Strategic Choice in Adjustment and Transition: Train of Thought on Social and Economic Development in “13th Five-Year Plan” Period

The “13th Five-Year Plan” is the period of building a well-off society, the decisive moment of realizing the first centennial goal, and the critical point of paving the foundation for the second centennial goal aiming for decisive achievements by comprehensively deepening reform and governing, subject to laws. The uniqueness of the “13th Five-Year Plan” period requires us to fully grasp the new role of China in the global pattern adjustment, to adapt to the new requirement of transit in development stages, and to plan for scientific development to a higher level, with a wider vision.

I Global Economic Adjustment and the New Role of China

In the “13th Five-Year Plan” period, as the global economy is still trying to come to terms with adjustment periods after the financial crisis, the economic globalization and international economy show a new momentum. With the new opportunities brought by a new technical revolution and industrial reform, Chinese economy’s share of global economy continues to rise. However, as new developments take place with China’s emergence in the global economy and its relation with the world, the external environment for China will be more complicated.

A Global Economy Still in Adjustment and Transition Period

World Economy Recovering Slowly in Adjustment and Differentiation

For a short period in the forthcoming days, the world economy will experience moderate and low growth, with new changes in growth pattern as follows. First would be the “two wheel drive” of China’s economy and the US economy”. The US economy will gradually step out of the shadow of the crisis and enter a new growth, with an enhanced role of driving the global economy. On the other hand, China’s economy will continue to grow at both medium and high speed and will be an important driving force for global economy as structural reforms accelerate. Second is the “double speed growth” in developed countries. The economic recovery of the eurozone is difficult and slow while that of Japan remains depressed, which is in sharp contrast with the economic recovery of the United States. Third is the “two-way differentiation” of emerging economies. The economic growth of China and India is expected to be at a relatively rapid speed, while that of Russia, Brazil, and other countries that have a high dependency on energy resource will significantly slow down. Thus, low and medium growth in world economy will become the new normal. According to the International Monetary Fund’s forecast, the average annual growth rate of world economy from 2016 to 2020 will be about 3.9% - the growth rate of developed countries and developing countries, respectively, will be 2.3% and 5.4%. Compared with the average level of growth rate before the financial crisis, from 2003 to 2007, the three aspects were, respectively, decreased by 0.9, 0.5, and 2.3 percentage points. Economic growth in developing countries is still significantly higher than that in developed countries. Their proportion of global economy will be on a continuous rise, but with a slowdown in momentum for catching-up. The slow recovery and growth of world economy, on the whole, is conducive to China’s expansion of foreign trade export. However, the low and medium growth in the global economic environment is likely to weaken the external demand for China’s exports.

International Economic and Trade Rules Confronted with Major Adjustments

Influenced by the slowdown in global economy, multilateral trading system, and expansion of global supply chain, international trade is entering a low-growth phase. The US-led Trans-Pacific Partnership Agreement (TPP) and Trans-Atlantic Trade and Investment Partnership Agreement (TTIP) agreements aimed to build high standard of large-scale free trade across the two continents, with the focus on competition and neutrality, labor rights, and environmental standards, for the purpose of reshaping global economic and trade rules. This will either significantly raise the threshold for China in order to participate in economic globalization or may cause loss due to transfer of trade and investment. Developed countries actively promoted the negotiation of Trade-in Service Agreement (TISA) and the expansion of Information Technology Agreement (ITA) and strengthened technical trade measures to create competitive advantages. Many aspects of the adjustment of global economic imbalances and trade rules are in line with the objectives of China’s intensification of reform and expansion of opening-up, which will further advance its reform and opening-up and also bring new challenges.

New Changes in World’s Energy Resource Layout

With the shift in energy production and consumption, the pattern of world energy resource continues to change profoundly. World energy production

Strategic Choice in Adjustment and Transition 3 shifted from the East to the West, and North America has now become the new global energy production center. The United States has made a major breakthrough in the technology of exploration and development of shale gas and shale oil, thus significantly increasing production of oil and gas. In 2020, the overall US energy self-sufficiency rate will reach 93.5%, which will make change it from being the largest energy consumption country to an energy production country. Canada’s deep-sea oil mining has made significant progress, which will make it a new energy supply country. Meanwhile, energy demand in Asia is expanding rapidly, thus shifting world energy demand from the West to the East. According to the International Energy Agency, it is predicted that by 2020, Asia’s oil imports will account for 65% of international crude oil trade and 27% of global oil production. Oil-producing areas in the Middle East, Russia and Central Asia, vigorously promoted the eastward strategy in search for new alternative markets. The disputes on natural gas in Russia and European countries triggered the restructuring of energy layout in Europe and Asia. Europe proposed to establish a unified energy market, increase import of shale gas from the United States, implement diversification of energy supply, vigorously develop new energy, and reduce dependence on the oil and gas resource from Russia. The changes in world energy and resources layout will make the supply of international energy resources in China more diversified, which will increase the risks.

International Monetary System Tends to New Changes

With the ongoing recovery of the US economy, the US dollar is becoming stronger. Since 2012, the exchange rate of US dollar has continuing to increase, exerting great impact on global prices of assets and bulk commodity. The decline in the prices of bulk commodity in the international market led to a decrease in the income of resource-exporting countries and a sharp decline in import, which resulted in a rebound of China’s export growth. Some European countries, emerging economies, and Japan sought growth through currency devaluation, which resulted in great fluctuation of exchange rates of major international currencies. This, in turn, seriously affected global economic recovery, with the international community appealing for reform of international monetary system. Although in the long run there would be no fundamental change in the USD-centered international monetary system, the world economic pattern and strength comparison will change significantly as a result of the rapid rise of emerging powers. To set up a more diversified and balanced international monetary system is an irresistible trend. The new changes in international monetary system are conducive to promoting internationalization of renminbi (RMB), but it will increase the exchange rate risk of China’s foreign economy and the uncertainty of inflow and outflow of international capital.

Global Governance Structure Reform Facing New Challenges

After the international financial crisis, the status of emerging markets and developing countries was remarkably improved. It is hard for developed countries to dominate global governance alone. AIIB (Asian Infrastructure Investment Bank) and NDB (BRICS New Development Bank) have become key projects for emerging economies to reshape international economic order. The game between developed and developing countries becomes more complicated and fierce. The general trend indicates that in the process of promoting global economic rebalance, mutually expanding market opening up, reforming international monetary and financial system, responding to climate changes, and ensuring energy and resource security and food safety, the opinion of developing countries needs to be given importance and fair and efficient system of global governance needs to be established. Change will be accompanied by readjustment of interests, inevitably with contradictions and conflicts. In this process, China, as world’s largest goods trade country and the second largest economy, ought to play a greater role. However, the developed countries led by the United States are not willing to give up for their dominance in rule-making. The reform of global governance structure will be difficult and will have profound impact on the relation between China and global economy.