The 19th National Congress of the Communist Party of my country pointed out that the main contradiction in our society is the contradiction between the people's growing needs for a better life and unbalanced and inadequate development.
From unbalanced and inadequate development to more balanced and adequate development, it means that China's economic development still has considerable potential for a long time to come.
General Secretary Xi Jinping emphasized at the 2023 Central Economic Work Conference that the basic trend of my country's economic recovery and long-term improvement has not changed.
Judging from the theoretical logic, historical logic and realistic logic of China's long-term economic growth, China's economy has the basic conditions to maintain long-term rapid growth.
Theoretical logic: Forecasting methods for long-term growth trends should be viewed dialectically
At present, there is a relatively popular theoretical logic that pessimizes China's economy, which is that the potential growth rate of China's economy has dropped significantly.
Production functions are commonly used in economics to predict potential growth rates.
The basic principle is that economic growth is the sum of the contributions of the two major factors of production, labor and capital, and total factor productivity (representing comprehensive technical level and overall efficiency).
Some scholars have calculated using this method that China's potential growth rate before 2025 is about 4%, and between 2025 and 2035 it is about 3%.
It should be pointed out that this method has strict qualifications, that is, it is assumed that the combination of production factors remains unchanged, technical conditions remain unchanged, returns to scale remain unchanged, and various resource factors are fully utilized.
But in reality, when predicting long-term potential growth rates, we should not ignore the subjective initiative of policymakers and production organizers. If the subjective initiative is used well, we can break through the limitations of these assumptions and achieve higher actual economic growth.
This requires making the combination of production factors more efficient, enabling technological progress to empower productivity, and increasing returns to scale through reform, opening up, and innovation, thereby improving 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
Judging from the history of China's economic development, the institutional dividends brought about by reform and opening up have made a huge contribution to the improvement of total factor productivity.
Some experts have studied China's total factor productivity over the past 40 years and found that rapid growth in total factor productivity often corresponds to huge institutional dividends.
For example, the reform and opening up in 1978, the establishment of the reform goal of the socialist market economic system from 1992 to 1995, and the accession to the World Trade Organization in 2001 have greatly improved total factor productivity and brought new momentum to China's economic growth. .
In fact, China's long-term rapid growth in the past, in addition to the increase in the number of factor inputs, more importantly relied on the institutional dividends released by reform and opening up, and the transfer of labor from the low-productivity agricultural sector to the higher-productivity industrial and service sectors. (Optimization of the combination of production factors), many scholars refer to it as releasing "structural potential".
Because of this, China's economic growth rate is significantly faster than that of countries with similar or even better conditions than ours during the same period.
Many institutions still highly agree with this point in their long-term forecasts for China's economic growth, believing that continued reform and opening up can avoid further slowdown in China's economic growth.
Realistic logic: China’s economic potential needs to be fully unleashed
In 2023, China's economy will grow by 5.2%, achieving the expected target, but there is still room for further improvement.
First, from the perspective of capital investment, the industrial capacity utilization rate in 2023 is 75.1%, which is lower than the normal level of about 80%, which means that a considerable part of the production capacity (early investment) is idle.
Second, from the perspective of labor input, the average urban surveyed unemployment rate in 2023 is 5.2%. Although it has dropped from the previous year, it is still at a relatively high level.
Obviously, the two major production factors of capital and labor have not been fully utilized, indicating that China's potential growth rate may significantly exceed 5%.
In addition, the current price increase in our country is significantly lower than the regulatory target of about 3%. Combined with the unemployment rate data, it also shows that the economic growth rate is indeed lower than the potential level.
At present, China's per capita GDP is only equivalent to 1/6 of the United States, while Germany, Japan and South Korea achieved an annual average of 8.6% (Germany from 1946 to 1962), 8.6% (Japan from 1956 to 1972) and South Korea respectively in similar stages. Economic growth of 8.1% (South Korea from 1985 to 2001).
Although this analogical inference has certain limitations, it can still be seen from horizontal comparison that China still has great potential for economic development.
In short, the long-term economic growth rate of a country cannot be "calculated" but "done."
As long as we adhere to reform, opening up, and innovation-driven development, we can break through the limitations of labor and capital factor inputs and continue to write a new chapter of relatively rapid economic growth in China by increasing total factor productivity.
Zhong Caiwen
(Economic Daily)