Interview with Bai Zhongen： 5.5% is a very aggressive growth target, so we should pay special attention to investment.

Photo courtesy of Bai Zhongen, member of Chinese People’s Political Consultative Conference and dean of Tsinghua University School of Economics and Management.

How will the "triple pressure" affect our economy? What do you think of the 5.5% economic growth target set in this year’s (2022) Government Work Report? Where is the space and grasp for further improving labor productivity in China?

On March 9th, Bai Zhongen, member of Chinese People’s Political Consultative Conference and dean of Tsinghua University Institute of Economics and Management, accepted an exclusive interview with a reporter from The Paper (www.thepaper.cn) on the above issues. He said that consumption and investment will see good growth this year, while the growth rate of foreign trade import and export affected by cardinal utility and other factors will decline. The pressure brought by demand contraction and supply shock will continue to exist, and the expected goals consistent with the national conditions should be set for the business development of enterprises.

Bai Zhongen pointed out that setting the economic growth target of 5.5% this year is very aggressive and challenging. He suggested that special attention should be paid to investment and investment projects should be selected. In addition, it is necessary to make precise policies and provide targeted financial and financial support to enterprises affected by factors such as the epidemic.

Regarding the space for improving labor productivity in China in the future, Bai Zhongen said, first of all, we should do a good job in education, especially the basic education of migrant workers’ children, promote enterprises to increase on-the-job training, and let employees create greater value. We should also smooth the flow of the labor market and improve the efficiency of labor resource allocation.

Investment and consumption may grow well, and the growth rate of foreign trade may decline.

The Central Economic Work Conference held last year (2021) pointed out that China’s economic development is facing the "triple pressure" of demand contraction, supply shock and expected weakening. Bai Zhongen said that the "triple pressure" accurately describes the current situation in China.

Talking about the shrinking demand, Bai Zhongen said after taking stock of the economic growth data in the past two years that the growth rate of consumption and investment is lower than that of GDP, and only the export performance is outstanding.

He believes that the performance of consumption this year depends largely on the development of the epidemic: if the epidemic can be well controlled, the impact on living consumption can be reduced, and the catering, accommodation, tourism, transportation and other industries can return to normal, compared with the low base in the previous two years, consumption may achieve better growth. Bai Zhongen also believes that the government-led investment can achieve a relatively rapid growth this year, despite the effective control of the epidemic. As for foreign trade, he said that it may be very difficult to achieve a growth rate of more than 20% this year. As global production gradually returns to normal, the growth rate of foreign trade will be slightly slower than before.

Talking about supply shocks, Bai Zhongen said that some supply shocks are still there. The conflict between Russia and Ukraine has further raised the commodity prices that were already at a high level, which has brought great pressure on the production and operation of Chinese enterprises. At present, the pressure will continue to exist.

Talking about the expected weakening, Bai Zhongen pointed out that the economic growth potential of China at this stage is almost the GDP growth target of 5.5% set this year. It is unrealistic for some enterprises to hope to maintain an 8% growth rate as they did many years ago. They must accept the current development situation of China and adjust their realistic expected targets in time.

At the same time, many uncertainties faced by the external environment will also affect people’s expectations. In this regard, Bai Zhongen suggested that the formation and withdrawal of policies should allow the market more time to digest, and the general tone of "striving for progress while maintaining stability" proposed by the central government will help stabilize expectations.

5.5% is an aggressive growth target.

In 2022, the Government Work Report set the target of China’s economic growth rate at around 5.5% this year. For this goal, Bai Zhongen thinks it is a very aggressive growth goal.

"According to our research and the research of some other scholars, the current economic growth potential, that is to say, when everything goes well, our growth rate is about 5.5%." Bai Zhongen said that at present, China’s epidemic situation still occurs from time to time, and the global epidemic prevention and control is facing great uncertainty, and geopolitical conflicts have added new uncertainties. These have a negative impact on consumption growth, and uncertainty makes enterprises more cautious and unwilling to take risks when making investments.

"In such an external environment, it is actually a very challenging task to achieve a growth rate of 5.5%." Bai Zhongen said that at present, great efforts are needed to achieve this economic growth target, so the target of 5.5% is very aggressive.

Bai Zhongen said that last year’s economic growth showed a trend of high before and then low, which was partly caused by cardinal utility. In the first half of 2020, it was greatly affected by the epidemic, which contributed to the high growth in the first half of 2021. At the same time, in the first half of last year, the issuance speed of local special bonds and infrastructure investment was slow, and it began to accelerate in the second half of last year, which had a time lag effect on economic growth, so it showed a situation of high before and low after.

"This year, we all realized the arduousness of growth and set a target of 5.5%, which requires great efforts." Bai Zhongen said that because the special debt quota has been issued in advance, the growth rate of local government expenditure is increasing, and the investment growth rate has achieved rapid growth in the first quarter of this year. Regarding this year’s macroeconomic policy, he particularly emphasized that infrastructure investment and investment promoted by government organizations should play a certain role when all aspects are under great pressure, so we should pay special attention to investment and choose investment projects.

In addition, Bai Zhongen also talked about the tax reduction and fee reduction policy that will continue to be implemented this year. He said that the survival and development of many enterprises are facing great impact because of the impact of factors such as multi-point epidemic and rising commodity prices. It is necessary to find these enterprises, make precise policies, and provide targeted financial and financial support to enterprises.

To improve labor productivity, we must first do a good job in education.

In recent years, China’s total labor productivity has been continuously improved. In February this year, the Statistical Bulletin of People’s Republic of China (PRC)’s National Economic and Social Development in 2021 issued by the National Bureau of Statistics showed that the labor productivity of all employees in China last year was 146,380 yuan/person, an increase of 8.7% over the previous year.

What room is there to further improve China’s labor productivity? In this regard, Bai Zhongen said that China is not the most developed country, and there is still a big gap between the per capita GDP and the most developed countries, so it has a certain advantage of being late-comer, so the total factor productivity will grow faster than that of developed countries, and the labor productivity will also increase accordingly.

Talking about how to tap the growth space, Bai Zhongen gave three suggestions.

First of all, we should do a good job in education. He said that the growth of human capital is very important for economic growth, in which human capital is divided into two parts: the quality of labor force and the number of labor force that can be put into production. Education level has a great relationship with people’s productivity. Under the current situation of China’s labor market, we should pay special attention to education, especially the basic education for the children of migrant workers. It is necessary to fill the shortcomings and weaknesses in education, increase investment and give better education to the children of migrant workers.

Furthermore, there is still room for improvement in the efficiency of labor resource allocation, especially in the labor market. For example, he said that the development trend of one industry is declining, and another industry has just started, so the labor force should be transferred from the first industry to the second industry. Bai Zhongen suggested that the free flow of labor force should be unblocked to make the labor market run better.

In addition, enterprises should also make efforts to better provide learning opportunities for employees. We should consider making some institutional arrangements to encourage enterprises to provide employees with learning and further education arrangements, enhance the motivation of enterprises to provide skills training and on-the-job learning, and enable employees to become workers who can bring greater value.