Adaptation to Changes China Builds a New Development Paradigm

Li Hongjie Zhang Yuanzhao

Since 2020， impacted by multiple factors such as COVID-19 pandemic， great changes have happened to the global economic situation， resulting in increasing uncertainties and instabilities in the international environment. In order to cope with various unfavorable factors， risks and challenges and promote healthy， steady and sustainable economic and social development， it is necessary for China to accelerate the construction of a new development paradigm， achieve the integration of high quality supply and creating new demand， and give full play to scale effect and aggregation effect.

New Changes in Global Economic Situation

The COVID-19 pandemic of 2020 swept through the globe fast， making worse the already depressed world economy and adding uncertainties and instabilities to global economic prospects. With the rise of institutional arrangements for regional economic cooperation， the pattern of global industrial division of work has continuously undergone readjustment and reshaping， and especially digital economy based on digitalization， artificial intelligence and networking has become a new engine for global economic recovery and given new dynamics to global economic growth.

I. Increased Uncertainty in Global Economic Outlook

Since the COVID-19 outbreak， all kinds of underlying contractions have been increasingly underlined， international investment precipitating， unemployment and inflation in various countries being on the increase， resulting in slowdown of global economic recovery. According to the estimates of the International Monetary Fund （IMF）， the global economy grew by minus 3.3% on purchasing power parity （PPP）， a new post-war record of negative growth. When addressing the World Economic Forum Virtual Event of the Davos Agenda of 2021， President Xi Jinping observed that mankind “are going through the worst recession since the end of World War II. For the first time in history， the economies of all regions have been hit hard at the same time， with global industrial and supply chains clogged and trade and investment down in the doldrums. Despite the trillions of dollars in relief packages worldwide， global recovery is rather shaky and the outlook remains uncertain.” Affected by the above， Chinas decreased external demand and surplus production capacity intermingle， fluctuations of prices for raw materials and semi products exist alongside the countrys high dependency on the international market and in particular the United States， in the name of “reducing trade deficit”， vigorously pursues unilateralism and trade protectionism and attempts to shift its crisis by the dollar hegemony， adding new variables to global economic outlook and also bringing about negative effect on Chinas development.

II. Digital Economy Becomes a New Engine for Global Economic Recovery

As the Fourth Industrial Revolution approaches， a new generation of information technologies are on the upsurge， big data， quantum computing， artificial intelligence， the Internet and blockchain， digital platforms developing fast， total factor productivity remarkably increasing， and digital economy becoming the leading force in driving economic and social change and promoting global economic growth. Transcending space limit， digital economy has expanded economic activities throughout the globe， effectively lowering costs of acquiring information and traditional economic trading costs， and improving dynamic and efficiency of economic growth. By 2019， the size of the global digital economy reached US$31.8 trillion， taking up 41.5% of total GDP while proportionately industrial digitalization accounting for 84.3% of total digital economy. By the end of 2019， there were 74 digital platform enterprises across the globe， each boasting a market capitalization of more than US$10 billion， with a combined market capitalization of US$8.98 trillion between them. Particularly since 2020， with increasing impact and effect of the COVID-19 pandemic， more and more economic activities have moved online from offline， which continues to reshape value chain and supply chain of global manufacturing. Digital economy has become new kinetic energy that lead global economic recovery， playing an ever increasing role in leading global economic development.

III. Pattern of International Industrial Division of Work Continues to Be Readjusted

The COVID-19 outbreak has underscored the fragility of global industrial chain and supply chain， profoundly affecting multinational corporations and resulting in the fact that developed countries in the West attach more importance to the security of their value chains and supply chains， respectively organizing production domestically， in neighboring countries or in countries of close geopolitical relations， and pushing forward a new round of changes in the pattern of a new round of international division of work， in which they promote the switch to regionalization of industrial chains and value chains， thus turning globalization into “semi globalization”. Affected by intermingled slack world economic recovery and China-US trade frictions， it is universal for the developed countries to realize the danger of being detached from brick and mortar manufacturing and begin to re-examine the growth model of relying on virtual economy to make super profit， support and encourage the “coming home” of factor resources such as capital and technology， and advance economic restructuring， which gives rise to US switch from “deindustrialization” to “re-industrialization” and the European Union and Japan making policies of revitalizing manufacturing and improving international competitiveness of their industries. At the same time， Asian developing countries like Vietnam and India are active in receiving international transfers of industries and capital， promoting their own industrial transformation and upgrading， and striving to seek new advantage in a new pattern of international industrial division of work.

IV. Technological Innovation Impacts on Labor Market

The technological revolution this time around has bred new business models of industries， made change on traditional business models， and enhanced kinetic energy for economic growth， which also brings “double effect” to Chinas labor market. On the one hand， the development of artificial intelligence and extensive application of robots raise new requirements for input of human capital and improvement in “intelligence” whereas labor intensive and low skilled workers will be gradually replaced. According to statistics， among the existing working population in China， low skilled workers are quite sizable， and technological innovation will correspondingly reduce the number of workers and lead some of them to become jobless. On the other hand， extensive application of new technologies will in turn increase labor productivity， making people more likely to be engaged in formless production， services and trading on knowledge， data and information and creating demand for new positions of work. At present， the structure of Chinese population has undergone new changes， impacting on the labor market. To meet the needs of a new round of technological revolution and changes， it is necessary to continuously increase input in human capital and comprehensively improve quality of population as required by the new changes in economic and social development.

Chinas Strategic Choice in Face of New Changes in Global Economic Situation

To cope with the impact of COVID-19 outbreak and the new changes in global economic situation， China has persisted in the new development philosophy， promoted high quality development， and come up with a new development paradigm of dual-circulation that calls for taking domestic market for the mainstay， placing it in mutual promotion with international market， and aiming to reshape new advantage in international cooperation and competition through joint efforts in high quality co-construction of the Belt and Road.

I. Promoting High Quality Development with New Development Philosophy

As a whole， the new development philosophy aims at solving the problems of driving force for development， imbalance of development， and internal and external linkage of development so as to achieve harmonious coexistence between human and nature， and social equality and justice， which crystallizes the Communist Party of Chinas scientific understanding and command of the law governing the economic and social development， and stands for a profound change affecting the whole picture of Chinas development. As Socialism with Chinese Characteristics enters a new era， the principal contradiction of the Chinese society has turned to be the one between ever increasing aspirations of the people for a better life and imbalance and inadequacy in development. To persevere with the new development philosophy in promoting high quality development， it is necessary to implement innovation driven strategy， make up for the shortfalls and enhance development momentum; it is necessary to construct a green mode of production and life， and build and improve on a green， low-carbon， and recycling economic development system; it is necessary to focus on the construction of the Belt and Road in actively promoting the development of economic globalization; it is necessary to take the people first， and enable the people to increase their sense of fulfillment. Therefore， it is necessary to facilitate economic development to gradually switch from being factors driven to being innovation driven， from being pulled by investment to being pulled by consumption， from high speed growth to high quality growth. It is necessary to create new engines for high quality development， release new kinetic energy for high quality development， and further expand space for economic development.

II. Accelerating the Construction of a New Development Paradigm Featuring Dual-Circulation

As the fifth Plenum of the 19th CPC Central Committee pointed out， it is necessary to accelerate the construction of a new development paradigm that features domestic circulation as the mainstay with domestic circulation and international circulation promoting each other. Looking from the demand side， with a population of 1.4 billion， among which 400 million belong to mid income groups， China is the largest global market with the greatest potential. The people make new demands for high quality products， and the domestic demand market is gigantic， which in turn enhances the tenacity of economic development， enabling it to effectively meet the great challenges of the global economic recession; looking from the supply side， China boasts the most complete and the largest industrial system and supporting capacity of the globe， the number of patent applications growing fast， the innovation capacity continuing to improve， and its endogenous capacity for independent development being further enhanced. In order to actively construct the new development paradigm， it is necessary to unblock circulation of the national economy， to further bring into play the institutional advantage of concentrating national energy on major endeavors and that of a super large market， to accelerate construction of modern industrial system， and to make solid modernized industrial chain and supply chain. It is necessary to promote interactive and linkage development between domestic market and international market， achieve the unity of scale， speed， quality， structure， benefit and safety， giving play to scale advantage， and releasing aggregation effect so as to induce to increasing market demand and supply capacity and promote healthy， steady and sustainable economic and social development.

III. Promoting High Quality Belt and Road Construction

Since the beginning of reform and open-up policy， China has actively participated in regional economic cooperative organizations and quickened the pace to become part of economic globalization and regional integration. In 2013， President Xi Jinping put forward the Belt and Road Initiative （BRI）， calling for policy coordination， infrastructure connectivity， unimpeded trade， financial integration， and closer people to people ties. Being well-received by the international community， such a development vision has effectively improved the level of infrastructure in BRI countries and regions， reduced connection and trade costs and incidence of poverty， and become an effective means for regional peace and development and an important platform to achieve the UN Sustainable Development Goals of 2030. According to statistics， by the end of January 2021， China had signed 205 cooperative documents with 171 countries and international organizations for joint Belt and Road construction， which played an important role in tapping potentials of regional economic growth and promoting the integration of BRI countries into economic globalization with investment increase， demand expansion and employment growth. The latest studies of international institutions like the World Bank indicate that pushed by the BRI， at least 0.1 percentage point was added to the global economic growth rate. At the same time， the BRI has made outstanding contributions to supporting global fight against COVID-19 outbreak and restoring normal economic and social order， which underlines the necessity and importance of joint high quality BRI construction.

IV. Accelerating Construction of “Digital China”

The Central Economic Work Conference of 2020 pointed out that it is necessary to vigorously develop digital economy. The 4th Plenum of the 19th CPC Central Committee for the first time added data as one of the factors of production. The 5th Plenum of the 19th CPC Central Committee called for advancing reform in marketization of data factor and accelerating the development of digitalization. By the end of 2020， the number of Chinese netizens reached 989 million， popularization rate of the Internet going up to 70.4%. 718 thousand 5G base stations had been built. The number of active users on the Internet was 462 million， occupying the first place in the globe. The value of Chinese digital economy in total jumped to the second place in the world， the country occupying the 14th place in Global Innovation Index. The added value of core enterprises took up 7.8% in proportion to the GDP. Coming to the fore were a group of international Internet platforms such as Alibaba， JD.com， Meituan， Tencent and TikTok， which saw rapid growth in the number of active users and that of online E-Commerce platforms. According to statistics， the number of Internet platforms valuing at US$1 billion and above had increased to close to 200 from 67 between 2015 and 2019， their combined market capitalization rising from US$0.8 trillion to US$2.35 trillion. Between 2013 and 2020， the number of Internet companies entering Top 500 Chinese Enterprises had increased from 3 to 12， of which 8 were among the Worlds Top 500 Enterprises， an increase from 2.

Five Relationships China Needs to Handle Appropriately in Constructing a New Development Paradigm

China has effectively put the COVID-19 outbreak under control， rapidly restored economic development， and become a “leader” of global economic growth. However， some of the countries are still at the spike of COVID-19 pandemic， and there are quite a number of uncertain and unstable factors in the international development environment. Against this backdrop， China needs to focus on appropriately handling the following five relationships in constructing a new development paradigm.

I.The Relationship between Development Speed and Development Quality

As an indication system， GDP measures only the general output of a country and lacks adequate attention in issues like unemployment， green development and sustainable development. At present， the Chinese economy has switched to the stage of high quality development from that of high speed development， the principal contradiction of the society becoming that between the peoples aspirations for a better life and imbalanced and inadequate development， the theory of “GDP above all” being no longer fitting to the objective requirements of high quality development. Under the new situation， it is necessary to aim at high quality development， focusing more on comprehensive development indicators such as society， culture， environment and livelihood of the people， being closely centered on the sense of fulfillment， happiness and security of the people in rationally planning for speed and quality of economic development， coordinating regional economic development， and standing for the sharing of the results of economic and social development.

II. The Relationship between Domestic Market and International Market

To construct a new development paradigm of dual circulation is not to cut off the country from the outside world but to straighten out relations between domestic market and international market. The better domestic circulation develops， the higher the level of development becomes， the more able China will be to integrate with the global economy， and serve as an important driving force in propelling international circulation. In recent years， China has encountered new difficulties in using two markets and two kinds of resources， domestic and international， in face of the COVID-19 outbreak and intensified US suppression， but in spite of this， the trend of economic globalization remains unchanged. It is necessary to be in sync with pertinent international rules， accelerate the development of an open economy at higher levels， keep in mind both domestic and international imperatives， and facilitate the move from an opening up based on flows of goods and factors of production towards an institutional opening up. It is necessary to focus on the BRI construction， take an active part in economic globalization and regional economic integration， and encourage advantageous enterprises to “go global” and effectively embed themselves in global industrial chain and value chain. It is necessary to participate in economic globalization and regional integration with higher quality， by higher standard and of greater efficiency， improve international market competitiveness in opening up， and continue to develop and strengthen the country.

III. The Relationship between Government and Market

One of the most important relationships in a modern economic system is that between government and market， which provides important ground for government to make policy and is a focus of attention for scholars of economics. The key to high quality development rests in seeking the best converging point between government conduct and market function， which ensures both effective government intervention where market fails and avoidance of over intervention of government in market so as to allow market to play a decisive role in allocation of resources. In constructing a new development paradigm， it is necessary for China to set great store by the guiding role of government while actively giving play to the decisive role of market. On the one hand， it is necessary to actively improve and regulate market access system， establish a modern market featuring unified standard and orderly competition， continue to optimize doing business environment and promote optimal allocation of resources. On the other hand， it is necessary to accelerate improvement in basic economic system and macro control system， deepen reform on fiscal and taxation system and financial system， and promote organic combination between the “invisible hand” of market and the “visible hand” of government， aiming to make best use of the advantages， bypass the disadvantages and walk steady to reach the distance towards high quality development.

IV. The Relationship between State Owned Enterprises and Private Enterprises

On the relationship between state owned enterprises and private enterprises， a saying goes in Chinese economists that “the state advances while the private sector retreats”， that is， proportion wise the share of state owned enterprises in the Chinese economy becomes bigger and bigger whereas that of private enterprises becomes smaller and smaller. In fact， judging by total assets， profitability and employment， the private enterprises in China still occupies an important position in the Chinese economy. As indicated by relevant figures， at present Chinas private enterprises contribute more than 60% of GDP， provide 80% of jobs in urban areas while absorbing over 70% of transferred rural workers， and pay up more than half of the national revenue. Based on the law governing the development of market economy， Chinas state owned enterprises have gradually withdrawn from competitive areas to make room for more flexible and diversified private enterprises. Different in division of work， the state owned enterprises and the private enterprises are highly complimentary to one another， and it is necessary to coordinate the relationship between state owned enterprises and private enterprises to achieve high quality development.

V. The Relationship between Epidemic Prevention and Control and Economic Development

China has put the COVID-19 outbreak under effective control， economic and social development being restored fast. However， the country is still faced with a grim situation of epidemic prevention and control. At present， the pandemic is yet to be put under control in some of the countries in Europe and North America as well as India， economic depression and inflation rising in parallel， which constrains the in-depth development of division of labor and layout of global industrial chain and negatively affects global economic development. Against this background， it is necessary for China to set up and improve permanent epidemic control mechanism， coordinate the advancement of epidemic control and economic and social development closely centered on maintaining security of industrial chain and supply chain， enhance cross region cooperation， continue to keep unimpeded economic circulation， industrial circulation， market circulation and social circulation， and promote linkage and integrated development between domestic and international market. It is necessary to further stimulate economic vitality， accumulate dynamics of development， enhance economic tenacity， and continue to improve Chinas capacity of allocating resources globally， further expanding development space， and tapping potentials for economic growth.

Li Hongjie is Research Fellow and Vice-President of Fujian Academy of Social Sciences;

Zhang Yuanzhao is Associate Research Fellow of Institute of Economics， Fujian Academy of Social Sciences