刘志彪：Deepen Reforms to Break Through Blockages in the Dual Cycle

The key to the formation of a new pattern with a dominant domestic economic circulation and a China-overseas-dual-cycle economic circulation, lies in jump starting circulation, not focused on internal or external.  As long as there is healthy circulation, the national economy will move forward in a balanced and stable manner. As to whether resources and outputs are realized in the domestic market or in the international market, that is an independent choice made by enterprises in accordance with market principles.

One of the most important issues in Marx’s "Das Kapital" on the operation of the capitalist economy is the reproductive cycle of capital. Marx believes that the phase in the production process most prone to breakage or blockage is where commodity is transformed into money. Similarly, in the operations of a socialist market economy, if obstacles to market realization are not removed, many blockages will appear. The establishment of China’s dual-cycle model is directly related to the establishment of a new development pattern. Judging from practical experience, the key lies in addressing blockages related to the supply, demand, economic levers, and a unified market with the integration of these factors.
 

The Increase of Technological Innovation Breaks Through Supply Blockages
 

Increasing and improving technological innovation capabilities will help break through supply blockages. While China has one of the largest economies in the world and generates economic activity in almost every industry, the problem is that some core technologies are restricted and some key components, parts, and raw materials are dependent on imports, presenting bottlenecks in the supply. Products in this field ranging from scientific research equipment, precision machine tools, semiconductor processing equipment, aircraft engines, to things as small as ball-point pen cores, high-speed rail screws, electronic chips, and more, are mostly monopolized by enterprises in developed countries, posing a threat to China's industrial security. This is the biggest supply-side obstacle in the formation of a new development pattern of domestic and international dual-cycle development.

The key to breaking through the blockages in the supply of technological innovation capabilities requires improving the ecology of this field in order to stimulate innovation and creativity. First, there should be a focus on strengthening research in the long term. Many technical problems with "bottlenecks" are rooted in the inability of basic theoretical research to keep up. Research should promote curiosity and interest and it requires patience in the evaluation process. Generally, research primarily depends on government funding in addition to secondary funders from other channels of society. Second, there should be a focus on the cultivation of talent in this field. The fundamental source of enhancing technological innovation capability lies in the cultivation of innovative talents. China has a large team of scientific researchers and engineers, but why do we produce few original technologies? There are many reasons. The lack of soil fertilizing world class leadership in strategy, technology and innovation teams, is undoubtedly one of the important reasons. The key is to prioritize talent growth while acting in accordance with the law of scientific research activities. Third, there should be a focus on the needs of the market while optimizing a new national system of technological innovation.  Selection of what to prioritize should be market driven by practical issues related to economy, society, and people's livelihood, and must be demand-oriented and problem-oriented, such as agricultural seeds, industrial chips, and biomedicine. In optimizing the allocation of scientific and technological resources, it is also necessary to take the market as basis, activate the full potential of enterprises and promote the concentration of innovative elements in enterprises under the guidance of national industrial policies.
 

The Increase of Productivity Breaks Through Demand Blockages
 

Increasing productivity will break through demand blockages. The key to establishing a new dual-cycle pattern lies in improving domestic demand. Only with a strong domestic demand market can the world's supply center be transformed into the world's demand center, thus to bring the globalization game to home court, intertwine domestic and international market for a smooth circulation.  Although the overall scale of China's economy ranks among the best in the world, it still possesses a basic pattern of the economy of a developing country with a large population. In light of this, China's domestic market advantage is still latent. The most direct way to increase the level of domestic consumer demand is to increase the residents’ share of the national income. The most fundamental way to do so is to increase labor productivity at a rate faster than the increase in per capita wage. In order to ensure a solid and sustainable wage growth, the overall size of the wealth pie must get bigger. The growth of social wealth can only be achieved by increasing labor input or improving labor productivity or both. This can be done through technological progress, automation, an attention to employee engagement and wellbeing, and economic system improvement.  With a fast aging population, China needs to quickly shift from benefiting from a large population to benefiting from talent and technology. Investing in human capital and automation becomes crucial.  Meanwhile, the increase of government public expenditures may raise consumption, even with unchanged per capita income. The more public expenditures the government undertakes for residents on basic housing, medical care, education, and pensions, the more sense of security it will instill in residents, leading to less savings and more consumption.
 

Structural Adjustments Break Through System Blockages
 

Structural imbalance will greatly affect or even determine the formation and stable operation of the new dual-cycle development pattern. This is the main basis for adhering to the main line of supply-side structural reform. For example, from the perspective of the ownership structure, the current private economic development, foreign-funded enterprises and state-owned enterprises are not equal in terms of competition. Private and foreign-funded enterprises face many barriers so-called “glass door, spring door, revolving door, high-low door” to entry. If administrative barriers and policy discrimination against private enterprises are not eliminated by law, the most dynamic market entity in the Chinese market will not be able to play an active role in and contribute to the new dual-cycle pattern. From the perspective of the regional economic structure, in the past, the method of promoting reform and opening up and formulating policies in accordance with the region has led to a series of "depression effects", which have become the source of serious discriminations and imbalances among regions. We must put into effect a unified, competitive, open and orderly market. To form a new dual-cycle development pattern, the policies must be implemented in accordance with the principle of regional equity, and all differences in development conditions and policies between regions must be equalized. In a society where there is high income inequality, due to that the marginal propensity of high-income people to consume is very low and low-income people have no money to consume, even if the per capita income of this society is high, it will not achieve the effect of expanding domestic demand. Therefore, reducing the Gini coefficient and allowing middle-income groups to gradually form and have stronger consumption power would be most conducive to expanding domestic demand and would have additional social benefits. On the topic of unequal distribution, one point worth noting is the distribution of wealth between domestic residents and foreign investors. If foreign investments take up a larger part of the GDP, naturally domestic stakeholders will take less. This problem of unbalanced distribution generally exists in places that rely on the absorption of foreign capital to develop their economy, such as the southern Jiangsu area. The second point is the ratio of wealth between capital and labor. If the capital owner gets too much, the income and demand of laborers will be severely suppressed. Therefore, an economic system that does not allow laborers to share the benefits of development cannot go far. Currently, the main manifestations of the distributive imbalance affecting the dual-cycle are shown through: 1) the imbalance in the distribution of income and wealth among residents, enterprises and the government. If the government and enterprises take more from the total national income, the residents take less. This weakens the strategy of enriching the people and forming a dominant middle-income group. 2) the imbalance in the distribution of wealth between finance, real estate and the real economy. At present, the profitability of the real economy is weak, while the virtual economy is overwhelmed. The financial and real estate sectors hold a relatively strong position in the wealth distribution, which induces excessive investment of resources and factors into the virtual economy sector. This is the fundamental reason for the imbalance of China’s industrial structure.
 

The Increase of Internal Opening Breaks Through Blockages in Unified Market
 

In order to promote a new dual-cycle model to make China's market a part of the global market and assure the new round of economic globalization takes place in the home market, it is vital for China to open not only to the outside world, but to the domestic market.  A focus on internal opening will allow the external market and domestic market to be more cohesive and balanced.

In order to promote the development of opening-up, the current thinking of China’s opening-up strategy is facing a major change, that is, it must shift its emphasis on solely opening-up to the outside world to opening-up to the outside world as well as opening-up to the inside. The urgency and importance of opening-up to the domestic market is no less than opening-up to the outside world, and further opening-up to the inside has become the basis and prerequisite for an overall deepening of the opening-up strategy. In the past, we used opening-up to the outside to force internal reforms, which was a very smart strategic choice. For example, in order to adapt to WTO rules, we had to carry out a series of reforms to the corporate system, taxation system, foreign trade system, subsidy system, and compliance system, giving companies more free choices in the market and bridging Chinese policies and practices with international norms. However, it should also be noted that just opening the country to the outside will have limited impact on the old system. Many substantive matters will ultimately require internal motivation to promote change, such as market-oriented factor reform, especially the land and capital market allocation. This would involve major adjustments and a complete reorganization of power relations and interest relations. Structural reform requires lowering administrative barriers, lowering corporate taxes and fees, lowering subsidies to state-owned enterprises, and more. This all involves the reform of government functions and the redistribution of power in order to give a larger role to the decisive nature of market mechanisms in resource allocation. Without further internal opening-up, domestic market players, especially the private economy, will not be able to develop further.  Economic organizations, individuals, and social institutions lack room for growth, and market tools are underutilized, the market mechanism will not have a chance to gradually replace planning and administrative mechanisms in resource allocation.  It is necessary to emphasize that the dual-cycle model should be open to the inside, which means that it should be open to the citizens of the country.  It is necessary to give individuals and families the right to choose a series of economic affairs arranged by government agencies for the people, so that they can choose freely and have the opportunity for self-determination. From this perspective, internal opening means the removal of all industries and departments monopolized by administrative power, and an implementation of an easy entry and exit system.

翻译：吕枫