CIC Chairman: China Will Be Trapped In The Middle Income Trap In The Next 15 Years.

Over the past 15 years,

Future faces

We cannot simply extrapolate the trend of growth in the past 15 or 30 years to predict China's future growth.

The international experience of economic development shows that the pition from middle income to high income is more difficult than the pition from low income to middle income, that is, the so-called "middle income trap".

China falls into "

Even if China can successfully avoid the "middle-income trap", its potential economic growth rate will also decline in the future.

Due to the implementation of the family planning policy, China began its demographic pformation at an early stage.

Since the mid 70s of last century, the proportion of working age population has increased, and the rate of child dependency has decreased, which has led to the supply of labor force and the increase of savings rate. Population pformation has brought "demographic dividend" to economic growth.

China's high economic growth in the past is a reflection of this "demographic dividend".

Over the past 30 years, China has experienced two major stages of decline in child rearing rates, namely, in the early 80s and from 2001 to 2008.

The decline of child dependency rate in the latter cycle is an important reason for China's rapid economic growth since 2003 and maintaining a high surplus.

"Demographic dividend" came early and went too early.

According to the UN forecast, the child dependency rate in China will cease to decline after 2010, and the rate of elderly dependency will begin to increase significantly. The total dependency rate will begin to rise after reaching the lowest point in 2013.

The working age population will enter zero growth and decline after 2015.

The pformation of the development stage, coupled with demographic factors, indicates that the potential growth rate of China's economy will fall from the current 10% to 7% to 8% or lower in the next three or four years.

In fact, if China's per capita GDP keeps 6% growth in the future, it will be able to enter the ranks of high-income and modernized countries in the next 20 years.

The key lies in the sustainability of growth.

Urbanization and innovation will be the main driving force for the sustained and growth of China's economy in the future.

The pfer of rural labor force to modern manufacturing and service sectors brought about by urbanization will lead to the decline of effective labor supply in China because of the decline in total labor force.

The development of urbanization will improve the production and living conditions of nearly 200 million of the current migrant workers, integrate them into the mainstream of urban life, and have the will and ability to invest in the next generation of human capital, so as to enhance the stamina of China's long-term economic growth.

However, in recent years, the urbanization promoted by various parts of China is more of the expansion of urban boundaries.

A part of the rural population is urbanized because their residence is classified as a town, and their life style has not changed, that is, "urbanization of the land" instead of "urbanization of peasants".

While the overall level of urbanization is low, there are still some problems in the structure of urban development.

First of all, a large number of prefecture level cities are small and difficult to play an effective agglomeration role. They can not absorb employment on a large scale, nor can they make more efficient use of land resources and various public services.

Secondly, partly because of the fragmentation of administrative divisions, the specialization and division of labor of cities are not enough, and the cooperation and connection between cities are weak.

Undoubtedly, China needs to accelerate the process of urbanization and make urbanization more efficient and inclusive.

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With China's entry into the middle-income society, the expansion of the domestic market will become the main driving force for economic growth in the future. Naturally, more local enterprises need to create new products, new services and new business weaving methods that serve the Chinese market and adapt to China's national conditions through innovation.

Innovation is a high-risk investment. It needs an effective financial market to share these risks.

Small and medium-sized enterprises are often the main body of innovation. In China, the financing difficulty of SMEs is a problem which has not been solved effectively for a long time.

China needs to develop similar rural banks and community banks similar to foreign countries. They are exposed to the situation of SMEs, and due diligence costs are low, which can provide basic financing for SMEs.

Because of the small size of these financial institutions, the state needs help to provide support for liquidation and refinancing.

Venture capital is a catalyst and incubator for innovative enterprises and major innovation activities. Its development needs a developed and effective stock market to ensure that it can withdraw and achieve profits.

Innovation is often provided by newly entered enterprises rather than by existing enterprises.

Therefore, the realization of innovation requires a good competitive environment to ensure the free entry and exit of enterprises.

There are many administrative monopoly and control barriers in some basic upstream industries and service sectors in China.

In addition, there are also some regional entry barriers for different ownership.

To build an innovative country, we need to formulate a comprehensive national competition policy framework to ensure the innovation and entrepreneurship potential and ensure the long-term vitality of the whole economy.

In terms of monetary policy, China needs to have a clear understanding of the potential growth level.

In this regard, Japan and South Korea have provided important lessons.

Japan and South Korea are trying to maintain growth through expansionary monetary and fiscal policies when their economic growth potential has slowed sharply.

However, economic growth can not deviate from its potential for a long time. High growth maintained by policy stimulus is often driven by financial or economic crisis.

The golden age of economic growth in Japan and South Korea was ended by the first oil crisis in 1973 and the outbreak of the Asian financial crisis in 1997.

When the potential growth rate of China's economy declines, policymakers also need to adjust their understanding of the appropriate growth rate and the level of interest rates.

In terms of fiscal policy, we should further deepen the reform of tax system and financial management system.

Personal income tax should be pferred from taxonomy to comprehensive tax system instead of progressive taxation on wages.

Value added tax should be extended to the service industry to replace the business tax levied on the service sector to support the development of the service sector.

The Levy of property tax (real estate tax) will provide a stable source of income for local governments. It will help guide and improve the behavior of local governments, make them more concerned about public services and people's livelihood, reduce the short-term tendency of behavior, and benefit the healthy development of urbanization.

In addition, reforming the tax and fee system to straighten out the resource price system will be conducive to the long-term and sustained growth of China's economy, and also conducive to the development of resource rich areas in the West and to promote regional balance.

In terms of the financial management system, we should scientifically define the functions of the central and local governments in accordance with the principles of management complexity and incentive compatibility, and ensure that these functions have corresponding financial support through the tax system and the intergovernmental pfer payment system.

The functions of the Chinese government are too fragmented, and many functions that should be undertaken by the central government, such as endowment insurance, justice, sea area management, and inter regional water conservancy construction, have not been undertaken by the central government.

These are cross regional public goods with strong externalities, which should be provided by the central government.

Medical insurance and compulsory education should be managed by the central government on the basis of the central government's main expenses.

Through the reasonable division of local and central powers, efforts should be made to achieve equalization of basic public services in urban and rural areas, between local and social strata, and to achieve equal opportunities.

After 30 years of reform, China has established a basic market economy system.

Now we must take the initiative to advance in a harmonious and fair socialist market economy.