Ongoing Optimization of Economic Structure and Very Effective Coordination of Development

Ongoing Optimization of Economic Structure and Very Effective Coordination of Development 

—Series Report XI on the Economic and Social Development Achievements since the 18th CPC National Congress

Since the 18th CPC National Congress, all departments in all regions led by the CPC Central Committee with Comrade Xi Jinping at the core have insisted on pursuing progress while ensuring stability. We have faithfully applied the new development philosophy, so as to make progress in the supply-side structural reform, the economic restructuring and its transformation and upgrading, and the further opening-up. As a result of our efforts to promote high-quality development, new strides have been made in China's economic restructuring, especially the continued improvement of industry and demand structures. Also, the regional development patterns have been optimized and the income distribution structure has been adjusted. In short, China has seen a marked increase in the coherence and sustainability of its development. 

I. Constantly Optimized Industrial Structure, with Very Effective Transformation and Upgrading 

Since the 18th CPC National Congress, all departments in all regions have focused on building a modern economic system with supply-side structural reform as the major thrust. As a result, the industrial structure has been optimized, with a more entrenched primary industry, a further innovation-driven secondary industry, and a thriving tertiary industry in key areas. With the transformation and upgrading worked very well, China's economy was thus able to sustain its healthy development. The industrial structure was adjusted from 9.1:45.4:45.5 in 2012 to 7.3:39.4:53.3 in 2021. 

(I) Steady growth in the primary industry to reinforce basic food security 

Driven by Central Committee's policy support and related efforts involving agriculture, rural areas and farmers, the production arrangement of the primary industry has been optimized and, in particular, the value added has steadily increased, so that food security is well guaranteed. From 2013 to 2021, China's grain production remained stable with an average annual output of 660 million tons and a rich and abundant supply of agricultural products such as meat, eggs, milk, fruits, vegetables and tea. The AAGR of the value added of the primary industry was 4.0%, of which the AAGR of agriculture, forestry, animal husbandry and fishery were 4.3%, 5.6%, 2.6% and 3.5%, respectively. Great progress has been made in agricultural modernization with the comprehensive implementation of rural revitalization, the continuous reinforcement of rural infrastructure construction, and the continuous optimization of policies to support and benefit agriculture. From 2013 to 2021, there were a total of 7.13 million hectares of new irrigated arable land. According to information from relevant departments, in 2021, China's agricultural tech contributed more than 60% to the growth of total agricultural output [1], up 7.0 percentage points from 2012. 

(II) Faster transformation and upgrading in the secondary industry to deepen the driving role of innovation 

With the push of China's major strategic measures such as supply-side structural reform and innovation-driven development, the secondary industry has been transformed from high-speed growth to high-quality growth. In particular, equipment manufacturing and high-tech manufacturing has been rapidly evolving, becoming a new force in the secondary industry. From 2013 to 2021, the AAGR of value added of the secondary industry was 6.0%. High-tech manufacturing and equipment manufacturing industries above designated size grew at an average annual rate of 11.7% and 9.2% in terms of value added respectively, clearly higher than the 6.4% for manufacturing. Enterprises have become more and more capable in innovation. In 2020, electronic equipment manufacturing, including computers and communications, and pharmaceutical manufacturing accounted for 10.2% and 3.8% of the value added of the manufacturing industry, respectively, an increase of 2.3 and 1.1 percentage points over 2012. 

(III) Scale-up in the tertiary industry to lead a boom in emerging industries 

As reforms in the service sector have gone further, the quality of tertiary industry development has been improving. Both modern services and emerging services have been in a rapid rise, and it's worth mentioning the gradual rise of next-generation technologies such as information and communication, Internet and big data. From 2013 to 2021, the AAGR of the value added of the tertiary industry was 7.4%, 0.8 percentage points higher than the AAGR of the gross domestic product (GDP). The average annual contribution of the tertiary industry to China's economic growth was 55.6%, 16.4 percentage points higher than that of the secondary industry. In 2021, the value added of the tertiary industry accounted for 53.3% of GDP, an increase of 7.8 percentage points over 2012, placing it firmly as the first industry of the national economy. New technologies, new industries, new types and new models of business have been emerging, and the burgeoning service sector has accounted for a significantly larger share of GDP. In 2021, information transmission, software and information technology services accounted for 3.8% of GDP, while leasing and business services accounted for 3.1%, an increase of 1.6 and 1.1 percentage points respectively over 2012. The online retail sales of physical goods amounted to RMB 10,804.2 billion, accounting for 24.5% of the total retail sales of consumer goods, up 15.3 percentage points from 2014. As industrial integration has been in-depth, new growth points have emerged. From 2016 to 2021, the AAGR of operating income of strategic emerging services above designated size was 13.5%, significantly faster than the operating income growth rate of services above designated size. People's livelihood has been greatly improved. In particular, happiness industries such as tourism, culture, sports, health and elderly care have been developing as social efforts have been made in public services. In 2020, the values added of industries related to tourism, culture, and sports were RMB 4,062.8 billion, RMB 4,494.5 billion, and RMB 1,073.5 billion, respectively, accounting for 4.01%, 4.43%, and 1.06% of GDP. 

II. More Coordinated Demand Structure, with Consolidation of Domestic Demand as a Strategic Priority 

Since the 18th CPC National Congress, China has not only stepped up its strategy to expand domestic demand, but also given full play to the advantages of China's domestic mega-market and further opening up on all fronts. As a result, the structure of the three key demand components — final consumption expenditure, gross capital formation, and net exports of goods and services — has been increasingly optimized. The ratio of the three was adjusted from 51.1:46.2:2.7 in 2012 to 54.5:43.0:2.6 in 2021. The economic growth synergy has been significantly enhanced, providing effective backup to accelerate efforts to foster a new development pattern that is focused on the domestic economy and features positive interplay between domestic and international economic flows. 

(I) Steady growth in consumer demand, with further enhancement of its fundamental role 

By firmly holding the strategic priority of expanding domestic demand, China has seen the speed-up of fostering a complete domestic demand system, the orderly unleashing of consumption potential, and the faster upgrading of consumption structure, so that the fundamental role of consumption on economic growth has been reinforced. From 2013 to 2021, China saw an average consumption rate of 54.2%, up 3.1 percentage points from 2012. As one of the main drivers of China's economic growth, the average annual contribution of final consumption expenditure was 53.2%, and was above 50% in all years except 2020, which was affected by the COVID-19 pandemic, and was the main driver of China's economic growth. 

The CPC Central Committee, with Comrade Xi Jinping at its core, has always adhered to the people-centered development thinking, taking the improvement in people's lives and their well-being as key goals. Specifically, the government has been inclined to consumer spending on education, health care, social security, and other livelihoods. From 2013 to 2020, the share of social transfers in kind [2] in government final consumption expenditure was 36.9% on average per year, 2.6 percentage points higher than that in 2012. From 2013 to 2020, the share of actual final consumption of the population [3] in GDP was 43.9% on average per year due to the increase in social transfers in kind year by year, 3.1 percentage points higher than that in 2012. 

(II) Optimized investment structure, with its critical role continuing to play 

All departments in all regions have played the key role of investment in optimizing the supply structure, especially their active and sustained efforts to increase effective investment. The enhanced endogenous power for development has laid a solid foundation for positive response to the changes in the external environment and promotion of high-quality economic development. From 2013 to 2021, China saw an average investment rate of 43.7%, down 2.5 percentage points from 2012. The average annual contribution of gross capital formation to economic growth was 41.5%, down 0.6 percentage points from 2012. The investment structure has been optimized while the investment rate has been in a small decline, as a result of which the quality of development has been further improved. With a declining trend of residential gross capital formation as a share of total fixed capital formation from 2013 to 2021, residential investors were more rational. With a steady rise in IP product gross capital formation as a share of total fixed capital formation, the pace of innovation-driven development has been reinforced. 

(III) Stable and higher-quality foreign trade, with constant improvement in opening-up 

China has steadfastly enlarged its opening-up at a high level and intensified the reform of streamlining administration, delegating power, strengthening regulation, and improving services. Efforts to foster new competitive advantages in foreign trade have been speeding up, and the scale of foreign trade has continued to grow. The rising quality benefit has been a powerful driver of national economic growth, thus helping to build a new development pattern. From 2013 to 2021, the average annual contribution of net exports of goods and services to economic growth was 5.4%, up 2.9 percentage points from 2012. China's position as a major goods trading power has been secured, and the quality of trade has steadily improved. In 2021, the total import and export of China's trade in goods exceeded USD 6 trillion for the first time, a new scale high. China's exports of mechanical and electrical products amounted to RMB 12.83 trillion, accounting for 59% of the total export value, of which cell phones, automatic data processing equipment and parts thereof, and automobiles increased by 9.3%, 12.9% and 104.6% respectively over the previous year. The trade structure has been further optimized. Stable growth has been seen in knowledge-intensive services trade, with more balanced services trade development as a result. In 2021, China's knowledge-intensive services exports and imports amounted to RMB 2,325.89 billion, an increase of 14.4% over the previous year, of which the fast-growing businesses were exports of personal cultural and entertainment services, intellectual property royalties, and telecom computer and information services. 

III. Solid Progress in Regional Development Strategy, with Acceleration of New Regional Patterns 

Since the 18th CPC National Congress, all departments in all regions have faithfully implemented the major decisions and plans of the CPC Central Committee and the State Council on the coordinated regional development. Specifically, major regional strategies and coordinated development strategies have been in progress, effectively promoting a rational division of labor and the complementarity of advantages among regions, as well as a sounder mechanism for coordinated regional development. With the further accentuation of economic growth potential, a new pattern of regional development has thus been gradually established. 

(I) Increasing economic aggregates in all regions, with a gradual closing of development gaps 

With the coordination and promotion on regional development mechanism, the total amount of regional economy has been increasing and the regional economic development has taken a good trend. In terms of economic size, in 2021, the regional GDP of eastern, central, western and northeastern China were RMB 59.2 trillion, RMB 25.0 trillion, RMB 24.0 trillion and RMB 5.6 trillion, respectively. At constant prices, from 2013 to 2021, the GDP of eastern, central, western, and northeastern China grew by 7.0%, 7.5%, 7.7%, and 4.7% on average per year, respectively, with the central and western regions developing at a faster pace than the eastern regions. In terms of disposable income per capita, in 2021, the disposable income per capita in eastern, central, western and northeastern China were RMB 44,980, RMB 29,650, RMB 27,798 and RMB 30,518, respectively. The ratio of eastern to western China, or the highest earnings to the lowest, narrowed to 1.62:1 in 2021 from 1.70:1 in 2013. The gap between regions has been gradually reduced as a result of their virtuous interaction. 

(II) Continuously exerted regional competence, with further coordination of development 

The approach that eastern China stands out as a pioneer one step ahead has been highlighted. In 2021, the product in eastern China accounted for 52.1% of the national GDP, which, at constant prices, grew by 8.1% over the previous year, contributing 52.9% to the national economic growth. The rise of central China has been speeding up. The product in the six provinces of central China rose from 21.3% of the national GDP in 2012 to 22.0% in 2021, and its, at constant prices, growth rate of 8.7% in 2021 was 0.6 percentage points higher than the national GDP growth. This showed that the overall strength and competitiveness of central China has been further boosted. With further progress in the large-scale development of the western region, positive results have been achieved in the infrastructure and ecological environment. In particular, the construction of the New International Land-Sea Trade Corridor in the western region has been accelerated and the business environment has been improved to help sustain its rapid economic development. The per capita gross regional product in western China increased from RMB 29,195 in 2012 to RMB 62,596 in 2021, and subsequently, its gap with the eastern region narrowed from 1:1.87 to 1:1.67. New progress has been made in the revitalization of northeastern China. Northeastern China continued to make in-depth efforts in coordinating the transformation and development of resource-based areas, renovating old industrial cities, and building demonstration zones for industrial transformation and upgrading. The share of tertiary industry value added in the gross regional product rose from 40.1% in 2012 to 51.4% in 2021 as a result of further optimization of the industrial structure. 

(III) Solid progress in regional development strategy, with increasing regional potential 

The new potential for regional economic growth has become more evident with a series of major regional strategies that have been expedited to the implementation and the optimized allocation of resource space. Coordinated Development of the Beijing-Tianjin-Hebei Region has been pushed forward in an orderly manner. In 2021, the gross regional product in Beijing-Tianjin-Hebei Region hit RMB 9.6 trillion, with an average annual growth rate of 6.3% from 2013 to 2021 at constant prices. The Yangtze River Economic Belt has gained new results. In 2021, the gross regional product in the Yangtze River Economic Belt hit RMB 53.0 trillion, accounting for 46.6% of the national economic output, up 2.8 percentage points from 2012. The construction of the Guangdong-Hong Kong-Macao Greater Bay Area has been effectively promoted. Major infrastructure projects such as the Hong Kong-Zhuhai-Macao Bridge and the Hong Kong section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link were completed one after another. Capital, technology, talent, information and other elements have been integrated here at a faster pace, and new progress has been made in inter-city connection. The integrated development of the Yangtze River Delta has been a success. In 2021, the gross regional product in the Yangtze River Delta was RMB 27.6 trillion, accounting for 24.3% of the national economic output, up 0.8 percentage points from 2012. The ecological conservation and high-quality development in the Yellow River basin has been in continuous progress. The Yellow River protection has steadily moved forward and, in particular, major engineering projects have been implemented on pollution prevention and control, ecological protection and restoration, intensive water conservation and water control. In 2021, the proportion of the Yellow River water at or above Grade III in China's five-tier water quality system increased by 2.0 percentage points year-on-year to 81.9%, and that below Grade V, the lowest level, declined by 1.1 percentage points year-on-year to 3.8%. 

IV. Progressively Higher Income Shares of Household and Business Sector, with Continuous Improvement in Macro Income Distribution Pattern 

Since the 18th CPC National Congress, China has reformed its income distribution system. Specifically, measures have been taken such as substantial tax and fee cuts, steady increases in people's income, and improvements in corporate performance. With the introduction of relevant policies, China's macro income distribution pattern has been improving, specifically the shares of household and business sector in the gross national income (GNI) and the gross national disposable income (GNDI) have increased while the share of broader government sector has decreased [4]. 

(I) Steady growth in people's income, with an increasing share of household sector income 

The CPC Central Committee and the State Council have always adhered to the people-centered development thinking to further reform China's income distribution system. As a result, the people's income has grown steadily and the share of household sector in the primary distribution and redistribution of national income has been increasing. On the one hand, the share of the household sector in the primary distribution of GNI has steadily increased due to rising labor remuneration and the increasing sources of people's property income. In 2020, the gross household sector income in the primary distribution accounted for 62.0% of GNI, up 3.2 percentage points from 2012. Specifically, labor remuneration of the household sector income accounted for 52.7% of GNI, up 2.9 percentage points from 2012, and was the foremost driver to increase the share of the household sector in the primary distribution of GNI. On the other hand, the household sector disposable income has accounted for a greater proportion of GNDI with the constant improvement in the income redistribution adjustment mechanism especially measures such as personal income tax reform, expansion of social security system coverage, and increased funding for social assistance subsidies. In 2020, the share of gross household sector disposable income in GNDI was 62.2%, up 4.8 percentage points from 2012. 

(II) Gradually effective supply-side structural reform, with an increasing share of overall business sector income 

Since 2015, China has seen further progress in supply-side structural reform. Not only have positive results been achieved in cutting overcapacity, deleveraging, and reducing costs in enterprises, but the performance has continued to improve, leading to faster growth in corporate revenue. As a result, the share of business sector revenue in GNI and GNDI has gradually increased. In 2020, the gross business sector income in the primary distribution accounted for 26.9% of GNI, up 2.4 percentage points from 2015. the gross business sector disposable income accounted for 22.9% of GNDI, up 2.7 percentage points from 2015. 

(III) Very effective tax and fee reduction policies, with a declining share of broader government sector income 

The CPC Central Committee and the State Council have introduced tax and fee cutting policies in an orderly manner, introducing measures such as the full-scale promotion of pilot projects to replace business tax with value-added tax, the simplification and reduction of VAT rates, the personal income tax reform, and the elimination and regulation of administrative fees. From 2013 to 2021, China saw a total of RMB 8.8 trillion in new tax and fee cuts. With the implementation of a series of tax and fee cutting policies, the share of broader government sector income in GNI and GNDI has been reduced. In 2020, the gross broader government sector income in the primary distribution accounted for 11.1% of GNI, down 4.7 percentage points from 2012. the gross broader government sector disposable income accounted for 14.9% of GNDI, down 6.5 percentage points from 2012. 

In conclusion, since the 18th CPC National Congress, China has achieved constant optimization of the industrial, demand, regional and distribution structures. The continuous transformation and upgrading has given a strong impetus and vitality to the sustained and stable development of China's economy and society. However, we should take the fact that imbalances and inadequacies in the domestic development remain a prominent problem and the external environment is still volatile and grave. Grounding our efforts in the new development stage, we will be committed to applying the new development philosophy, creating a new development pattern that is focused on the domestic economy and features positive interplay between domestic and international economic flows. Also, we will take supply-side structural reform as the major thrust, giving strategic priority to the expansion of domestic demand and taking initiatives to facilitate smooth flows in the economy. By working together and forging ahead for high-quality economic development, we will do our best to secure new successes in building a modern socialist country in an all-round way. 

Note: 

[1] Data source: Official website of the Ministry of Agriculture and Rural Affairs. 

[2] Social transfers in kind are the personal component provided in the government's final consumption expenditure, which reflects the government's expenditure on people's livelihood. 

[3] Actual final consumption of the population = final consumption expenditure of the population + social transfers in kind. 

[4] The most recent data based on the System of National Accounts (SNA) are the macro income distribution data for the year 2020. The macro income distribution structure usually involves the distribution of gross national income (GNI) and gross national disposable income (GNDI) among the household sector, the business sector and the broader government sector. The household sector can often also be termed as people or population.