Ｅｃｏｎｏｍｉｃ�。疲幔悖澹欤椋妫鬫Facelift

　　Wu Jinglian, 74, is a respected Chinese economist. He has been a visiting professor at Yale University, MIT, Stanford University and Oxford University and is now a member of the Executive Committee (2005-08) of the International Economic Association. Wu’s outspoken viewpoint in 2001 that China’s stock markets are more ruthless than casinos created a big stir, but it also earned him widespread respect. At a recent forum held by the China Europe International Business School, Wu talked about why and how China should change the economic growth pattern. Excerpts follow:
　　A crucial priority of the 11th Five-Year Plan (2006-10) is to realize the transformation of the extensive growth pattern into an intensive one. China has tried to follow the steps of the former Soviet Union in its course of industrialization and modernization. This road of industrialization is characterized by an extensive growth pattern driven by heavy investment and resource consumption, and economic growth primarily sustained by heavy industry.
　　It was proposed in the Ninth Five-Year Plan (1996-2000) to transform the economic growth pattern. One of the pitfalls encountered in such a process is the overemphasis on industry, investment and consumption, while underestimating the importance of changing the growth pattern.
　　Systemic problems clogging the transformation have not yet been removed. The allocation of important economic resources is still kept in the hands of the government, and government performance is measured mainly by gross domestic product (GDP) growth. Meanwhile, the vulnerable market system still lags behind economic growth.
　　What we need to do first is to improve resource allocation and efficiency. China is rich in human resources but poor in natural resources. Its ecological environment is vulnerable. Under such conditions, focusing on heavy chemical industries, which are capital-intensive and destructive of the environment, is unhelpful in improving efficiency while producing great pressure on raw materials and fuel resources.
　　Statistics show that investment accounts for 10-20 percent of GDP in the United States, Germany, France and Japan, but 40-45 percent in China.
　　Meanwhile, employment problems have become more serious. The large rural surplus labor force and newly increased urban labor force need to find jobs in cities. But heavy industry, with an investment of 100 million yuan, can only provide 5,000 job opportunities, or one third of that of light industry. China’s elastic coefficient of employment dropped to 0.098 in the first four years of the 21st century from 0.453 in the 1980s and 0.11 in the 1990s. The investment-driven growth in recent years has worsened the employment situation.
　　As China provides the “sweat labor” for foreign enterprises by engaging in processing or assembly with low added value, it turns out that China has not received the largest share of the profit after consuming a great deal of nonrenewable resources, polluting the environment and taking the blame for “dumping” its products on world markets at “unfairly” low prices. Meanwhile, excess production capacity will result in sluggish sales and little improvement in living standards for the low-income classes despite the fast growth in production.
　　Investment efficiency keeps decreasing as returns diminish. Considering that excessive investment is mainly supported by credit from state-owned banks, ineffective investment will incur the accumulation of potential non-performing loans and spark a financial crisis in the banking industry. As the five-year transitional period for China’s entry into the WTO comes to an end at the close of 2006, Chinese enterprises need to be well prepared for fierce competition from their international counterparts.
　　According to the 11th Five-Year Plan, China will work to strengthen the capacity of independent innovation, develop the advanced manufacturing industry, promote the optimization of the industrial structure and accelerate the development of the tertiary sector, especially the production-oriented service industry.
　　So we must strengthen the development of the service sector, and support the service trade with high technology and added value in economically developed areas. The modern service trade is widespread, ranging from venture capital to investment banking. We should encourage and help manufacturing enterprises to extend to the upper and lower reaches of the value chain. Meanwhile, we should promote industrialization driven by information technology. The efficiency of all sectors and even the entire economy will be improved through information service.
　　It is necessary to relax control over the service trade, strengthen the protection of property rights and create a better environment for the development of the service trade.
　　In the coming decade, China will have more than 100 million surplus rural workers transferred from low-efficiency traditional agriculture to high-efficiency industry and commerce, and if the transfer is successful, China’s overall economic efficiency will keep increasing while the income gap will be bridged.
　　The crux of the growth pattern transformation lies in the shift of administration-centered resource allocation toward a market-based one. Resource allocation by administrative means and the administrative interference in enterprises’ business have not yet been removed. Reforms are progressing slowly in the financial system, which is the most important means of resource allocation in the modern market economy.
　　Despite the possible difficulties ahead, we cannot give up our efforts, and there is no way back.

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