Jiang Xiaojuan on high-standard opening-up, foreign trade and investment, & institutional opening-up
Jiang Xiaojuan on high-standard opening-up, foreign trade and investment, & institutional opening-up
The influential intellectual & ex-senior govt official's thoughts on the Central Economic Work Conference
The following is a speech by Jiang Xiaojuan at a forum organized by Caijing, the Chinese business media outlet, on Dec 17-18, 2022.
Jiang is a member of the 13th National People's Congress (NPC) Standing Committee, vice chairman of the Social Construction Committee of the 13th NPC, and president of the Chinese Public Administration Society. She was formerly a Deputy Secretary-General of the State Council, China’s government cabinet.
Jiang’s speech elaborated on her thoughts on the Central Economic Work Conference held on Dec 15-16, 2022. The annual CEWC is instrumental in setting the tone for Beijing’s economic plans for the next year.
Jiang highlighted that
China’s international environment, although challenging, contains more opportunities so China should make greater efforts to seize them.
Even in the face of so many natural and man-made challenges, globalization is still accelerating, and international trade and investment are still essential forces driving global economic growth.
A smooth and efficient domestic economic cycle requires the active and effective use of two resources (international and domestic) and two markets (international and domestic).
China is generally a resource-starved economy. For many years, China has emphasized reducing our dependence on imported resources. However, with high economic growth and the increasing demand from ordinary people, the imports of many resources, such as oil, keep growing. Many factors determine that imports and import dependence are still rising.
It is necessary to promote the smooth flow of the "dual circulation" development pattern through institutional opening-up.
Institutional opening-up was highlighted at the Central Economic Work Conference. What is it?
The most important feature is that it is transparent, stable, and predictable while allowing the market to play a greater role in cross-border resource allocation, which is vital to boost the confidence of market entities at home and abroad for their long-term development in the Chinese market.
In the context of the weak competitiveness of domestic industries and the imperfect market economy system, small steps of gradual opening up would not bring unexpected serious impacts on the domestic economy. However, constantly changing policies will inject instability into the long-term prediction of domestic and foreign investors and operators.
After 40 years of policy-based opening-up, China is now in a position to shift to a system-based opening-up where rules, regulations, and management standards are relatively stable and formed tools for institutional opening-up, characterized by a transparent, stable, and predictable opening-up system.
In a nutshell, and this is my summary instead of Jiang’s own words: higher-level opening up, facilitating foreign trade and investment, and the Communist Party of China’s so-called institutional opening-up is conditioned upon China’s interests and needs, which make the commitment more durable and more trustworthy than perhaps many inside and outside China have given credit for. - Zichen
Pekingnology, a sister newsletter also hosted by the Center for China and Globalization (CCG), at the time provided a full translation of the conference’s readout and some thoughts.
The Central Economic Work Conference [in December 2022] analyzed the current economic situation and made arrangements for [2023] next year's economic work. A key point highlighted at the Conference was the special emphasis on high-standard opening-up, better coordination of the "dual circulation" development pattern, elevation of quality and level of international circulation, support of exports, import of advanced technology, important equipment, and energy resources, attraction and utilization of foreign investment, and institutional opening-up.
We can see that the Conference communiqué is not long, but it includes many important, essential, and high-level requirements for opening up. In particular, special emphasis was given to foreign investment. Briefly speaking, foreign-invested enterprises should be treated equally when entering the market, enjoy a fairer competitive environment after entering, and be entitled to equal protection under the law.
In addition, the communiqué also highlights the need for the government to take the initiative to deepen domestic reform in certain areas against relevant rules, regulations, and standards. As we all know, our years of opening-up have supported growth, facilitated structural adjustment, and promoted technological progress. Furthermore, advancing reform by opening up has been a crucial experience in the past 40 years. Therefore, at this Central Economic Work Conference, the discussion of opening-up deserves high attention and can boost the confidence of the general public.
Around the Central Economic Work Conference, I would like to share three points with you.
Firstly, the international environment, although challenging, contains more opportunities that we should make greater efforts to seize them. Secondly, a smooth and efficient domestic economic cycle requires the active and effective use of two resources (international and domestic) and two markets (international and domestic). Thirdly, it is necessary to promote the smooth flow of the "dual circulation" development pattern through institutional opening-up. The key is to boost confidence, clarify requirements, see whether the international environment can bring new opportunities, and consider why Chinese modernization requires a high-level opening-up.
First, there are many challenges in the international environment, especially in recent years. There are naturally occurring challenges, such as the Covid-19 pandemic, which is bound to bring about production fluctuations, stalled transactions, and many other problems. There are also man-made challenges, such as unreasonable and unjustifiable moves by certain countries to international trade rules and governance. However, these challenges cannot shake the driving factors of economic globalization, which is based on an extensive and powerful fundamental driving force.
Even in the face of so many natural and man-made challenges, globalization is still accelerating, and international trade and investment are still essential forces driving global economic growth. Therefore, the more challenges we face, the greater effort we must make to seize the opportunities that still exist.
Opportunities still exist amidst the challenges. Although we see many problems at various points, international trade is still a critical force leading the recovery of the Chinese and global economies. According to data from the last three years, imports, exports, and especially foreign capital utilization have grown significantly faster than GDP growth and higher than the demands of two domestic consumers and demands brought by investment.
During the three-year pandemic, every economic indicator has suffered setbacks, but what has performed relatively well is the part of our economy linked to the external economy, that is, import, export, and foreign investment. Foreign trade and investment are still crucial forces that help support China’s economy during the pandemic and promote economic recovery after the pandemic.
International trade is a crucial element for driving economic growth, not only for China but also globally. International trade has been growing at a rate that is more than double the GDP growth rate. Even after adjusting for comparable data, with GDP growth adjusted for unchanged prices to current prices, the growth rate of international trade is 40 to 50 percent higher, with the U.S. being 40 percent higher. Therefore, international trade is an important force that is leading the economic recovery of both China and the world. While it is essential to recognize the challenges at certain points, it is equally important to identify the opportunities in the overall situation. This means that we should acknowledge the snags hindering development temporarily but also realize that the mainstream is still globalization, and it continues to make progress.
If people overlook the opportunities brought by globalization, they may stop their efforts, give up, or even go against the trend. However, it isn't necessary to do that. We must see that globalization is still moving inexorably forward, and we must take advantage of such an opportunity.
Several new forces are driving globalization, including digital technology. Despite many obstacles, globalization continues to move forward, and digital technology is one of the most important forces. The Central Economic Work Conference has emphasized the significance of the digital economy and has provided positive support for developing digital platforms.
The largest 100 digital multinational platforms have shown a much higher growth rate than the traditional global top 100 multinationals, which have only demonstrated very flat growth over the past three years. The growth rate of the largest 100 digital multinational platforms is accelerating, whether for the share of foreign sales, the share of foreign assets, or the overall corporate profit level and net profit margin.
The low cost of cross-border connectivity for digital technology has resulted in the platforms' ability to match a large number of parties, use digital intelligence to promote the smooth flow of the transportation of massive small items, and more. This has made digital technology suitable for long-distance transactions, with various transaction services available on digital platforms that make no difference to consumers, whether far away or close to home. During the pandemic, the development of digital technology support has grown more rapidly.
Let's examine the share of digital-driven services trade in services trade. Since 2012, this segment has steadily gained volume and maintained good growth momentum, even in the middle of the pandemic. By 2020, the share of digital-driven services trade in services trade has reached over 55%, with rapid growth continuing during the pandemic.
There are two major categories in trade in services. The first is the cross-border movement of people and goods, such as travel and transportation services, which have been hit hard during the pandemic. However, trades related to the digital space, outsourcing, software, and producer services have grown very fast.
It is well-known that the pandemic has dealt a blow to the industry chain, with the possibility of a sudden break on both the supply and demand sides. However, in the digital platform, the industrial Internet is very efficient in making up and matching the chains for enterprises online. In the most difficult time of the pandemic, [Chinese company] Haier's platform could make up the chain for more than 2,000 enterprises daily or seek to find new suppliers or new markets. This is the renovation and innovation of the industrial chains.
However, it is crucial to recognize that digital technology is still new, and many traditional industrial chains have been hit not only by the pandemic but also by the emergence of new chains. As the recovery occurs after the pandemic, it is essential to pay close attention to the restructuring and reorganization of the industry chain brought about by digital technology. Some impacts are inevitable, as the new combination of industry chains supported by digital technology will affect the original industry chain. It is important not to attribute all the problems to the pandemic and expect to restore the old industry chain. Much restructuring and reorganization are inevitable.
An example of this is Uniorange, a relatively small enterprise in Yantai, China, that has been trying to establish a digitalized platform for design, research, and development to bring together the most advanced design and R&D software from both domestic and international sources. This platform now encompasses 17 countries and 310,000 engineers and technicians, forming a professional R&D organization that receives orders, often from SMEs, for new product and process designs. Project managers know how to launch projects and assemble teams on the platform for each design task. Uniorange enables assembling the most suitable R&D organization and personnel for each task. It can even break down an R&D task into different parts, do them separately, and assemble them into a product. Uniorange turns R&D from a series process into a parallel process, forming a highly efficient and specialized team through subdivided R&D tasks.
With the support of digital technology, all the producer services that can be done in cyberspace will be transformed in this direction. In short, new technologies will promote the emergence of new industrial combinations, bringing about rapid and extensive impacts, restructuring, and reorganization. It is essential to see the bigger picture, be prepared, and fully understand the situation so as not to be passive when changes take place.
During the pandemic, when people are confined to their homes, how can long-distance after-sales service be carried out? Many of our products have been sold to faraway places. For example, SANY Group, a [Chinese] construction machinery company, whose equipment reaches 70 to 80 countries, would suffer significant losses once some of these machines break down and stop functioning. Therefore, business owners are very keen on possessing the ability to provide rapid after-sales service. Now that travel is hindered, the long-distance after-sales service platform plays an important role. Through the 5G network, field staff can connect with professional engineers and technicians who cannot reach the site to receive remote guidance on equipment repair and maintenance. This approach has rapidly evolved in the past two years of the pandemic. After the pandemic, some on-site services may be restored, and some of them will surely be replaced by more efficient and timely remote digital services that were developed during the pandemic. This is where the new form of globalization will take shape. We must give sufficient understanding and attention to the latter part.
Second, a smooth and efficient domestic circulation requires the active and effective use of two [domestic and international] resources and two [domestic and international] markets. At the Central Economic Work Conference, it was mentioned that we should continue to play the supporting role of exports for the economy and introduce advanced technology, advanced equipment, and energy resources. This statement generalizes that smooth and efficient domestic economic circulations still require using two resources and two markets.
The [report at the] 20th National Congress of the CPC proposed the Chinese path to modernization, and the first point mentioned in the report is to achieve modernization with a huge population, which brings both benefits and pressure. Large economies offer us many benefits, but resource and environmental constraints also cause pressure. We need a smooth external circulation to maximize our advantages and relieve the pressure.
China is generally a resource-starved economy. Twenty, thirty, and forty years ago, we were not under great pressure. When China's GDP accounted for 2%, 4%, and 6% of the world, we did not feel that we were short of land, fresh water, and oil and gas resources that take up 7%, 6%, and 3% of the world respectively because the economy was small at that time. However, as the total economy has increased, the shortage of natural resources has become relatively more pronounced.
Our GDP now accounts for 18 percent of global GDP, and our investment accounts for 25 percent of global investment. But the most important resources are the natural resources that can by no means grow with the economy. Our land, fresh water, natural gas, and oil cannot match the total size of our economy, the total amount of future investment, or the number required by the Chinese people’s wish for a good life. This constraint will exist until there is a fundamental change in energy technology. We need to improve the energy mix by using more clean coal technology for power generation, more wind, and solar energy, etc., but this will take a longer time. The mutual substitution of different energy sources also has boundaries and bottom lines; otherwise, the high cost may lead to low competitiveness. In a comprehensive view, many resource constraints will exist in the relatively long term.
For many years, we have emphasized reducing our dependence on imported resources. However, with high economic growth and the increasing demand for diversified energy sources for ordinary people, the imports of many resources, such as oil, keep growing. We have attached great importance to this problem, but many factors determine that imports and import dependence are still rising. We have been adjusting our energy mix, but in the long run, it would be unavoidable for us to import natural resources. In addition to energy, other natural resources, such as arable land, are also very tight. Arable land can be used to grow food and many other things. We are strained to meet our domestic demand for land with 7% of the world's arable land. So we still have to strive to import land- and freshwater-intensive commodities, food, and many resource-based products to ensure our productivity and improvement of living standards, as well as international competitiveness.
With the benefits unleashed by the “two hands” - the market and the government, the advantages brought by large-scale economies have led to the formation of some advantageous industries. However, these industries need to leverage capacity through the global market to realize the full potential of massive upfront investment. China accounts for 50% of the global production of electric vehicles and has increased its market share again in the first three quarters of this year [2022]. This is China's advantageous industry growing up on the new track. Now, EV exports are starting to ramp up, and we need the global market to expand our advantage.
China accounts for 78% of global PV module production and already exports a significant amount. Expanding an industry in which we already have an advantage requires a larger global market. Other foreign economies with which we compete are always on high alert for these new Chinese exports. Therefore, we often say China needs a free and fair global trade environment. The smooth and efficient flow of domestic circulation requires the optimal use of two resources and two markets.
Lastly, the institutional opening-up was highlighted in the Central Economic Work Conference. I have been studying the issue of opening-up for a long time, and people often ask, "What on earth does institutional opening-up mean?" The most important feature is that it is transparent, stable, and predictable while allowing the market to play a greater role in cross-border resource allocation, which is vital to boost the confidence of market entities at home and abroad for their long-term development in the Chinese market.
In the context of the weak competitiveness of domestic industries and the imperfect market economy system, small steps of gradual opening up would not bring unexpected serious impacts on the domestic economy. However, constantly changing policies will inject instability into the long-term prediction of domestic and foreign investors and operators.
After 40 years of policy-based opening-up, we are now in a position to shift to a system-based opening-up in terms of the competitiveness of domestic industries, the current understanding of international markets, and the improvement of the domestic market economy system. Rules, regulations, and management standards are relatively stable and formed tools for institutional opening-up, characterized by a transparent, stable, and predictable opening-up system. This is important to strengthen the confidence of domestic and foreign market players in the long-term development of the Chinese market.
Under the framework of institutional opening-up, various systems would be specified and made transparent, creating the conditions for the market to play a more important role in cross-border resource allocation. Regarding industries, policies related to exports, imports, foreign investment, and outward investment are increasingly becoming policy-neutral. This shift is an inevitable step for the country to enter a new stage of development. At the beginning of the opening-up period, the competitiveness of domestic industries was low, which led to a reluctance to liberalize imports. That’s why China incentivized exports while limiting imports.
However, at the current stage of development, it is equally important to reap the benefits of economies of scale and the division of labor through an expanded market brought about by exporting, as it is to upgrade the industrial technology level and competitiveness by introducing various resources through importing. The capital, technology, advanced products, and management experience brought about by the absorption of foreign investment are just as important as the investment income, export expansion, local production, and technology acquisition brought about by outward investment. Resource allocation determined by the market can enhance overall industrial efficiency and competitiveness, achieving high-quality dual circulation.
It is worth noting that the 20th National Congress report emphasized that China should provide new opportunities for the world with its new development. China has become a global power, with many indicators of traditional importance reaching 10%-20%, and many indicators of emerging importance reaching more than one-third.
Changes in China's imports reflect changes in the "international environment" of exporting countries. Similarly, changes in China's exports reflect changes in the "international environment" of importing countries. In other words, China shapes and contributes to the international environment rather than merely being a passive recipient. By creating a stable, transparent, and predictable opening environment that allows the market to play a greater role, China provides opportunities for the world. Utilizing institutional opening-up to demonstrate an unswerving belief in pushing forward trade liberalization and facilitation is a long-term plan. China's new development provides new opportunities for countries around the world.
That’s what I want to share with you today, and the key is to build up confidence. China has many favorable conditions for development, and the country's efforts are promising. There is no need to be pessimistic about the international environment since the original driving force of globalization still exists, and new driving forces are emerging. It is still possible to use dual circulation to promote high-quality development. The key is to identify opportunities, seize them, and innovate continuously with the momentum of great power. (Enditem)
Again, the full readout of the Central Economic Work Conference and some thoughts via Pekingnology
Pekingnology also published some of Jiang’s other writings, including
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