Economic growth is now the central task of the Communist Party of China.
That’s the message that came out of a recent meeting of the State Council’s Financial Stability and Development Committee (FSDC), which was presided over by Vice Premier Liu He, a member of the CPC politburo’s central committee.
At the meeting, it was pointed out that, under the current complex situation, it is crucial for the party to make development its top priority in governance, with economic development as the central task. The steps include deepening reform and opening up, sticking to the principles of market orientation and the rule of law, upholding the “two no irresolutions” principle (no irresolution about consolidating and developing the public sector and no irresolution about encouraging, supporting, and guiding non-public sector development) and taking concrete measures to protect property rights.
The meeting also addressed many of the concerns in the capital markets. Some saw this meeting as a heralding a government bailout, but this seems somewhat inaccurate. While the meeting did say that the government will “actively introduce market-friendly policies and remain cautious about introducing any measures that have contractionary effects” and that “all policies that have a significant impact on capital markets should be coordinated with financial management departments in advance to maintain the stability and consistency of policy expectations,” the essence of this meeting can be summed up by the three principles of market orientation, the rule of law and internationalization. Principles and directions for future development are more important than specific policies. It is necessary for governments at all levels to sort out old policies: anything that violates the three principles should be either abolished or reformed.
It is imperative to abide by the three principles. China’s national economic statistics — including industrial production, investment, consumption and exports — for the first two months of this year show that China’s economy has recovered better than expected. However, some analysts have pointed out that the data released is somewhat self-contradictory, and also inconsistent with other high-frequency data, especially in real estate. In addition, China’s economy, especially the service and manufacturing sectors, may not be doing as well as the data suggests due to the base effect caused by the Covid-19 pandemic.
Overall, domestically, China faces a number of difficulties and challenges that could dampen its economic growth. There are new pressures on growth, the most prominent being a contraction of demand, supply shocks and weakening expectations, not to mention the sporadic outbreaks of Covid-19. Internationally, the pandemic continues to ravage the world, while geopolitical crises, such as the Russia-Ukraine war, have dragged on. Coupled with the hikes in U.S. and EU interest rates, the world economy is slowing, with commodity prices soaring and stabilizing at high levels. All this has led to a more complex and uncertain global environment. Given these circumstances at home and abroad, China’s stock market has been on a rollercoaster ride.
When the meeting announced that China would continue to follow the three principles, it stabilized market expectations and restored the confidence of companies. However, for expectations to remain stable over the long-term, governments at all levels need to implement the decisions of the meeting by taking practical action and institutionalizing them. The FSDC also said that it would “strengthen coordination and communication, and hold relevant parties accountable if necessary.” We need a sound accountability system with strong implementation.
To follow the principle of market orientation, it is crucial to protect property rights while encouraging the spirit of entrepreneurship. This is an indispensable precondition for ensuring stable employment and investment. The meeting emphasized that government departments must shoulder their relevant responsibilities. It is well-known that property rights can be expressed as a “bundle of rights.” Contractionary policies could affect entrepreneurs’ expectations and dampen their confidence, which would not only harm the economy but would also be considered in breach of property rights. Policies that affect business operations and production must be rectified, while wrongfully convicted cases that have caused damage to entrepreneurs’ legitimate rights and interests must be corrected as soon as possible. In essence, adhering to the principle of market orientation means that China will continue to let the market play a decisive role in allocating resources.
Adhering to the principle of the rule of law is critical to clarifying the relationship between the government and the market and let the government play a more effective and appropriate role. The platform economy is a good case in point. Over the past few years, the Chinese government has battled the chaos and strengthened supervision over the internet industry. This is imperative to promoting the healthy development of the platform economy. However, the rectification work should abide by the law. All punishment must be grounded in the law. The meeting stated that the governance of the platform economy should abide by the principles of market orientation, the rule of law and internationalization. Supervision over platform economies should be carried out in a regulated, transparent and telegraphed fashion, and rectification work on major platform companies should be implemented as soon as possible. It also called for the setup of both “red lights” and “green lights” to promote the steady and healthy development of the platform economy and improve its international competitiveness. These statements are both incisive and realistic. The principle of the rule of law should run through the entire process of platform economic governance and we should avoid mistaking “red light” for “political correctness.”
Adhering to the principle of internationalization is a prerequisite for China to deepen its opening up. The meeting also said the Chinese and the U.S. regulatory bodies have maintained communication and made progress on regulating China concept stocks. The two sides are working on a concrete plan to cooperate. The Chinese government will continue to support companies that want to list overseas. This sends clear policy signals and clarifies many earlier misunderstandings.
Adhering to the principle of internationalization is not only decisive for economic growth but also for China’s future development. China, a permanent member of the U.N. Security Council and one of the largest beneficiaries of economic globalization, is responsible for actively contributing to the maintenance of the international political-economic order and fulfilling the responsibility of a major country. In President Xi Jinping’s recent call with U.S. President Joe Biden, at this crucial moment of the Russia-Ukraine war, it was made very clear that global order can only be achieved through united efforts. China should and can make a difference.
China’s remarkable achievements over the past 40 years are, to a large extent, the fruit borne by adhering to these three principles. In contrast, countries that have run counter to these principles and isolated themselves from the international community have suffered the consequences on multiple levels — politically, economically, in science and technology, and in foreign and military affairs. The experiences accumulated by different countries — both positive and negative — have taught us that China’s stance on the three principles is correct, as they help the country develop and promote the construction of “a community with a shared future for mankind.” Therefore, there is an urgent need to implement what was decided at the meeting. It is vital to maintain stability and consistency of policies, which helps stabilize entrepreneurs’ expectations and restore their confidence. Thus, they will no longer need repeated assurance in the future, and China’s economy will be on course for steady growth to ultimately achieve its long-term goals.
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