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Wang Mengkui

China has entered a new development phase at the turn of the 21st century, which involves the transition from the realization of the second-step strategic goal to the third-step strategic deployment.*

Since social economic development is progressive and covers a long period in different phases, the start of a transition period is often not tangible. As a result, some people may fail to realize it when they have actually entered a new development phase. Through the development and changes in the past few years, it has now been widely realized that we have truly entered a new development phase and many problems have to be observed and dealt with from the perspective of the new phase.

The Chinese economy has maintained a robust growth momentum since the entry of the new phase. Meanwhile, some issues have collectively come to the surface such as the restrictions of resources and environment, the unevenness in development, and problems related to social transformation as well as new issues in the domestic system and external environment, whereas they did not emerge or occur as pressing issues to be addressed in the previous development phase when the goal was to meet the basic living necessities. Hence the following problems have cropped up: Is China's development sustainable? Will China be able to solve the numerous problems and contradictions in the process of industrialization and urbanization and to successfully realize modernization? The British "Financial Times" carried an article entitled "Chinese Economy: Robust in Trend, but Hard to Sustain" which represents the views of many people in the world, and similar doubts also exist domestically. This is an issue we need to study and answer.

I will illustrate my views on China's sustainable development in the new phase and raise some issues which need to be addressed and studied.

I. To alleviate stress on resources and environment by changing growth pattern and optimizing structure

The development of Chinese economy has been restricted by resources and environment. The international concern on China's sustainable development mainly focuses on the resource and environment issue.

China's resource consumption and pollutant discharge per unit GDP have been declining while economic benefits keep rising over the past 30 years since China's reform and opening-up. The causes of the current pressing resource and environment problem mainly include:

Firstly, the aggregate demand has expanded drastically. The industrialization and urbanization trend sweeps across the country, large-scale urban and rural construction has been staged, and the focus of consumption structure has shifted from clothing and foods to housing and traveling. Meanwhile, the economy's extensive growth pattern has resulted in an increasing shortage in resource supply. Although imports can alleviate the contradiction between domestic supply and demand, the global resource supply system mainly serves the developed countries and is largely controlled by multinational companies. As a new comer, China has been supplanted. As to water resource shortage, direct trade cannot solve the problem.

Secondly, the restrictions of the bearing capacity of the environment. With the expansion in economic scale and growth in total resource consumption, the pollutant discharge has also been on the rise. The environmental issue arising from the one hundred-year industrialization in the developed countries appeared in the fast economic expansion period in China. On the one hand, industrialization and urbanization need to be further propelled, which will result in the continued increase of total pollutant discharge; on the other hand, improving environment is indispensable for improving life quality in the new phase, which is as important as meeting the needs for clothing, food, housing and traveling. Here lie great conflicts. Many international treaties set stringent requirements on environment, as evidenced in the increasing new trade barriers in the form of green barrier and corporate social responsibilities. International restrictions on environment have become stricter, and environmental protection becomes a responsibility which is no longer a soft restraint, therefore economic growth at the cost of environment cannot be repeated.

Thirdly, the changes occurred in competitive edge. China's low cost advantage in land and labor has been declining. The rising speed of land price has exceeded GDP growth rate, the stage of extremely low land price and even free land has passed. The manufacturing industry still holds low cost advantage, but the difference is not as tangible as what is reflected by the gap in salary. Low salary is normally accompanied by low productivity. Urban specialized workers are in short supply, normal laborers in certain regions are also in short supply, resulting in the rising salary. The appreciation of RMB is also expected to lessen the comparative advantage of the cheap labor force. With the upcoming issue of population ageing, China's "population bonus" will gradually disappear. The shortage of migrant workers in some places may result from the relative improvement of economic benefits in rural areas, or be a structural problem, or even show a transition from the superfluous supply of labor to a relative shortage. This issue is of great significance for policy making and deserves further study. China's relative advantage in low land and labor cost will last for some time, but the gradual decrease of the advantage is inevitable, and we have to foster new competitive advantage.

The conflicts between economic growth and resources & environment will last for a long time, and the problem is especially severe in the fast expansion phase of industrialization and urbanization. This is the outcome of fast economic expansion, and also indicates that the economy has not well developed yet, and some cases are related to improper development. The resource and environment issue cannot be solved by halting the pace of development; rather, it has to be solved during the process of development. Resources and environment are not insurmountable obstacles for economic development. Some countries are even poorer in terms of resources, but the difficulty has not hold back their realization of industrialization and modernization. But some resource-rich countries are still in poverty nowadays. In the coming dozens of years, the strategic resources such as petroleum will be supplied sufficiently. The key lies in how we treat the problem.

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* Please refer to the report entitled "To Build a Well-off Society in China in an All-round Way: The Starting Point, Goal and Prospects" by Wang Mengkui for China Development Forum 2003.