Four Highlights of China's Economic Structural Adjustment

Since entering the "New Normal"，China's economic growth has reached a new phase. Thanks to Reform and Opening-up since the late 1970s，China’s productive potential has been continuously released and the economy grew rapidly for a sustained period. However，the economy faces both old challenges stemming from the relatively extensive growth mode in the early stage，as well as new challenges putting pressure on resources and environment，leading to downward pressures on the economy. The Central Economic Work Conference (CEWC) in December 2013 pointed out that China has to deal simultaneously with slower economic growth，difficult structural adjustments and the impacts of previous economic stimulus measures. In 2014，President Xi Jinping，when visiting Henan Province，mentioned for the first time the "New Normal"，stating that，"China’s economic development is still in an important window of strategic opportunity. We must boost our confidence，adapt to the New Normal based on the characteristics of the current phase of economic growth and stay cool-minded." During that period，China's economy was experiencing downward pressures on potential growth rate due to the weakness in the export sector. Later in 2015 and 2018，China’s potential growth rate dropped further. Furthermore，the outbreak of the COVID-19 pandemic accelerated global changes unseen in a century. The external environment China faces has become more complicated，more challenging，and with more uncertainties. The December 2021 CEWC addressed that China's economic development is facing triple pressures from demand contraction，supply shocks，and weakening expectations.

The supply-side structural reforms have laid a solid foundation for high-quality economic development. In order to adapt to and lead the "New Normal" of economic development，on November 10 2015，at the 11th meeting of the Central Leading Group for Financial and Economic Affairs (now known as the Central Financial and Economic Affairs Commission)，President Xi Jinping pointed out "We should strengthen the supply-side structural reforms while moderately expanding the total demand，hence improving the quality and efficiency of the supply system.” Deepening of the supply-side reforms has effectively minimized certain risks accumulated in the early stage of rapid economic growth，laying the foundation for future high-quality growth. First，it has gradually eliminated overcapacity. Ever since the launch of the supply-side structural reforms，the overcapacity in upstream industries has been continuously reduced. From 2016 to 2018，China has cut outdated production capacity of coal and steel by 150 million tons and 810 million tons respectively and eliminated 20 million kilowatts of outdated units of coal power. Secondly，it has improved the profitability of upstream and midstream firms. After the supply-side structural reforms in 2016-2017，the upstream and midstream industries that used to be dragged down by overcapacity saw a notable increase in profitability. For the period between January and July 2017，the total profit of the coal mining and washing industry increased by 13.7 times compared to the same period in the previous year，the metal smelting and rolling processing industry increased by 100%，and the non-ferrous metal smelting and rolling processing industry increased by 45.6%.

Under the emphasis of high-quality development，the quality of economic growth has significantly improved in recent years. The 19th National Congress of the Communist Party pointed out that China’s economy，which has been transitioning from a phase of rapid growth to a stage of high-quality development，is in a pivotal stage with growth model transition，economic structural improvements，and shifting of growth engines. Therefore，quality and efficiency must be prioritized. Also，changes in the quality，efficiency，and driving force of economic development should be implemented by strictly following the supply-side structural reforms. The December 2021 CEWC stated that the pursuit of high-quality development must adhere to the supply-side structural reforms as the main task. In recent years，there has been remarkable achievements regarding high-quality economic development. Firstly，innovation-driven developments have been reinforced. In 2021，R&D expenditure rose by 14.2% compared to 2020，and R&D’s ratio to GDP increased by 0.03 percentage points to 2.44%. In addition，the number of high-value invention patents per 10,000 people had reached 7.5 by the end of 2021. Secondly，productive efficiency has been improved. In 2021，the total profit of industrial firms above designated size increased by 34.3% year-on-year，with an average increase of 18.2% over two years. In 2021，the profit margin of the firms’ operating income was 6.81%，0.76 percentage points higher than that of the previous year. Thirdly，the level of green development has continued to rise. In 2021，the consumption of clean energy such as natural gas，hydropower，nuclear power，wind power，and solar power as a percentage of total consumption rose by 1.0 percentage points while that of coal consumption dropped by 0.8 percentage points compared to 2020.

Four Highlights of China's Economy under the New Round of Economic Structural Adjustment

In recent years，China’s economic structural transition entered a deepening phase due to the impacts of multiple internal and external factors. Externally，the US-China trade war and the COVID-19 pandemic have reshaped global supply chains，which may bring profound impacts to China's economy. Internally，under the principle that "houses are for living in not for speculation"，the contribution of the real estate sector to the economy may drop，placing downward pressure on economic growth. Nevertheless，the resilience of the Chinese economy and the promising long-term fundamentals remain unchanged. In the medium to long term，economic structure adjustments will strengthen firms’ profitability and resilience in certain industries，and enhance the foundations of economic development，supporting high-quality growth. In November 2021，Vice Premier of the State Council Liu He commented on People's Daily that high-quality development should be people-centered，innovation-driven，and ecological-first with enhanced macroeconomic stability. Also，h