The innovation-driven development strategy is an important strategy proposed by the CPC Central Committee after 2012. China’s economic development has entered a new normal, and there is a risk of China falling into the “middle-income trap”. It is necessary to adjust the economic structure, accelerate the optimization and upgrading of manufacturing, and build an innovative country. Technological innovation can increase total factor productivity, and it is a strategic support for productivity and overall national strength. It must be placed at the core of the overall national development. The country emphasizes on innovation-driven development strategies. At the 19th National Congress of the CPC, General Secretary Xi Jinping stated that innovation is the primary force driving development and the strategic support for building a modern economic system. The country emphasizes on innovation-driven development strategies. By implementing the innovation-driven development strategy, we will transition from “Made in China”

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to “Intelligent Manufacturing in China”, promote breakthrough innovation in highend industries, improve trade quality, and optimize the trade structure. The 2017 Report of the Work of the Government stated: We should extend processing trade to the middle and high end of the industrial chain and the gradient transfer to the central and western regions; we should promote the “single window” of international trade and integrate national customs clearance; we should increase the import of advanced technology, equipment, and key parts and components, make sure that the development of trade is balanced, and upgrade domestic industries. In terms of imports, we should adjust the import structure to make import trade compatible with industrial policies. On the one hand, while insuring the development of domestic industries, we should increase imports of advanced technologies, equipment, and key parts and components, make sure that the development of trade is balanced, and upgrade domestic industries. In terms of importing final products, the country’s imports of foreign products in related fields will inevitably affect the market share of domestic manufacturers and intensify industrial competition. Faced with the risk of increasing competitors and declining profits, domestic manufacturers can choose technological innovation to cope with the impact, and save themselves while promoting technological innovation and promoting the overall industrial development. In addition, the import of advanced foreign commodities will give enterprises in the importing country an incentive to imitate. In the process of learning new technologies, technology spillovers will occur, which will improve the technological innovation level of the importing country. Intermediate products with low import costs or which cannot be produced by domestic production technology can help reduce production costs, promote enterprises to enter the field of high valueadded products, and promote enterprise technological innovation. On the other hand, the import of non-essential commodities should be reduced or even banned. Take the import of “foreign waste” as an example. China is currently the world’s largest importer of “solid waste”, with an annual import volume accounting for 56% of the world’s annual output. The import of “foreign waste” has indeed created a considerable income for China, but the Chinese environment has also paid a heavy price for this. Since January 2018, China has completely banned the import of 24 kinds of “foreign waste” from abroad. Banning the import of foreign waste is conducive to protecting the environment, promoting sustainable development, and promoting the optimization and upgrading of the industrial mix.

3.3 Make the Development of Import and Export Balanced It means that exports and imports develop in a balanced way in a fair and reasonable domestic and foreign environment. Based on the domestic industrial mix, we should transform China’s development model of over-reliance on labor resources and consumption of huge resources at a huge environmental cost, and instead use international resources rationally to achieve a good allocation of domestic and foreign resources to steadily develop China’s economy. To achieve a balanced development

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of imports and exports, we must first stabilize exports. After 1978, China’s import and export trade focused on exports, creating the “Chinese export miracle”. Among them, the import-induced export mechanism has been crucial, namely, direct or indirect spillover effects of the advanced production equipment and management level brought by imports helped domestic companies gain productivity advantages that are beyond the gap in technology, and ultimately expanded exports under the “selfselection effect”. From the late 1990s to the beginning of the twenty-first century, with the trade advantages brought by China’s accession to the WTO, exports became the main driving force of China’s economic growth, making China a world factory and integrated into the global manufacturing chain. With exports being one of the “troikas” of economic growth, although they have made outstanding contributions to China’s economic growth, their shortcomings have gradually been exposed in the new historical period. First, the added value of China’s exports is relatively low. China is at the low end of the industrial chain, and its imports and exports are disproportionate. Second, the continuous expansion of exports has caused excessive consumption of resources and environmental damage, which is contrary to sustainable development. Third, the continuous expansion of exports has worsened the relationship between China and other countries. Certain countries have attacked China on the grounds of China’s trade surplus and damaged China’s image. In the new era, China’s exports should maintain steady growth in volume, curb the trend of decline, and qualitatively develop export commodities to mid-to-high end and increase added value. The 2016 Report of the Work of the Government stated: First, we must accelerate the implementation and improvement of policies. We should optimize the export tax rebate rate structure, ensure timely and full tax rebates, and crack down on fraudulent tax rebates. We should increase the scale of short-term export credit insurance and fully cover the export financing insurance for complete sets of equipment. Second, we should encourage business model innovation. We should expand the cross-border e-commerce pilot program, support enterprises to build “overseas warehouses” of a batch of export products, and develop comprehensive foreign trade service enterprises. The 2017 Report of the Work of the Government further stated: We should expand the coverage of export credit insurance and try our best to provide insurance to the export financing of complete sets of equipment. We should promote pilot projects for the innovative development of service trade and establish a guiding fund for the innovative development of service trade. We should support the development of market procurement trade and foreign trade comprehensive service enterprises. We should build more demonstration bases for foreign trade transformation and upgrading. To achieve a balanced development of imports and exports, it is more important to develop imports. At present, China is in a new round of economic growth cycle, and it is necessary to continue to strengthen the transformation of domestic and foreign resources through trade, and to rationally use and allocate resources on a global scale so as to support sustainable economic development. The key to the new type of trade development is imports. Improving the level of imports and balancing the current domestic import and export imbalance is the only way for China to change from a major trader in the world to a strong trader in the world. From a strategic

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perspective, the development logic of a major trader in the world is mainly reflected in relying on domestic resources to develop the international market, while the development logic of a strong trader in the world is manifested in relying on international resources to develop the domestic market. From the perspective of trade itself, import and export have completely different meanings for resource utilization. Generally speaking, exports mainly use domestic resources, and imports mainly use international resources. From the perspective of the direction and extent of the trade policies, a country has a higher autonomy in using domestic resources, while its autonomy in using international resources is lower. For China, in the context of developed countries restricting the export of high-tech products to China and controlling the international trade of bulk resource products, it is more difficult to utilize international resources. Therefore, trade policies should be oriented to developing import trade. In recent years, the Chinese government has paid increasing attention to import trade. In 2016, the State Council’s Report of the Work of the Government stated that China should implement a more active import policy and expand imports of advanced technology and equipment, key components, and raw materials for energy in short supply. In addition, the Chinese government has also promoted import trade by holding an expo. On May 14, 2017, Xi Jinping, President of the PRC, announced at the Belt and Road Forum for International Cooperation that China would host the China International Import Expo from 2018. From a macro perspective, China’s hosting of the China International Import Expo embodies its responsibility as a major country by opening and sharing the Chinese market, which is conducive to the formation of a demonstration effect, promoting trade and opening markets in various countries, and promoting the indepth development of economic globalization and the construction of an open world economy. It will create conditions for promoting building a community with a shared future for mankind. At the same time, it is conducive to developing a higher-level open economy and making China’s economic development sustained and healthy. It will contribute to securing a decisive victory in building a moderately prosperous society in all respects, striving for the great success of socialism with Chinese characteristics for a new era, and realizing the Chinese Dream of great national rejuvenation. From the perspective of technological demand, after 40 years of reform and opening-up, China has become a major manufacturing country in the world. The proposal of the national manufacturing strategy further rang the bell for the transformation and upgrading of China’s manufacturing industry. From big to strong, China’s dream of becoming a powerful manufacturing country must rely on the emergence of more technological innovations and the introduction of more sophisticated products. Major Chinese markets such as high-end equipment, intelligent equipment, newenergy vehicles, and high-end medical examinations are facing the conflict between increasingly strong demand and difficult-to-produce supply. China’s increasing investment in scientific research reflects that the dream of becoming a powerful manufacturing country has started. The gradual increase in the proportion of R&D investment in GDP shows the determination to accelerate technological innovation. The huge investment in scientific research means that China’s

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frontier industry market will become larger and larger in the future. The International Import Expo opened a window for Chinese manufacturing companies that are actively looking for new technologies and new equipment. At the same time, it also provides a world-class stage to display technology for commercial enterprises from all over the world. From the perspective of consumption, China’s hosting of the China International Import Expo meets the needs of domestic consumption growth. In 2018, China’s consumer market showed the characteristics of steady growth in scale and structural upgrading. The gap between urban and rural areas was narrowing, and new consumption hotspots continued to emerge. Consumption will still be one of the main driving forces of economic growth. China has the largest middle-income community in the world and has formed a huge domestic market. This brings demand for consumer goods and diversified demands for services. With the advancement of medical technology, people’s life expectancy has been prolonged, and the increase in the proportion of the aging population has brought about demand for consumer products and services such as medical care, leisure, and health. With the launch of the second-child policy, a new round of baby boom will further change China’s demographic structure, and a series of service industries such as childbirth, housekeeping, and preschool education will also be adjusted accordingly. At the same time, modern consumption methods represented by consumer credit and e-commerce are developing rapidly in China, which has expanded consumer demand.

3.4 Promote Trade Liberalization Further cutting tariffs and promoting trade liberalization. The trade imbalance at the international level is reflected in the fact that since the economic crisis started, major countries have returned to trade protectionism, and “anti-globalization” is gaining momentum. Faced with trade imbalances at the international level, as a responsible major country, China has the responsibility to hold high the banner of free trade and defend economic globalization. To promote free trade, China should build free trade zones. In 2016, the State Council Report of the Work of the Government affirmed the construction of free trade zones. The Report stated: We should speed up the implementation of the free trade zone strategy. We should actively negotiate and sign regional comprehensive economic partnership agreements, accelerate negotiations on China-Japan-Korea free trade areas, advance China-US and China-EU investment agreement negotiations, and strengthen joint strategic research on Asia–Pacific free trade areas. We are willing to work with all parties to promote trade and investment liberalization and jointly build a balanced, win–win, and inclusive international economic and trade system. The 2017 Report of the Work of the Government emphasized the importance of multilateral trade negotiations on the basis of building free trade zones. It stated: China will unswervingly promote global economic cooperation, maintain its status as the main channel of the multilateral trading system, and actively participate in multilateral trade negotiations. We are willing to work with

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relevant countries to fully and effectively implement the Protocol on Upgrading the China ASEAN Free Trade Area, conclude the negotiations on the Regional Comprehensive Economic Partnership Agreement as early as possible, and build the Free Trade Area of the Asia–Pacific. We will continue to negotiate investment and trade agreements with relevant countries and regions.

4 The People’s Needs for a Better Life and the New Pattern of Full Opening-up Opening-up is China’s basic national policy. After the Third Plenary Session of the Eleventh Central Committee of the CPC, China established special economic zones in Shenzhen, Zhuhai, Shantou, and Xiamen, opening its door to the outside world. After 2012, the CPC Central Committee with Comrade Xi Jinping at the core proposed a new vision for development that is innovative, coordinated, green, open, and shared, and improved the degree of opening-up. With the BRI as the focus, the opening-up pattern with links running eastward and westward, across land, and over sea has been formed. Trade transformation is closely related to opening-up. On April 10, 2018, the Boao Forum for Asia Annual Conference 2018 was held in Boao, Hainan. President Xi Jinping attended the opening ceremony and delivered an important speech. In his speech, President Xi emphasized that China would continue to increase the level of opening-up. President Xi solemnly swore: “China adheres to the fundamental national policy of opening-up and pursues development with its doors open wide. China will not close its doors to the world; we will only become more and more open!” At the same time, in his speech, President Xi Jinping took the expansion of imports as an important means to strengthen the opening-up. President Xi stated: “Domestic demand is the basic driving force for China’s economic development, and it is also a prerequisite to meet the people’s ever-growing needs for a better life. China does not aim at pursuing a trade surplus. It sincerely hopes to expand imports and balance the current account.“ At present, China is still in a period of strategic opportunities for development. In the new opening-up pattern, Chinese companies must look at the world, learn from Western companies, establish their own brand image, and move from reshaping the global value chain to reshaping global values. By increasing imports from other Belt and Road countries and conducting free trade zone negotiations with them, China can promote the BRI and achieve prosperity for all with other Belt and Road countries. The BRI is an important measure of China’s opening-up, and unimpeded trade is of great significance in implementing the BRI. The products of other Belt and Road countries are loved by the Chinese people: the tropical fruits of Southeast Asian countries are highly praised by the Chinese, and Ukraine is famous for being a granary of Europe. China’s imports have given these countries a rare opportunity for development. China’s free trade zone negotiations with other Belt and Road countries and the signing of big orders worth tens of billions

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of dollars, on the one hand, can further satisfy the people’s growing needs for a better life, and on the other hand, can also provide other Belt and Road countries with a platform to develop their economy by using advantageous endowments, promote local employment, and ultimately achieve prosperity for all. An open world is destined to be a community with a shared future for mankind. China’s adjustment of trade methods and expansion of imports are of great significance to building a community with a shared future for mankind. In 2017, Xi Jinping made two important speeches, one at the United Nations headquarters in Geneva and the other at the World Economic Forum in Davos, entitled “Work Together to Build a Community of a Shared Future for Mankind” and “Jointly Shoulder the Responsibility of Our Times, Promote Global Growth”, which together constitute a complete conceptual statement of “a community with a shared future for mankind”. Since the Second World War ended, especially since the end of the Cold War, economic globalization has enabled countries to participate more and more deeply in the global value chain, forming an interdependent pattern where everyone is concerned. However, since the 2008 global financial crisis, economic globalization has experienced an ebb, and Western developed countries have embarked on a closed and conservative road. As the “new locomotive” of the world economy, China has one-fifth of the world’s population and is undergoing the largest modernization and urbanization process in the history of human civilization. While proceeding with modernization and urbanization in an orderly manner, China has optimized and upgraded its economic structure, becoming an important driving force for the open world. China’s adjustments to trade methods show that China’s firm defense of economic globalization and the international free trade system is a major benefit to the Chinese people as well as people from the rest of the world. While guiding the trend of economic globalization, China will create a dynamic growth model and build an open, inclusive, clean, and beautiful world that enjoys durable peace, universal security, and prosperity for all. China’s development cannot be separated from the world, and the integrity of the world cannot be separated from China. Trade perfectly connects China and the world. Trade imbalances are both a challenge and an opportunity for China. China must adjust its import and export trade, balance import and export, and take the lead in the new stage of development.

From Digital China to Reform of Party and Government Institutions: The Wisdom of Modernizing the Governance Model

“Big data”, “digital economy”, and “digital China” were included in the “Report on the Work of the Government” for the first time in 2014, 2017, and 2018, respectively, which fully demonstrated that China is coordinating and advancing the five-sphere integrated plan, the innovation-driven development strategy, and innovative social governance. It has achieved a major breakthrough from a “follower” to “paralleling with others” and “leading others” in the new technological revolution. How to build a digital China in the new era has attracted widespread attention. Corresponding to the first proposal of “digital China”, the reform of Party and government institutions is unprecedented in terms of intensity. The number of ministerial-level institutions decreased by eight and the number of deputy ministeriallevel institutions decreased by seven. The reform is wide in range and deep in scope. As one People’s Daily commentary stated: “It can be called the most visionary and courageous program in the reform of Party and government institutions in the past 40 years.” With the rapid development of technology, the current world is undergoing a profound social revolution. The integration of people and data, and the full range of challenges that artificial intelligence poses to people are imminent. In the face of an unprecedented era, in the face of new productivity and production relations in the future, China will definitely become a digital country. Deepening the reform of Party and government institutions has become a prerequisite for the Party and the country to continue to modernize China’s system and capacity for governance. In the new era, it is necessary to understand this profound change from the perspective of the strategic overall landscape and long-term development. The big data era has come, and the development trend of a digital China is obvious. By carrying out an in-depth study of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, combined with the database of a series of important speeches by Xi Jinping available at the People’s Daily [1], we conducted data mining on the text of the original speech of President Xi Jinping of more than 325,000 words involving related issues as of early March 2018.

© People’s Publishing House 2023 W. Liu (ed.), China’s 40 Years of Reform, Understanding China, https://doi.org/10.1007/978-981-19-8505-8_11

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1 Institutional Reform, the Relationship Between Digital China and National Governance 1.1 The Campaign of Big Data Development is an Important Path for Building a Digital China On December 16, 2015, at the opening ceremony of the Second World Internet Conference, President Xi Jinping put forward for the first time “building a digital China, developing a sharing economy, supporting various innovations based on the Internet, and improving the quality and efficiency of development”. On October 18, 2017, General Secretary Xi Jinping made clear the development direction of accelerating the construction of an innovative country and building a digital China in a report at the 19th National Congress of the CPC. On December 3 of the same year, President Xi Jinping further stated in his congratulatory letter to the Fourth World Internet Conference: “We must build an Internet power, a digital China, and a smart society, and thoroughly integrate the Internet, big data, artificial intelligence, and the real economy. We should develop the digital economy and sharing economy, foster new growth points, and form new momentum for growth.” In the Report of the Work of the Government in 2018, it was stated that “We should implement a big data campaign … to help the construction of a digital China.” As of early March 2018, President Xi Jinping mentioned “digital China” four times and “big data” 25 times in the nearly 150,000 words of his series of important speeches. By reading the original text, we found that the construction of digital China is closely related to big data. Big data is essential to building a digital China. Therefore, we conducted a statistical analysis of the original text of President Xi Jinping’s speech involving big data (Fig. 1). The textual analysis of “big data” in the series of important speeches by Xi Jinping shows that the big data development campaign to build a digital China involves more than 40 keywords, which are most closely related to innovation, technology, development, economy, security, and people; at the same time, we also see the influence of big data, industry, technology, talent, and other factors. It also reflects President Xi Jinping’s concerns about big data, socialism, Marxism, system, governance, modernization, and other political, cultural, social, and environmental issues. The analysis also showed President Xi Jinping’s focus on big data and the BRI. Based on the analysis of relevant texts, the construction of digital China is an important foundation of the modernization of governance in the country, and the development of big data is the main content of the current stage of construction of digital China.

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Fig. 1 Keywords related to “big data” in the text of series of important speeches by Xi Jinping (sample: 148,258 words). Note The size of the circles is proportional to the weight of the keywords in the original text, based on R language calculation (weight > 85%)

1.2 Building a Digital China is the Backbone of Modernizing the Governance Model in China Through a comparative analysis of the original texts related to “big data” and “national governance” in series of important speeches by Xi Jinping, we found that important keywords proposed by President Xi Jinping related to building a digital China and the big data action plan (for example, digital innovation, technological construction, economy, security, the BRI, digital governance, etc.) are highly related to what he said in his series of important speeches on national governance (for example, reform, system, governance, people, socialism, and comprehensively deepening reform). The former is the basis of the latter.

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On September 30, 2013, General Secretary Xi Jinping stated in his speech at the ninth collective study session of the 18th Politburo: “China’s modernization is different from that of Western developed countries. The latter is a process of over 200 years characterized by the sequential development of industrialization, urbanization, agricultural modernization, and informatization. For China to catch up and retrieve the “lost 200 years”, we must press ahead with industrialization, informatization, urbanization, and agricultural modernization simultaneously.” Three years later, on October 10, 2016, at the 36th collective study session of the 18th Politburo, General Secretary Xi Jinping delivered a speech and made clear the direction of the major work of digital China construction: “In the global economy, the transformation of economic activities is accelerating, with the Internet-based information technology industry as an important content. We must grasp this historical opportunity to cultivate new drivers for growth through informatization and use such new drivers for growth to promote new development. It is necessary to increase investment, strengthen the construction of information infrastructure, integrate Internet and the real economy extensively, accelerate the digitization and intelligentization of traditional industries, expand and strengthen the digital economy, and explore more potential for economic development.” On October 25, 2017, General Secretary Xi Jinping said in a speech at the First Plenary Session of the Nineteenth Central Committee of the CPC: “In the new era, all comrades in the Party must adapt to socialism with Chinese characteristics in the new era, firmly grasp the overall goal of ‘perfecting and developing the socialism with Chinese characteristics system and continuing to modernize China’s system and capacity for governance’, coordinate and promote reforms in all fields and respects, continuously advance theoretical innovation, institutional innovation, technological innovation, cultural innovation, and other aspects of innovation, resolutely get rid of all inappropriate ideological concepts and institutional defects, break through the barriers of vested interests, secure a decisive victory in building a moderately prosperous society in all respects, and embark on a journey to fully build a modern socialist China.” To achieve development in multiple areas, the construction of a digital China, as an important content of theoretical innovation, institutional innovation, technological innovation, and cultural innovation, will provide an important foundation for the modernization of national governance capabilities.

1.3 Deepening the Reform of Party and Government Institutions is a Prerequisite to Modernizing the Governance Model in China Since 1982, the State Council has carried out a total of seven reforms. It has successively streamlined leadership at all levels, sped up the rejuvenation of the team, downplayed the government’s microeconomic management, separated the functions of government from those of enterprises, adjusted government agencies as a response to

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the WTO accession, and tried to establish larger government departments. Combined with the deepening of the government reform of Party and government institutions in 2018, the development path of the previous reforms of Party and government institutions is visible. It has always been centered on the transformation of government functions and supported the modernization of governance of China. Through the comparison of the important words related to “national governance” and “reform of Party and government institutions” in the original series of important speeches by Xi Jinping, which have nearly 100,000 words, the relationship between the two is visible. The original text of President Xi Jinping’s speech on “national governance” and “reform of Party and government institutions” involved 94 highly relevant keywords (Fig. 2), of which 23 keywords overlapped in these two types of text (Fig. 2(II)), which accounted for 51% of the keywords in the original speech on “national governance” (Fig. 2(I)) and 47% of the keywords in the original speech on “reform of Party and government institutions” (Fig. 2(III)). From the analysis of the text of the series of important speeches by Xi Jinping, the half of the text on the reform of Party and government institutions and the half of the text of national governance are consistent. In different content, we can see that the reform of Party and government institutions in 2018, as a key part of comprehensively deepening reform, is an important step to accelerate the modernization of national governance capabilities. The text about the reform of Party and government institutions involves profound changes in the power and interests of the whole Party as well as new content such as ecology and supervision. The inevitability of deepening the reform of Party and government institutions for national governance fully demonstrates that our Party is determined and wants to tackle difficult problems, focus on solving problems, highlight key areas, and build a system of modernized governance that meets the requirements of a new era of socialism with Chinese characteristics.

2 The “Digitalization” Process in Modernizing the Governance Model 1. “Digitalization” is the overall trend of current world development, and it is also the core content of China’s deepening reform of Party and government institutions and the construction of a digital China. Through the analysis of the original text of more than 38,000 words related to “digitalization” in the series of important speeches by Xi Jinping (Fig. 3), it can be seen that the country has a relatively obvious development layout for “digitization”: relying on the world’s Internet technology to promote technology and Internet innovation, strengthening digital security and cooperation, promoting economic development, cooperation in the Asia–Pacific region, and talent training, narrowing the gap in agriculture and education in China, relying on the “13th Five-Year Plan” to comprehensively deepen reform, and promoting the systematic

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Cooperation Development Field Politics and law Justice Reform That power Vitality together Fair Judicial Comprehensively deepening reform Cadre history Road learning

(I) (I) "State governance" Related keywords in the original text (Sample: 56,637 words)

The masses Policy Governance Political Deepen Socialism Maintain Spirit System Economic Democracy Culture People of the world Modern economy Central Leadership system Characteristic nation Open Strategy (II) (II) "National governance" and "institutional reform" Keywords in the original text that are commonly involved

Thought All New era Common cause Whole party Rural transformation Innovation Rule of law Revival Sound Within the party Education Unite Rule the country Ecological supervision Safety Market Implement

Construction function Chinese nation

(III) (III) "institutional reform" Related keywords in the original text (Sample: 43,192 words)

Fig. 2 Comparison of keywords in the original text of a series of important speeches by Xi Jinping related to “national governance” and “reform of Party and government institutions”. Note Based on R language calculation (weight > 85%), the font size in the figure is proportional to the weight of the text

and institutional establishment of a community with a shared future for mankind in the information revolution characterized by integration and win–win outcomes. 2. China is already a leader in the global digitalization process. Digitalization is the link of a world community of a shared future. China’s digital issues must be viewed based on the healthy and sustainable development of the global future. President Xi Jinping stated that building a community with a shared future for mankind is based on the rise of China, and it also demonstrates China’s (the world’s largest developing country) sense of responsibility and mission to maintain the healthy and sustainable development of the global future. As of December 2017, the number of Internet users in China reached 772 million, with an Internet penetration rate of 55.8% 0.753 million are mobile phone users, and the proportion of Internet users using mobile phones is still rising. In addition, according to the China Internet Network Information Center (CNNIC), as of June 2017, the total number of global artificial intelligence companies had reached 2542, and China was second only after the United States, with 592 companies which accounted for 23.3% of the total. At the same time, China’s 5G technology standard research and development leads the world; independent research and development technology of supercomputers has made breakthroughs, and China has ranked first in global supercomputing for four consecutive years and has led the world in terms of quantum communications and quantum computing. The above data shows that the digitalization process in China is important for global digital development. The big data formed by digitalization is a strategic resource involving the core national interests as well as a link connecting the global village. Compared with the exclusive attributes of traditional natural resources, big

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Humanity Common System Fusion Win-win outcomes Informatization Revolution Traditional 13th Five-Year Cadre Collaboration Policy Economic Drive Reform Public Space Power Economy Reform Powerful country Normal Employment Unite Agriculture Talent Internet users Economic Asia-Pacific Guarantee Results Structure Education Gap Interest Learn Financial New normal Market Increase Cooperative security Industry R&D Tolerance Produce Nurture Ecology Prosperity Protection Leadership Modernization Vigorous Industrialization Peace Open Urban and rural New technology International Technology The Internet History Innovation Economic Society Food Facility Culture Research Governance Innovation Urbanization Coordination Improve Technology Surroundings The Internet Precise Data The masses Pattern Investment Spirit World Shared The Internet Resources Technology Field Intercommunication The Internet Advantage Trading Safety Responsibility Comprehensively deepening reform Stable System Deep Road Change

Fig. 3 Relevance ranking calculation of keywords in a series of important speeches by Xi Jinping related to “digitalization” (Sample: 38,211 words). Note Based on R language calculation (weight > 70%), the font size in the figure is proportional to the weight of the text

data formed by digitization can enhance its own value when they are shared and connected. It can be seen from President Xi Jinping’s statements on a world community of a shared future (Fig. 4) of more than 38,000 words that his speeches focus on the development trend of the interconnected countries of the world and the shared future of the world. Following the trend of the times of peace, development, cooperation, and mutual benefit, China has drawn a blueprint for the future development of global digitalization. In recent years, President Xi Jinping has repeatedly expounded the important idea of building a community with a shared future for mankind on important occasions at home and abroad. The community with a shared future for mankind advocated by China is a collection of countries and nations with a shared future, interconnected interests, and interdependence. It deeply reveals the characteristics and laws of today’s international development. It is a pragmatic plan to establish equality and mutual understanding and partnership in the digital age, which offers Chinese wisdom and a Chinese approach to promoting world peace and development and to solving common problems faced by human society.

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Coordination Justice Political Equality Big country Community The way System Strategy Lead Change Green The masses Get rid of poverty Innovation World Development Tolerance Build together Climate Facility Developing countries Spirit People Nation Contradiction Organization Deepen Respect Built Latin america Prosperity Join hands Win-win outcomes Market Create Reform Increase Take charge of Governance Terrorism Peace Practice Economic globalization Global System Modernization Results Traditional Features Education Shared Humanity Financial Partnerships United nations Multilateral Maintain Open BRI Army Finishing the building of a Policy Guarantee moderately prosperous society in Philosophy all respects Democracy Pattern Asia Culture Well off Trading Economic Surroundings Theory Unity Leader Friendly Sibling Investment Fair Fate Rule of law Unite South China Sea Process Friend International Safety Responsibility Sovereignty History Revival Field Poor Contribution Ecology Consensus Asia-Pacific Victory Negotiate Both sides Stable Interest Thought Open Struggle Cooperation

Fig. 4 Keywords in the original text of a series of important speeches by Xi Jinping related to “a world community of a shared future” (Sample: 38,735 words). Note Based on R language calculation (weight > 75%), the font size in the figure is proportional to the weight of the text

3 Looking at the Deepening Reform of Party and Government Institutions from the Context of the Big Data Era Judging from the trend of Google term-frequency statistics, 2012 was an important turning point for mankind to enter the big data era. The search for the keywords “big data” on the Internet suddenly increased that year, forming a clear dividing line from 2011. On February 11 of the same year, the “New York Times” published a special feature “The Big Data Era”, pointing out that with the rapid development of the Internet and the rise of social networks and mobile Internet in the Web 2.0 era, the information data in the online world has exploded and begun to have a profound impact on all aspects of society. Up to now, big data is still one of the hotspots of continuous global attention. Especially in recent years, big data has triggered a leap

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in artificial intelligence technology. We are experiencing a social revolution triggered by big data, which has become a universal consensus of all countries in the world. As the main body facing the new social revolution, governments of various countries have carried out different degrees of exploration on how to modernize governance reforms. For China, fully seizing the opportunity of deepening the reform of Party and government institutions, thoroughly implementing the spirit of the series of important speeches by Xi Jinping, and accelerating the construction of digital China and the modernization of governance, the following things should be noted. 1. Promote supply-side reform in the digital industry, lead the “digital quality” revolution, and integrate people and the digital in an organic way. China has started to transform from the construction of big data resources to the supply-side reform in the digital industry of creating high-quality data products. In 2018, the Report of the Work of the Government made clear the need to implement big data actions, strengthen the research and development of new artificial intelligence, promote the “Internet+” in multiple fields involving people’s livelihoods such as medical care and old-age care, advance supply-side reform in the digital industry, and improve the quality of digital products. At the same time, the Report also proposed to improve the service of digital public products, improve the broadband coverage and speed in urban and rural areas, cancel the traffic “roaming fee”, and reduce the mobile network traffic fee by at least 30% within the year, so that the people and enterprises would benefit from it. The latest supply-side reform in the digital industry involved in the Report closely revolves around the digitalization of people. This is the key variable of “supply-side reform in the digital industry”. The digitization of people has made digital resources a new core strategic resource for competition among countries. This is also an important reason why China, as the country with the largest number of netizens in the world, can quickly rise and become a digital power. Therefore, we must fully recognize the “personal” attribute of the profound revolution of the big data era. The profound revolution in the era of big data is an all-round revolution related to people. The development of new information technology represented by big data technology enables the interaction between individuals and society to break through the constraints of space and time, promoting all-round improvement of people. There are three main respects. 1. The revolution of personal skills. Technological development brings about the rapid socio-economic development, and will transition human skills across the board. 2. The improvement of social individual skills underlies a profound revolution. A qualitative change in the cost and speed of information dissemination has been caused by revolution through the widespread dissemination of mobile networks. The large-scale information dissemination traditionally completed by the traditional main advantaged organizational system can now be easily completed by personal self-media, which has transformed dissemination by organization to dissemination which is organization. Dissemination which is organization, which refers to the realization of organizational functions in the process

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of dissemination, is the operational principle for the new distortion and asymmetric wars that appear in the profound revolution of the era of big data. 3. The cognitive revolution of humans. Due to the fact that the cognitive system of the society itself has to face more interactions than in any previous era, the enormous abundance of information and the convenience of transient communication in the era of big data will cause more individual or group uncertainty in the society based on the basic cognitive system. In the meantime, the state’s control over big data has been increasingly important in national sovereignty. The focus of competition between countries is shifting from the competition for capital, land, population, and energy to the competition for big data resources. Digital rights have become a new national competitive power after land rights, sea rights, and air rights. In the public domain, the integration of individuals and data has also accelerated the process of the modernization of governance in the country. With the transition from a traditional society to a digital society, the public has more channels and convenience to express themselves and to participate in public decision-making and expressing interest appeals. The increasingly extensive and in-depth supervision of government governance and the modernization of national governance promote each other. 2. Resolve the systemic risks of the modernization of governance, social equity issues, and government conflicts of interest. In 2017, the Law Schools Global League (LSGL) organized 24 law schools around the world and related scholars to conduct comparative studies on the latest situation of democracy and globalization in the digital age in the European Union, Brazil, Canada, the United States, Iceland, Belgium, and other regions and countries. According to the multi-country and regional digital development cases provided by LSGL, we found that China has to deal with three issues in its reform of Party and government institutions and the promotion of digital governance transformation. First, we must guard against systemic risks in governance modernization. One aspect is the randomness of the risk feedback mechanism. The new technological revolution and the development of the national governance system interact each other and are mutually reinforcing. In this process, the government mainly showed the characteristics of “responsive” development, that is, discovering new problems and then adjusting them. However, in the actual process, technological development, social development, and government development are difficult to be completely synchronized, and laws and regulations often conflict with each other. Especially when dealing with the rapid development of the Internet, if a specific actor does not see a clear connection between legal requirements and his cyberspace behavior, then the law is not binding on him, but the consequences and risks caused by his cyberspace behavior will be passed on to others in a random fashion. The other is the security and stability of digital government in the big data era. As a result of the new technology of the big data era, more and more functions of the government can

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be automatically replaced by machines, but the impact of exceptional events on the entire automated operation increases. “Black swan” events may even paralyze a large area of government functions. Second, the issue of social justice in the modernization of governance in the big data era. It mainly includes two respects. One is the issue of digital equality. In traditional society, the social welfare security system was required to maintain fairness. Similarly, there are huge differences in the digital capabilities of individuals. Is it necessary to design a digital welfare mechanism to guarantee the new equal rights of individuals in the big data era? This will be a brand new issue that governments need to consider. The second is how to ensure the justice of algorithms and procedures. The big data era is an era dominated by algorithms. How to ensure effective supervision of the government and the public sector’s management and execution procedures when machines become more and more intelligent? These issues are directly related to the deepening reform of Party and government institutions and the top-level design of the construction of a digital China, and determine the future direction of the modern development of China’s governance. At the same time, it is necessary to properly handle government conflicts of interest in the modernization of governance in the big data era. It is mainly reflected in three respects. One is the new challenge to the government power system. As discussed by Marxism, the new revolution is essentially a transfer of power, which will produce many problems, and it is also the most critical issue that governments of various countries face in the modernization of governance. The second is the new dispute resolution mechanism. To prevent social problems caused by the technological revolution from turning into a violent revolution, it is necessary to build an effective communication platform and channel for resolving new conflicts and disputes. The third is the integration of public digital systems. In the big data era, data itself has become the most important resource. How to integrate the new interest pattern based on digital resources to form a synergy of the modernization of governance directly affects the success or failure of the government’s modernization of governance reform. 3. Explore development strategies that suit the national conditions. The United States has adopted a path from the reform of the government to intervention in the development of big data society. Since 2012, the US federal government has carried out four reforms. In 2012, the Obama administration launched the “Big Data Research and Development Initiative”. The federal government began to develop the government’s public sector and big data, and proposed to use big data technology to transform traditional countries’ governance methods and governance system issues. In 2013, the US government began to focus on the deployment of data disclosure. In 2014, “Big Data and Privacy: A Technological Perspective” was released, focusing on data privacy and information security protection issues. In 2015, “Big Data and Differential Pricing” was released to intervene in the fairness issues of the big data market. In 2016, the “Big Data: A Report on Algorithmic Systems, Opportunity, and Civil Rights” was released, and the focus shifted to the social issues of the big data era.

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Following the pace of the United States, the UK focuses on the government’s promotion of the combination of big data and industry, and optimizes data-driven public decision-making. In 2013, the British government announced an investment of 189 million pounds to develop big data technology and strengthen data collection and analysis. At the same time, it integrates big data with agriculture and medicine. In 2015, it launched plans to expand the application of big data in 55 governmental data analysis projects. France focuses on the overall development of national digitalization. The French “Roadmap for the Digital Economy”, launched in 2013, focused on digitalization and proposed five high-tech technologies that would be strongly supported. Its focus was that digitalization can advance education reform and improve corporate competitiveness. Japan uses big data to transform its national governance system. In June 2013, Abe’s Cabinet announced the “Declaration of the Creation of a Country with CuttingEdge IT”, which aimed at fostering emerging industries and boosting economic development. South Korea has taken countermeasures before the United States, focusing on industrial cultivation. As early as 2011, the Korea Institute of Science and Technology officially proposed the “big data center strategy” and “Building an Integrated Emergency Management System in Korea”. According to the 2015 South Korean Data Industry White Paper issued by the National Information Society Agency, as of 2015, the data service market accounted for 47% of the total industry size in Korea, the biggest in the country. China focuses on balanced development and actual social needs. In 2011, the Ministry of Industry released China’s “Twelfth Five-Year Development Plan of the Internet of Things”, which laid out the national infrastructure system of the big data era that is about to enter the big data era from the perspective of the Internet of Things. After three years of accumulation, from 2014 to 2017, the concept of big data appeared in the “Report on the Work of the Government” for four consecutive years. After the catch-up strategy was proposed in 2014, the big data market was regulated in July 2015, and the “Internet+” campaign that was closely integrated with the general public and industry was launched. In August of the same year, it was proposed that big data technology be used to promote industrial innovation. Closely focusing on the actual needs of the public and making industrial development more balanced, in 2016, China began to make extensive and in-depth innovation in big data and integrate big data with other industries such as health care, education, agriculture, and fine industrial production. In 2017, the Political Bureau of the CPC Central Committee conducted two collective studies on the implementation of the national big data strategy. In the second intensive study, President Xi Jinping emphasized the need to support the innovation and development of the big data technology industry, build a digital economy, use big data to improve the level of the modernization of governance in the country, and use big data to protect and improve people’s livelihood.

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In general, China’s development strategy of the modernization of governance in the big data era is to closely focus on China’s current social conflict between unbalanced and inadequate development and the people’s ever-growing needs for a better life under the premise of fully considering international development trends.

4 Building Government Leadership Sustainably and Stably Governance reforms lacking sustained and stable leadership can hardly withstand the impact of the new technological revolution. From a governmental perspective, the public sector has undergone two important reforms of the modernization of governance in the past century. The first is the reform of government bureaucracy at the end of the nineteenth century and the beginning of the twentieth century. The theory of bureaucracy was first proposed by the German sociologist Max Webber, which laid the foundation for the management system of modern public organizations. The second is the new public management movement that emerged in the 1980s, which mainly introduced corporate management models in the public sector, decomposed large-scale departments on the organizational level, reduced management levels, and introduced corporate competition mechanisms in the use of personnel. Both reforms were caused by crises in government departments. Reform of government bureaucracy was closely related to the dramatic increase in production capacity during the industrial revolution and the strong demands of society to clarify the responsibilities of government organizations and improve the efficiency of government operations. Along with the reform of government bureaucracy, the working class began to rebel and strikes rose. The conflict between capitalists and the majority of workers intensified, and the test for the government’s governance capabilities became more and more severe. The country faced the imminent need to carry out self-reform, or it risked being revolutionized. The new public management revolution was closely related to the oil crisis that occurred in the 1970s. The economic downturn brought about by the oil crisis prompted the governments of Western countries to have more serious fiscal crises and forced the governments to reform themselves. Throughout the first two important processes of the modernization of governance, only a government that can maintain stable and continuous leadership and carry out self-reform in the face of social crises can truly grasp the trend of the times and lead the country to develop rapidly and become prosperous amid the interaction of the social revolution. Continuously carrying out self-reform is an important manifestation of sustained and stable government leadership. With government leadership, the continuous selfreform of government organizations can ensure that the government itself meets the needs of new productivity and production relations, thus avoiding the intensification of social conflicts caused by the new technological revolution and developing a

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stable society. “To have the courage to carry out self-reform and conduct strict selfgovernance: this is the most distinctive part of our Party’s character.” At the opening ceremony of a seminar on analyzing spirit at the 19th National Congress of the CPC, General Secretary Xi Jinping’s speech contained a strong sense of mission and a spirit of responsibility, which demonstrated the CPC Central Committee’s firm determination and foresight to implement strict Party self-governance.

Reference 1. People’s Daily Online. (2018). 习近平系列重要讲话数据库 [Database of series of important speeches by Xi Jinping], http://jhsjk.people.cn/, March 16.

Postscript

The year 2018 marked the 40th anniversary of the reform and opening-up, which witnessed China’s history from “gaining independence” to “become prosperous” and “becoming strong”. During the 40 years of reform and opening-up, great changes have taken place in the image of China, the people, and society. How to summarize history, analyze the present, and discover trends are big questions that need to be considered in this new historical position. The Chongyang Institute for Financial Studies at Renmin University of China itself is the product of reforms, and since its establishment, it has continuously reformed itself in order to serve the country and the era. Therefore, we have a personal understanding and sensitivity in terms of reform topics. Last year, our Solving the Ten Major Problems in China’s Economy was published by People’s Publishing House, covering economic growth, a rural vitalization strategy, regional development, innovation-driven, housing prices, people’s livelihood, supply-side reform, financial reform, environmental protection, and diplomacy, in order to elaborate on our “methodology for understanding China’s reform”. This year marks the 40th anniversary of the reform and opening-up, and we believe that we should go one step further and elaborate on “understanding the world view of reform in China”. Therefore, from the overall thinking of the world view as the starting point, we wrote the introduction of this book “China and the World in the Historical Dimension”. We also selected 10 respects—economic structure, financial development, enterprise reform, a rural vitalization strategy, ecological development, prosperity for all, global governance, the BRI, the opening-up pattern, and digital China—that can illustrate development trends, so as to analyze the results of reforms and try to discover the big trends in them. The outcome is this book. This book is edited by Professor Liu Wei, President of Renmin University of China, who also wrote the preface. In the process of research and writing, the research team of this book has also received vigorous guidance and support from many leaders and colleagues from the front line of reform. It is difficult to thank them all. I would like to express my gratitude to them collectively.

© People’s Publishing House 2023 W. Liu (ed.), China’s 40 Years of Reform, Understanding China, https://doi.org/10.1007/978-981-19-8505-8

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The members of the research group participating in the compilation of this book are: Wang Wen, Jia Jinjing, Chen Chenchen, Cao Mingdi, Bian Yongzu, Liu Ying, Cheng Cheng, Liu Yushu, Liu Dian, Yao Le, Guan Zhaoyu, and interns Zhai Zheng and He Quanlin. Wang Wen Executive Dean of the Chongyang Institute for Financial Studies at Renmin University of China September 2018