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CF40 Seminar on Q2 2021 Macroeconomic Policy Report

At a time when China is about to become a high-income economy, its growth engines and the external environment are undergoing profound changes. Many factors, such as the transformation of the economic structure, the rapid aging of the population, the escalation of international competition, the COVID-19 pandemic and carbon reduction needs, will all exert influences on China's future growth. 

Against this background, CF40 held a seminar to discuss its Q2 2021 Macroeconomic Policy Reportwhich probes into the mid to long-term growth potential. The seminar kicked off with a keynote speech by Prof. Lu Ming, Distinguished Professor of Economics and Director of Shanghai Institute for National Economy at Shanghai Jiao Tong University. According to Lu, regional misallocation of economic resources is to blame for the decline of economic efficiency. Policy effort seeking balanced economic development of different regions actually goes against market-based resource allocation, leading to impaired efficiency and market distortion. To address the problem, he suggested China optimize regional allocation of production factors such as labor, capital and land resources so as to enhance production efficiency and accelerate economic growth.  

The second speech was given by Dr. Zhang Bin, CF40 Non-resident Senior Fellow and lead author of the quarterly report. Dr. Zhang first pointed out that economic growth in China has turned away from the high-speed growth in the previous decades since 2010, and the trend has continued as the economic structure undergoes transition. He then identified two contributing factors of the trend, i.e. the structural effect and the catch-up effect, and compared the trajectory of China’s growth to that of advanced economies at similar stages of development. 

According to him, at the early stage of economic development, shift of economic activities from agriculture to industrial and services sectors (the structural effect) and learning from more developed countries (the catch-up effect) could bring rapid growth of productivity. However, as income increases, both effects will weaken. When the per capita income exceeds 8000-9000 international dollar, the transfer of economic activities from agriculture to industrial and service sectors slows down, and economic activities begin to shift from the industrial sector to the service sector. During this process, even if the productivity growth of each sector remains the same, overall productivity growth will still decline. At the same time, the contribution of the catch-up effect will also dwindle. After the production capacity of agriculture, industry and construction peaks in developing countries, growth of productivity via physical capital accumulation and economy of scale will slow down. Though China’s productivity growth has been declining, the growth rates are similar to those of Japan, Korea, Taiwan and some European economies at comparable income levels.

In the last part, Dr Zhang talked about how to boost productivity. He believed productivity growth will have to shift from being driven by physical capital accumulation to being driven by knowledge and technology, and from standardised capital-goods industries to high-end agriculture and knowledge- and technology-intensive industries such as manufacturing, information technology, education and scientific research, medical care, financial services and business services. It is also essential to combine the experience of advanced economies with localized systems and policy design. 

Following the two speeches were comments from Mr. Yang Weimin, CF40 Advisor, Member of the Standing Committee of the 13th CPPCC and Deputy Director of the Committee for Economic Affairs of the National Committee of CPPCC, Mr. Liu Shijin, CF40 Advisor and Deputy Director, Economic Affairs Committee of CPPCC and Mr. Bai Chong’en, CF40 Academic Committee Member, and Dean of the School of Economics and Management, Tsinghua University. 

The seminar was moderated by Mr. Wang Haiming, CF40 Secretary-General.