How will the Chinese economy pan out toward year end and early 2023 — that’s the foremost concern for many among the public. A few days ago, Premier Li Keqiang presided over a State Council executive meeting. In the meeting, he called for efforts to ensure full implementation of a package of policies and follow-up measures to stabilize the economy and consolidate the foundation of economic recovery. Experts and scholars have expressed their views on how to bring the economy back on a normal track. While their suggestions differ in emphasis, there is one important common ground — to deepen reform and open up wider. This is not only a valuable lesson China has learned from history, but it also aligns with the practical demands of today. China’s high-quality economic growth inevitably requires deepening reform and opening up. Jiang Zemin, who represents the core of the third-generation central government leadership of the Communist Party of China (CPC), passed away on Nov. 30, 2022. While mourning, people could not help looking back into the past and thinking about the present. They felt strongly that the reform and opening-up, which had sparked a surge in China’s economy, was still vital to expanding the economy in a stable manner.
The Chinese economy faces larger-than-expected downward pressure in 2022 due to various complex factors inside and outside China. Keeping the economy within a reasonable growth range has become a top priority. With the implementation of a package of policies and follow-up measures to stabilize the economy, China was able to reverse the downward trend which began in the second quarter. Its GDP grew by 3.9% in the third quarter. However, China’s economic recovery momentum faces the risk of stalling, and the foundation for recovery still needs to be consolidated. The economic index fell sharply in October compared to September 2022. Recent data, including the Purchasing Manager Index (PMI) for China’s manufacturing sector released by the National Bureau of Statistics, show that the economy faced greater downward pressure in November. It would be extremely difficult to achieve the country’s growth target this year. This slowdown has appeared for many reasons. In addition to all the deep-seated problems, the most direct cause is the large-scale outbreaks of Covid-19, coupled with unnecessarily incremental, drastic measures and one-size-fits-all approaches some localities use to control and contain the virus. Their inclination to close businesses, lock down communities and urge people to stay home has disrupted the normal functioning of society and dampened market expectations and confidence. The government’s stern Covid-19 controls have taken a toll on the Chinese economy.
It has been three years since the first outbreak of the coronavirus. As the omicron variant weakens, Covid-19 vaccine uptake increases, and with extensive experience gathered from years of battling the virus, China’s pandemic control strategies are facing a turning point. A few days ago, China released the “Notice on Further Optimizing Prevention and Control Measures to Scientifically and Accurately Limit Transmission of Covid-19 Virus” and many localities have taken steps to optimize the Covid-19 response. The top priority is to make the controlling practice more reasonable, precise and law-based. China should encourage local governments to optimize their prevention and control measures according to the local conditions, thus minimizing the negative impacts of the pandemic on the economy. Moreover, it is also imperative to ensure the full implementation of a package of policies and follow-up measures to stabilize the economy. The ultimate goal is to stabilize employment and prices, especially in high-risk industries such as real estate businesses where a soft landing is crucial.
However, the fundamental way for China to bring its economy back on a normal track is to stay committed to reform and opening-up. This is a fundamental principle that China has learned over the past four decades. Looking back at the history of China’s reform and opening up, it was not always smooth and easy. There were tougher times, but China weathered through safe and sound by deepening reform and opening wider. We will never forget the huge difficulties and pressures the country faced in the late 1980s and early 1990s. With Jiang at the core, the central government leadership of the CPC restarted the reform in 1992, establishing the goal of China’s economic reform and building the basic framework of a socialist market economy system in the 14th National Congress held that year. Holistic approaches to reform in various fields, including price, taxation, fiscal policy, finance, foreign trade and investment, were rolled out in the following years. By doing so, China’s economy turned the corner and laid institutional groundwork for rapid economic growth in the future. At the end of the 20th century, a large number of state-owned enterprises had fallen on hard times. The situation was compounded by the Asian financial crisis that started in 1997. Against this backdrop, the Chinese government spent three years reforming state-owned enterprises while opening up further to the outside world. In 2001, it was good news that China joined the WTO successfully. China’s economy since then has grown even more powerful. It was reform and opening-up that enabled China to achieve the national strength seen nowadays. Each generation has its own mission, and the torch of reform and opening-up must be passed on from one generation to the next.
Reform and opening-up should never end. It is not necessarily crisis driven. Instead, it should be a conscious choice made by governments at all levels. It has been 30 years since the 14th National Congress. The reform and opening up has yielded notable results; however, China continues to face deep-rooted, structural challenges in building a high-level standard socialist market economy. That thinking that “the reform is almost done” is absolutely unacceptable. The report to the 20th National Congress pledges continuous reform efforts to develop the socialist market economy and vows to open wider. It should be acknowledged that there is more to be done in economic system reforms, particularly in the reform of state-owned enterprises. There is also substantial room for improvement, in terms of the fundamental systems underpinning the market economy, such as the protection of property rights, market access, fair competition, and social credit. Room for improvement means China still has potential. The core issue of economic reform is how to deal with the relationship between market and government. In theory, this question can always be answered logically, but in practice, the “visible hand” of the government tends to touch on more than it should. The persistence of unnecessarily incremental, drastic measures and one-size-fits-all approaches in the fight against Covid-19 shows that the visible hand has become a source of power and is not effectively restrained.
To continue opening-up is also a strenuous task. The focus will be on steadily expanding institutional opening-up with regard to rules, regulations, governance and standards, protecting foreign investors’ rights and interests in accordance with law, and creating a market-oriented, law-based and internationalized business environment. It should be noted that, as time passes, the benchmark of opening up rises. At the beginning of its accession to the WTO, China’s scale of opening-up to the outside world was astonishing. But now, China needs to benchmark against the global best practices in the 21st century.
At the 13th Caixin Summit held last month, several former heads of the economic and financial government departments warned of how the three-year pandemic can damage medium to long-term economic growth and impair the growth mechanism. This just goes to show the urgent need to expand reform and open wider. China’s economy will not recover automatically due to the easing of some Covid restrictions. For the economy to revive, China needs to do a great deal of work and create a good environment for investment, business, consumption and public opinion. The new year is just around the corner. For China to shake off the shadow of the pandemic, steer its way on a normal track and achieve high-quality growth, reform and opening-up is a must-have. Such actions speak louder than words — we believe this would be a truly fitting tribute to the pioneering reformist of China’s reform and opening-up.
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