Digital and Green competitive advantages

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By Liu Shijin

Reforms needed to promote the structural adjustment to drive China’s economic growth over the next decade China’s economic performance in the first half of the year was generally in line with expectations some economic indicators even exceeded expectations. The export industry recovered quickly after the novel coronavirus pandemic was essentially controlled and it realized positive growth in June. The competitiveness of China’s export sector has been highlighted by its resilience during the pandemic, and China has strengthened its position as a major exporter. But whether exports will come under pressure after the third quarter remains to be seen. At the same time, the recovery in demand has been slower than supply.
There are more institutions on the supply side and more individuals on the demand side. Compared with individuals, institutions are generally more susceptible to policy drivers.
In response to the pandemic, China’s fiscal and monetary policies have been appropriate, ensuring sufficient but not excessive liquidity. But in June, both the growth rates of social finance and the M2 money supply reached the highest levels in recent years, significantly widening the gap between them and GDP growth. The recent stock market rally has clearly not been supported by earnings, and there are signs of rising housing prices in some cities. From a monetary standpoint, it is difficult to withdraw the liquidity that has been released. We have to consider both the issue of debt repayment in the medium and long term, and how to deal with bubbles and the flow of capital in the near future. There are some areas where we do not want capital inflows, and must even take measures to prevent them, such as the housing market and the stock market, while there are other areas where we want money to flow in, such as the real economy, but policy expectations and human behavior are sometimes inconsistent, and that is the problem we have need to solve right now.
After the third quarter, although the pandemic may not have been eliminated, the economy will gradually return to the track of normal growth, and macro policies should be adjusted accordingly. For now, policy should not be tightened significantly, but we should consider how to prevent bubbles and unwanted capital flows.
If we divide the key features driving the Chinese economy under the impact of the pandemic into two halves, the first half can be characterized by macro-assistance and recovery of growth, and the second half by macro-policies and structural adjustment, which refers to the development potential of China, as a late-developing economy, in terms of technological progress, the upgrading of its industrial and consumption structures and its urbanization process.
The future development of urban circles and city clusters will serve as the driver, from which 70 to 80 percent of China’s economic growth potential over the next decade will come, as urban circles and city clusters can generate higher agglomeration effects, which is reflected in the dynamic of current population mobility.
Also, the digital economy and green development will have an impact on all sectors of society. Recently, the European Union, notably Germany and France, proposed “two pillars” of economic recovery-digital technology and green development. China, with its advanced concepts in this regard and considerable market scale, has every chance to form a new competitive advantage built on these two pillars, which will not only help it to catch up but also lead the transformation of development patterns around the world. Unleashing the potential of structural adjustment requires further reform. Apart from formulating macro policies, we also need to focus on key areas, boost market confidence and expectations, and introduce some major reform and opening-up measures.
First, we need to promote reform of spatial planning and public resource allocation, uphold the decisive role of the market in resource allocation, and be flexible on population mobility. The cities with the largest population inflows in recent years, such as Hangzhou in Zhejiang province and Shenzhen in Guangdong province, are good examples of market forces. Urbanization should be people-centered. Land allocation and financial subsidies should be in line with population flows. And urban planning should be regularly adjusted according to changes in the distribution of the population.
– The Daily Mail-China Daily news exchange item