The "Three Great Logics" for China's Economy to Maintain Long Term and Rapid Growth


The 19th National Congress of the Communist Party of China pointed out that the main contradiction in current Chinese society is the contradiction between the growing needs of the people for a better life and the unbalanced and insufficient development. From imbalanced and insufficient development to more balanced and sufficient development, it means that China's economic development still has considerable potential for a long period of time in the future. From the theoretical, historical, and practical logic of China's long-term economic growth, it can be seen that the Chinese economy has the basic conditions to maintain long-term and rapid growth. Theoretical logic: The prediction method for long-term growth trends should be viewed dialectically. Currently, a popular theory that criticizes the Chinese economy is that the potential growth rate of the Chinese economy has significantly decreased. Production functions are commonly used in economics to predict potential growth rates. The basic principle is that economic growth is the sum of the inputs of labor and capital, as well as the contributions of total factor productivity (representing comprehensive technological level and overall efficiency). Scholars have calculated using this method that China's potential growth rate is around 4% before 2025 and around 3% between 2025 and 2035. It should be pointed out that this method has strict limitations, namely assuming that the combination of production factors remains unchanged, technological conditions remain unchanged, and scale returns remain unchanged, and that various resource elements are fully utilized. However, in reality, predicting long-term potential growth rates should not overlook the subjective initiative of policy makers and production organizers. If the subjective initiative is played well, it can break through the limitations of these assumptions and achieve higher actual economic growth. This requires reform, opening up, and innovation to make the combination of production factors more efficient, empower productivity with technological progress, increase returns to scale, and thus improve total factor productivity. In this way, even if the total input of labor and capital factors remains unchanged or decreases, the long-term economic growth trend may still remain unchanged or even increase. Historical logic: Reform and opening up have a huge impact on long-term growth trends. From the perspective of China's economic development process, the institutional dividends brought about by reform and opening up have made a huge contribution to the improvement of total factor productivity. After studying China's total factor productivity over the past 40 years, experts have found that the rapid growth of total factor productivity often corresponds to huge institutional dividends. For example, the reform and opening up in 1978, the establishment of the goals of the socialist market economy system reform from 1992 to 1995, and the accession to the World Trade Organization in 2001 all greatly improved total factor productivity, bringing new impetus to China's economic growth. In fact, China's long-term high-speed growth, in addition to an increase in factor inputs, relied more crucially on the institutional dividends released by reform and opening up, as well as the transfer of labor from low productivity agricultural sectors to higher productivity industrial and service sectors (optimization of production factor combinations), which many scholars refer to as unleashing "structural potential". As a result, China's economic growth rate is significantly faster than that of other countries during the same period, with similar or even better conditions than ours. Many institutions still have high levels of long-term predictions for China's economic growth

Edit:Hou Wenzhe Responsible editor:WeiZe

Source:economic daily

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