China will need a plethora of reforms if it is to make a new economic strategy that relies mainly on domestic consumption work, advisers to the Chinese cabinet said on Tuesday.
President Xi Jinping has proposed a “dual circulation” strategy for the next phase of economic development in which China will rely predominantly on “domestic circulation”, to be supported by “international circulation”.
“To rely mainly on domestic circulation, we indeed face a very arduous task,” Yao Jingyuan, the former chief economist for the country’s National Bureau of Statistics, told a briefing.
“Fundamentally we must rely on reforms, and we need to deepen reforms.”
Lin Yifu, a second adviser to the cabinet, said China’s new economic strategy was not a short-term measure to cope with the COVID-19 pandemic or tension with the United States.
Both advisers said China needs to push market-based reforms to improve economic efficiency, encourage land and residency reforms to support urbanisation, and implement measures that would tackle the gap in incomes.
Xi’s new development model will be discussed at a meeting of the ruling Communist Party in October, where policies are expected to be built into the next five-year road-map for the economy.
While domestic consumer spending accounted for 55.4% of China’s GDP last year, it remains far lower than levels of 70-80% seen in developed economies. To get to more than 70% by 2035, China needs to boost consumption’s share of GDP by 1 percentage point annually, Yao said.
China has long sought to shift towards consumption-led growth from exports and investment. Last year, total exports and imports represented 32% of GDP, down from a peak of 64% in 2006, according to government data.
Yao also said that due to the new model, China’s foreign exchange reserves, the world’s largest, will see a slower pace of growth. A rising yuan could weaken China’s export competitiveness and spur imports, which could lead to more balanced trade over time, he added.
