Under the new situation, China's economy is facing many internal and external challenges and needs to further explore the potential and space for economic development. How to view the current challenges? How to expand the space for economic development, stabilize employment and protect people's livelihood? Xinhua News Agency interviewed Cai Fang, vice president of the Chinese Academy of Social Sciences and academic member of CIDEG, in September 2020.

One Trend, Two Turns New Pattern to Address New Challenges

"Our economic growth rate was negative in the first quarter, but because we took the lead in controlling the epidemic, we have now entered a state of normality. As a result, our subsequent economic recovery was faster, and the economic growth rate turned positive in the second quarter, and the economy is expected to be positive for the whole year." So said Cai Fang at the beginning of the interview.

Cai Fang, a long-time researcher on China's economic issues, summarized the challenges facing the Chinese economy in terms of "one trend and two transitions".

"In general, globalization has entered a new phase, and the trend of counter-globalization has also been encountered." Cai Fang said that "long-term stagnation" in the international economy will become the norm, and "we cannot expect the world economy to rebound strongly in the short term, creating many opportunities for China, which is a huge change.

Domestically, China faces the challenge of aging. A turning point occurs in 2010, when the working population decreases, labor shortages and labor-intensive manufacturing industries gradually lose their advantages; another turning point is expected to occur in five to 10 years, when China's population will peak and enter negative growth. This could lead to demand-side changes, with consumer demand taking a hit.

Addressing the challenges requires a global strategy

In Cai Fang's view, the new development pattern, with the domestic general cycle as the mainstay and the dual domestic and international cycles promoting each other, is a development pattern that organically combines the domestic general cycle and external opening. "The new pattern of the double cycle is actually an expansion of our traditional comparative advantage, a fundamental starting point for us to deal with future challenges, and can create new development opportunities for China in the '14th Five-Year Plan' period." Cai Fang said.

He believes that the intent of the new pattern of double circulation is to focus on both the supply side and the demand side; to focus on the balance of external demand, investment demand and consumer demand, to focus on tapping the huge potential of consumer demand, to raise people's income levels, to improve income distribution and to increase redistribution.

Expand consumption to expand the advantages of re-creating economic development space

In the face of changes, how can China's economy "dance against the wind"? Cai Fang said, first of all, we should firmly grasp the comparative advantage of China's value chain and continue to open up to the outside world.

At the same time, China is a large country with development disparities between regions and great imbalances in resource endowments, so it is possible to create a domestic version of the "geese formation model," which allows industries to move from coastal areas to the central and western regions for a longer adjustment time to achieve industrial upgrading.

"China has a population of 1.4 billion, including 400 million middle-income earners, which is a huge market in itself and a potentially even larger consumer market in the future, a huge advantage that makes trading partners and investors give higher weight in decision-making." Cai Fang said that the 14th Five-Year Plan period should continue to improve income distribution and further reduce regional disparities, urban-rural disparities and disparities in residents' access to basic public services.

Cai Fang suggested that China's new urbanization has great potential for development and will have a huge impact on expanding consumption and economic growth. Cai Fang cites a series of data to illustrate the room for future urbanization in China: the average urbanization rate of upper middle-income countries is 66%, while the urbanization rate of China's resident population rose to 60.6% by the end of 2019. Compared with countries at the same stage of development, China's urbanization still has room for improvement by about 6 percentage points. In addition, there is still a gap of about 16 percentage points between the urbanization rate of China's household population and the urbanization rate of the resident population. "Whether in first-tier cities, second-tier cities, or in the nearly 3,000 county-level administrative units, there is huge room for the development of urbanization in China." Cai Fang said that now is the best time to promote the new type of urbanization, the core of which is to focus on people and let migrant workers settle in cities and towns.

Stabilizing employment and protecting people's livelihood Enhancing the relevance of employment policy measures

Employment is the biggest livelihood. Cai Fang said that China's economic recovery is accelerating and the annual employment target can be accomplished this year.

"Affected by the new crown pneumonia epidemic, some enterprises have not yet recovered. At this time, we should increase economic vitality, intensify entrepreneurship and continuously create new employment opportunities. We should continue to improve the business environment and enhance the relevance and precision of employment policy measures." Cai Fang said.

In the process of dealing with the impact of the epidemic, China has introduced excellent ways of financial support, such as 2 trillion yuan of new central fiscal funds going directly to the grassroots level in cities and counties and directly benefiting enterprises and people. Cai Fang said this practice should be normalized. Financial support funds should be directed to the most grassroots level, directly to enterprises, and directly to people, increasing subsidies and payments for low income insurance, social security, unemployment, etc., to keep household income stable and able to continue to consume. "Consumption is the key to business recovery, and the key to economic recovery."

If the key groups are stable, the general employment situation will be stable. Cai Fang said it is a great challenge and opportunity to further develop rural industries, including the agricultural products processing industry and other related industries, to help farmers create employment opportunities at their doorsteps and keep their incomes growing. In addition, efforts to alleviate poverty through employment should be increased, and poor laborers with special difficulties should be protected with social policies to support the bottom.

As for the employment of college graduates this year, Cai Fang said that under the influence of the epidemic, there will be three new consumption points of compensatory consumption, alternative consumption and induced consumption, which will provide new opportunities for college students to be employed. Localities should put employment support policies in place to improve their entrepreneurial and employment conditions.

Regarding the sudden occurrence of "black swan" events and possible "gray rhinoceros" events in economic and social development, Cai Fang believes that it is necessary to adhere to "bottom-line thinking" and be prepared for the occurrence of crises at any time. The government should be prepared for the occurrence of crises. "The better the prevention and control, the better the economic and social recovery."