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Huang Qunhui: Promoting Common Prosperity in High-Quality Development

DATE: 2022-04-26

At the Fourth Annual Conference of Government and Economics, held virtually on April 26, 2022, Huang Qunhui gave a lecture on how coordinated regional development can contribute to common prosperity. What follows is a transcript of his lecture that has been translated from Chinese into English and lightly edited for clarity. Huang Qunhui is the Director of the Institute of Economics at the Chinese Academy of Social Sciences (CASS).

Thank you very much, Director Li, for the invitation to participate in the 4th Annual Conference of Government and Economics, and congratulations to Tsinghua University on its 111th anniversary.

I am glad to share a little bit of my research at this conference. Mayor Huang Qifan talked about the unified national market, which involves the issue of coordinated regional development. The topic of my speech is, “Economic Growth, Coordinated Development, and Common Prosperity.”

I want to speak on the theme of promoting common prosperity in high-quality development. This topic is rather large, so I mainly want to emphasize two main points. Last year, common prosperity was a very hot topic, and now we also remain quite attentive to it. Last year, we were more concerned with distribution and other aspects, or “how to cut the cake.” In fact, General Secretary Xi's speech also stressed that the key is to make the cake bigger and better. Therefore, focusing on economic growth is still an eternal theme of perseverance.

However, when we talk about common prosperity, we are not talking about development in the general sense, but emphasizing high-quality development, and the key point in high-quality development is coordinated development. Coordinated development encompasses the unified national market mentioned earlier, including urban-rural coordination, industrial coordination, and even the inclusive development of enterprises, all of which will push for common prosperity. So I will focus on these three keywords—economic growth, coordinated development, and common prosperity—and pick some key Chinese data to show that we still have to focus on economic growth at this stage to promote common prosperity, and furthermore, it is very important to promote coordinated development.

We know that common prosperity is an essential requirement of socialism and an important feature of Chinese modernization. We emphasize that we should make the cake bigger and better before cutting and sharing it, and this is a long-term historical process. In fact, in the 14th Five-Year Plan, we have already made a very good target plan, including the promotion of common prosperity by 2035 and achieving more obvious and substantial growth and effects. By 2050, we aim to have basically achieved common prosperity. In fact, the pace of common prosperity is a bit slower than the pace of building a great modern socialist country by 2050, but at that time we will have basically achieved common prosperity. So, the goals of our historical process have been very scientifically planned, contrary to what some incorrect voices speculated on the internet last year.

First of all, I think to make the cake bigger and better, the first step must be to ensure that in this new stage of development through 2050, we achieve the potential growth rate of our economy. With the economy’s existing labor force, technology, and capital conditions, we should be able to achieve this potential growth rate in order to make our cake bigger and better. We have done some projections, and in 2020 the growth rate may be about 6%, declining year by year, which is related to the law of economic modernization and industrialization. By 2050, there will be a potential growth rate of 3%. These past few years, our economic growth has faced a lot of shocks from the external environment, with the COVID-19 pandemic from 2020 until now. This resulted in only 2.3% growth in 2020. Because of the lower base in 2020, we had 8.1% growth in 2021, and the target for 2022 is set at 5.5%, which is basically the same as the potential growth rate we measured two years ago. Now due to the impact of the COVID-19 pandemic, coupled with the Russia-Ukraine conflict, we can see that this year's target has been greatly impacted again. However, if we look at the long-term goal of common prosperity, we must strive to maintain the realization of potential growth rates.

From the perspective of our planning to 2050, if we can ensure this potential growth rate during the 14th Five-Year Plan period—that is, a growth rate of about 5.5% throughout these five years—we will be able to achieve a very important breakthrough point at this stage—a milestone of economic growth—and will be able to successfully cross the middle-income trap. Last year's data reveals that we are already very close—the goal is to move into 12,500-12,600 USD per capita GDP, which would allow us to cross the threshold into a high-income country. It would indeed be a great miracle for a country of 1.4 billion people to move to a high-income per capita GDP. If we can still achieve the potential growth rate of roughly 4-5% from 2025 to 2035, we will be able to reach the level of medium-developed countries as mentioned in the 14th Five-Year Plan by 2035. That is, the GDP per capita will reach the level of medium-developed countries, which is over 20,000 USD. We estimate a range of 24,000-29,000 USD depending on exchange rates. Reaching the level of a medium-developed country is an important milestone on the road to realizing basic modernization.

Basic calculations show that around 2030, China will become the largest economy overall. If we continue to maintain a potential growth rate of 3-4% from 2035 to 2050, we can double the GDP per capita again. By about 2050, we should be able to approach the 50,000 USD per capita level. If this goal is achieved, the goal of becoming a modern socialist economic power will have been achieved. Of course, all the above projections do not take into account major events and shocks, including war conditions, because these are unpredictable. We only measure potential growth.

To achieve common prosperity, we must first have a goal to achieve this potential growth rate, so that our cake is big enough and good enough. This is step one. However, this does not mean that we should simply pursue GDP growth—more than that, we must pursue high-quality development. Of course, we generally believe high-quality development to be development that is in line with the new development concept, which encompasses innovative development, coordinated development, and development that is open, green, and shared. We generally view innovation and openness as the driving force of innovative development, while coordinated development is both a means and a goal. Through coordinated development, we can achieve economic growth to propel us toward common prosperity and our goal of sharing.

In terms of coordinated regional development, after reform and opening up, gaps in economic growth formed between the large eastern, northeastern, central, and western regions. However, over the years, these gaps have been narrowing. We calculated the difference of GDP per capita in each province (we call this the coefficient of variation), and the calculations demonstrate that the overall coefficient of variation has been decreasing over the years. However, the magnitude of decrease tended to be flat and relatively constant over the years, and there was not a significant decrease from 2000 through 2013.

Coordinated regional development does not just refer to GDP growth—GDP growth is but one factor. In fact, we have done a comprehensive index of coordinated regional development, including several major factors. On the one hand, it is related to economic living standards and people's lives, that is, GDP, consumption level, income level, and the urban-rural income gap. There is also a piece of basic public services that the government should pay attention to—the level of education and health care. Another factor we should emphasize is the degree of infrastructure access, especially tangible infrastructure. From the perspective of a unified national market, there will also be some intangible infrastructure. Then there is the comparative advantage of the regional economy, in addition to green low-carbon initiatives, which combined with other factors, makes a series of about 20 indicators. Infrastructure and the equalization of basic public services, as mentioned by Mayor Huang Qifan, are factors that local governments should pay attention to. There is also market integration—I actually prefer to use the phrase “market integration” rather than “unified market,” because the concept of integration also breaks down the protectionist barriers between regions. The results of our evaluation show that the index of coordinated regional development has shown rapid growth in the new era. Coordination has increased, especially in the five indicator areas. Infrastructure access, including the equalization of basic public services, has shown relatively fast growth over the past few years due to high engagement in infrastructure construction. Of course, there has also been significant progress in people's living standards, regional comparative advantage, and green low-carbon initiatives, but there are still differences among the five indicator areas.

These five aspects, from the perspective of regional coordination, are all requirements of common prosperity. The goal is to promote common prosperity not necessarily through averaging out different regions, but by creating a solid foundation. We emphasize here several aspects of this foundation, especially basic public services and infrastructure access, that are the most critical.

When we talk about coordinated regional development, there is also the most important issue of urban-rural coordination, because the income gap between urban and rural residents has been declining year by year since 2000. This is due to the guide of coordinated development, especially the new development concept. Even so, it can be seen that by 2020 the income gap between urban and rural areas was still 2.6 times, so the gap is still very large. The issue of urban-rural coordination is the key to regional coordination, and a key focus point for common prosperity.

Just now I mentioned two aspects of the problem of coordinated regional development. One aspect is the relatively large gap between the north and south, and the other aspect is the significant disparity within cities themselves. Since the new era, the regional economy has shown two relatively clear characteristics. One is the appearance of an increasing gap between north and south. The other is the role of city clusters as the poles of economic growth—they have developed very quickly.  

Since the new era, we have promoted the coordinated development of the Beijing-Tianjin-Hebei area, the integration of the Yangtze River Delta, the construction of the Guangdong-Hong Kong-Macao Bay Area, the Yangtze River Economic Belt, the Yellow River Basin, and Hainan to deepen reform and opening up. These six strategies, together with the 19 city clusters we mentioned, have formed the future pattern of coordinated development of China's economic regions, called the strategic pattern of “two horizontal and three vertical” urbanization. This pattern is a very good plan for future coordinated development in the new development pattern. From the perspective of common prosperity, coordinated regional development is not just about the coordination of GDP, or that regions with low GDP per capita must catch up with regions with high GDP per capita. On the one hand, the government's action is mainly reflected in the equalization of basic public services, including the accessibility and comparability of infrastructure. On the other hand, it is necessary to realize a unified market, integration and unification, and the ability of the population to move freely and orderly in the direction of marketization. The population carrying capacity and economic development potential of these 19 city clusters are very large—they need to attract more members of the mobile population. As populations move to these large cities, they will concentrate in urban clusters and metropolitan areas. Some places emphasize ecological security, energy security, and border security, and such main functional areas need to be separated. This kind of main functional area protects so-called future income, mainly through ecological compensation and financial transfer, including the adjustment of interests between regions and compensation to coordinate.

To promote common prosperity in coordinated regional development, the government should grasp factors such as public services and infrastructure, while at the same time allowing the integrated market to play a leading and decisive role in the allocation of resources. This makes the government’s role clear—to promote regional coordination while respecting the market and its decisive role in resource allocation.

Distribution is a key issue in coordinated regional development to promote common prosperity. We emphasize that in the process of distribution, the key is to gradually reduce the gap in income distribution to a reasonable range. Although the Gini coefficient of income distribution has been decreasing over the years (it was 0.462 in 2015, and now it is still at 0.468 or 0.465), the overall Gini coefficient is still relatively large.

When it comes to macro distribution, there are also some structural problems that are worthy of attention. One is that in initial distribution and disposable distribution, the proportion of residents' income has not increased over the years, but decreased. You can see that in 2000, the share of residents' income in the initial distribution could reach 67%, but now it is only 61%. Thus, it is actually decreasing, and the share of government and enterprises is increasing. Disposable income also fell from 67.5% to 62%. In some years, residents’ proportion fell, while in other years it was relatively stable. In general, the proportion has shown a declining trend since 2000.

There is also the proportion of labor compensation. In general, it has remained low over the years, especially compared with Germany and the United States of America, as we give priority to labor distribution, with other forms of distribution together, and all kinds of factors participating in the distribution of the factor structure. However, our labor compensation declined year by year from its high point of 52.7% in 2000. After 2018 or 2019 it recovered slightly, but still did not reach the high point of 52% again as it had in 2000. Our 50-51%, compared to Germany and the United States at 57-58%, is still several points lower. This shows the importance of our work in income distribution.  

When we talk about the Gini coefficient, we often focus on income distribution, but in fact the gap in property distribution is usually even greater. However, property is difficult to count, so data is more sparse. Now there is some data, like the wealth survey report,  which shows that in general, the urban per capita property value in 2015 was 200,000 RMB, while in 2018 it was nearly 300,000. In rural areas, this figure went from 60,000 RMB to 80,000 RMB, and the national average went from 140,000 RMB to 200,000 RMB. This upward trend rode the wave of wage increases in the process of upgrading, which is related to the rise of real estate prices. In 2002, the Gini coefficient of income was about 0.4, and at its highest, it was about 0.46—not a particularly large change. In contrast, the property gap has risen from 0.4 to more than 0.6—a large gap mostly due to the fundamental impact of real estate.

As Mayor Huang mentioned, the income gap between industries, especially moving away from the real economy in favor of the virtual economy, means that the real estate industry and the financial sector have many times the income of several major industries. This trend of disintegration has a very big impact on our economy, and we must make great efforts to solve this problem.

The gap between industries can be seen in the salaries of listed companies—the average salary of listed companies in the securities industry is nearly 600,000 RMB, while it is only 67,800 for a company like Long Ping Hi-Tech. In fact, the financial industry and real estate industry should often serve the manufacturing industry and the real economy. Over the last two days there has also been some news circulating on the internet that the People's Bank of China said that real estate is also part of the real economy. In fact, this is completely wrong. The construction industry is the only part of the real estate industry in accordance with real economy criteria, and real estate itself must be a financial derivative over to this sales link, so it cannot be classified as the real economy. In the 19th National Congress report, including the central documents on coordinated development, there is a very famous conclusion that we must promote the coordinated development of the real economy and the financial sector, and the real economy and the real estate industry. If the real estate industry is also classified as the real economy, then this sentence in the central document is wrong—we cannot say, “promote the coordinated development of the real economy and the real economy,” there is no such concept.

In fact, in 2013 there was a wave of soaring real estate prices. The financial and banking sectors repeatedly claimed that real estate is also the real economy, and as a result, a new wave of real estate prices rose. It is not conducive to coordinated development or high-quality development to distort these concepts.

The last point is inclusive development. When the income gap between enterprises is still relatively large, if it is based on efficiency and innovation rather than a monopoly, then it is not a problem. Even if the income gap is based on innovation and high-quality development, as a company, you still have to emphasize inclusive development and social responsibility. That is, enterprise development is not just to bolster shareholders’ returns, but the returns of stakeholders, including employees and all aspects of the community, such as environmental protection, production, customers (including upstream and downstream customers), consumer interests, and other aspects. No matter how much enterprises develop, they must pay attention to social responsibility, which encompasses inclusive development and coordinated development.

In fact, we have been doing this CSR evaluation for more than 10 years, and I think the rating of China's social responsibility is still rising in general based on this rating table. However, China still only scores between 50-60%, which is less than the passing level. In 2017 there was a high point, while in 2018 and 2019 it fell a bit lower. But as we emphasize coordinated development and common prosperity, enterprises should actually pursue their social responsibility. In fact, these are two orientations, two logics of business operation and corporate governance. One logic is the pursuit of profit maximization, and the other is the pursuit of maximizing stakeholders’ interests. In modern social development, the more the logic of maximizing stakeholders' interests is pursued, the bigger and better the enterprise becomes, and the enterprise will be an enterprise of sustainable and inclusive development.

These are my thoughts on promoting common prosperity and economic growth, especially the potential growth rate and coordinated regional development. I would like to invite all experts, teachers, and researchers to share their thoughts and criticism. Thank you!

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