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How Should China Build a Modernized Superpower?


This is a lengthy analysis from news outlet Xinhua discusses the policies and strategies Beijing is putting in place to transform China into a global high-tech “superpower” by 2035. The author argues that China’s science and technology innovation model has been in “catch-up mode” for some time, seeking to imitate innovations from developed countries, which has led to an underinvestment in basic research and a “lack of originality.” Top-down support for the development of specific key technologies and fields is needed, the author suggests, as is organizational and regulatory change to develop an ecosystem supportive of greater innovation.

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More than 50 years after China generated its first kilowatt hour of electricity from nuclear power, the Hualong One nuclear power unit was put into commercial operation here in a global first.


The national calling card for the entry of Chinese nuclear power onto the world stage, Hualong One is China’s third-generation, million-kilowatt nuclear power technology with completely independent intellectual property rights. Its success indicates that China has broken the foreign monopoly on nuclear power technology, has officially entered the ranks of advanced countries in nuclear power technology, and is gradually moving from a major nuclear power country to a superpower in nuclear power.


“One of the spiritual tenants of China’s nuclear power development is to unswervingly follow the path of independent innovation,” said Yu Jianfeng, chairman and Party secretary of the China National Nuclear Corporation (CNNC). “In terms of key and core technologies, we have made one breakthrough after another, and there is no ‘stranglehold’ problem.”


“There is no ‘stranglehold’ problem.” In just a few words, this states that the core of a powerful country is its ability to realize its intentions relying on its own strength.


China’s GDP went from less than 400 billion yuan in 1978 to 10 trillion yuan in 2000 and on to 50 trillion yuan in 2012. Today, it has exceeded 100 trillion yuan. In just over 40 years, China has achieved a historic leap from standing up to becoming rich.


Standing at a new starting point, China, as the world’s largest developing country, has embarked on a new journey of becoming strong: we will basically achieve socialist modernization by 2035 and build a modernized socialist superpower by the middle of this century.


Throughout human history, the modernization of a country with a population of over 1 billion is completely unprecedented. Even more, what China wants to achieve is modernization that brings prosperity to all the people, modernization that coordinates material civilization and spiritual civilization, modernization that achieves the harmonious coexistence of man and nature, and modernization that walks the path of peaceful development. All these mean that China is going to become stronger, but we are also facing unprecedented challenges and difficulties.


The Fifth Plenum of the 19th Central Committee has made a series of deployments to outline a clear path for China to go “from rich to strong”: persist in innovation-driven development and comprehensively shape new development advantages; accelerate the development of a modern industrial system and promote the optimization and upgrade of the economic system; form a strong domestic market and build a new development pattern; comprehensively deepen reforms; and build a high-level socialist market economy system.


“China’s build-up into a modernized superpower will bring about great changes unprecedented in human history.” In an interview with a reporter from the new publication Outlook Weekly, Han Baojiang, director of the Economics Teaching and Research Department of the Central Party School (National Academy of Governance), said that, more meaningfully, China’s road to a modernized socialist superpower will transform the one-dimensional evolution trajectory of modernization led by Europe and the United States. It will destroy the myth that “modernization is equivalent to Westernization” and explore a new path to becoming a comprehensively modernized superpower for developing countries.


Make Efforts for S&T Independence and Self-reliance


Early in the morning, Dawodang, Pingtang, Guizhou. Radio signal data from the vast universe are captured by the telescope’s huge reflecting surface and continuously transmitted to the Guiyang Astronomical Big Data Base more than 100 kilometers away.


The 500-meter aperture spherical radio telescope known as the China Sky Eye has discovered 279 pulsars since its commissioning on September 25, 2016, more than twice the total number of pulsars discovered by other telescopes in the world during the same period. It has captured multiple extremely rare rapid radio bursts, and it participated in the discovery of the origin mechanism of a fast radio burst, which was selected as one of the top ten scientific discoveries by the publication Nature.


Constantly strengthening basic research, striving to improve original innovation capabilities, and achieving more “starting from scratch” breakthroughs—the construction of the China Sky Eye is a true portrayal of China’s acceleration in building an S&T superpower and striving to achieve independence and self-reliance in S&T.


For a long time, China’s S&T innovation has generally been in catch-up mode, and many innovations are based on imitation from behind.


“There are two important prerequisites for this development model: first, we must have a relatively large gap between our technology and that of developed countries, giving us objects that can be imitated and referenced; second, more developed countries must be willing to export some non-strategic technologies and products to us due to consideration of economic interests,” said Sui Jigang, a researcher at the Institute of Science and Technology Development Strategy of the Chinese Academy of Sciences, in an interview. However, when the technology of latecomer countries is advancing rapidly and approaching the frontiers global technology, they have begun to enter a “no man’s land” in many fields, and there are no suitable objects to imitate. On the other hand, in order to maintain their competitive advantages, developed countries are unwilling to continue to transfer advanced technology, and even use various means to curb the rapid catch-up of late-developing countries.


In this context, the Proposals of the Chinese Communist Party Central Committee on Formulating the 14th Five-Year Plan for National Economic and Social Development and Long-Term Goals for 2035 (hereinafter referred to as the “Proposals”) clearly requires that we uphold the core position of innovation in the overall situation of China’s modernization construction and view S&T independence and self-reliance as a strategic support of national development.


Consolidate Basic Research


In the field of scientific research, basic research is the root of S&T innovation. Only by consolidating basic research can we gather enough stamina for continuous S&T breakthroughs.


Long-term, imitation-style innovation has led China to give insufficient attention and investment to basic research. Our weak basic research and lack of originality have become prominent shortcomings that hinder China’s S&T independence and self-reliance.


At a symposium of scientists in September 2020, General Secretary Xi Jinping gave an in-depth analysis: China is faced with many “stranglehold” technological problems. Their root lies in lagging basic theoretical research. We have failed to clarify things at the level of the source and foundation.


For stubborn diseases, we must prescribe the right medicine.


First, we must strengthen the top-level design and system layout. During the 13th Five-Year Plan period, China issued Several Opinions on Comprehensively Strengthening Basic Research (关于全面加强基础科学研究的若干意见), formulated the Work Program to Strengthen Basic Research with Original Innovations (加强”从0到1″基础研究工作方案), and implemented Several Key Measures to Strengthen Basic Research in the New Situation (新形势下加强基础研究若干重点举措). At the same time, the state also supported the construction of 13 national applied mathematics centers in Beijing, Shanghai, and other places and deployed a number of basic research projects in key areas such as quantum science, stem cells, synthetic biology, and nanotechnology.


This year, China will also formulate and implement a 10-year action plan for basic research. Some analysts believe that this is an important guarantee to support China’s entry into the ranks of leading innovative countries in 2030 and achieve the goal of China’s “Three Steps” strategy of becoming a global S&T innovation superpower by 2050.


Second, we must increase capital investment. During the 13th Five-Year Plan period, China’s investment in basic research increased from 71.6 billion yuan in 2015 to 133.56 billion yuan in 2019, with an average annual growth rate of 16.9 percent, much higher than the increase in R&D investment from society as a whole. However, in 2019, basic research investment in China accounted for only 6 percent of society-wide R&D investment, while developed countries had rates from 15 to 25 percent. This gap is not small.


According to experts, on the one hand, China should continue to increase fiscal support, strive to implement precise support for key technologies and core fields, ensure the detailed implementation of various support policies, and actively allow government investment to play a guiding and driving role with respect to society-wide R&D investment. On the other hand, we must broaden funding channels, encourage all sectors of society to increase investment in R&D expenses, provide stable support to basic research and applied research, and create a new situation for diversified investment.


We must strengthen infrastructure construction. Over the past five years, China has deployed a number of nationally important instruments, such as a 500-meter aperture spherical radio telescope and spallation neutron source, and supported the construction of 20 national scientific data centers, 31 national biological germplasm and experimental material resource banks, and 98 national scientific observation and research field stations. Such infrastructure has played an important role in improving China’s basic research capabilities.


According to the requirements of the Proposals, during the 14th Five-Year Plan period, China will also establish a number of national laboratories, optimize and adjust existing state key laboratories, and build a number of state key laboratories that focus on major original innovations and breakthroughs in key and core technologies.


Make Efforts for Key and Core Technologies


Key and core technologies are the pillars of the nation, and they are also the vital lifeline for achieving S&T independence and self-reliance. The “stranglehold” phenomenon encountered from time to time in recent years indicates that some key and core technologies have become some of the most serious bottlenecks restricting China’s development.


The key and core technologies are located at the top of the S&T chain and production chain, making it difficult to tackle key issues. Moreover, they often involve different disciplines and fields, so efforts cannot be accomplished by a certain department, a certain region, or a certain enterprise alone. We must gather high-quality resources from different fields to tackle key points.


“The greater the challenge, the more we must give play to the advantages of institutional assurance,” Sui Jigang said. The new structure for leveraging national capabilities can organically combine the roles of the government and the market and drive the two to exert their respective advantages and form a joint force of collaborative innovation so as to maximize the benefits of resource allocation and optimize efficiency.


To better allow the new structure for leveraging national capabilities to play its role, Sui Jigang believes that efforts can be made in the following areas.


Clarify the scope of the new structure for leveraging national capabilities. It should cover major areas related to national security and long-term goals, including strategic S&T innovation projects, rather than replacing S&T innovation projects that are suitable for decentralized resource allocation.


Achieve the transformation of the innovation governance paradigm. The government has transformed from the sole manager to one of multiple participants in governance, from a focus on resource management to a focus on multi-method governance. In strategic fields, we must explore the establishment of a government-led, innovative model in which entrepreneurs, scientists, and the public positively interact with each other and where the state, enterprises, and social forces each perform their duties and cooperate closely so as to realize the combination of government-led and market-driven.


Construct a reasonable innovation organizational system. We must strengthen national strategic S&T capabilities in strategic areas related to national security and accelerate the construction of the state laboratory system. We must provide stable support for a group of scientific research teams who undertake national missions. We must establish industrial technology alliances in key and core technology areas to strengthen collaborative innovation among government, industry, academia, and research.


Establish efficient innovation operating mechanisms. Drawing on the experience of major national S&T projects, we must establish national S&T macro decisionmaking mechanisms in key and core technology areas; establish cross-sector, cross-department coordination mechanisms in resource allocation and diversified financing mechanisms; explore efficient R&D organization mechanisms and improve responsibility mechanisms for project work; establish reasonable performance evaluation mechanisms during and after events; and establish government procurement policies that are in line with international rules and market mechanisms.


Enhance Enterprise Innovation Capabilities


In recent years, Chinese enterprises have continued to strengthen their status as the mainstays of innovation. In 2019, Chinese enterprises invested 169.218 billion yuan in R&D expenditures, accounting for 76.4 percent of national R&D expenditures. A total of 507 Chinese enterprises were listed among the top 2,500 global enterprises in terms of R&D investment, as recognized by international organizations.


However, compared with developed countries, Chinese enterprises have weak innovation capabilities, which is mainly manifested in aspects such as insufficient investment in basic research and development, insufficient supply of key general purpose technologies, and incomplete incentive mechanisms for enterprise innovation.


The Proposals propose that we enhance the mainstay status of enterprises in innovation and promote the aggregation of various innovation factors among enterprises.


How can we accomplish this? Zhang Chidong, a researcher at the Institute of Science and Technology Development Strategy of the Chinese Academy of Sciences, said that the first thing is to give full play to the decisive role of market mechanisms in resource allocation; restrain government from reaching beyond its proper area; address areas overlooked by the government; and straighten out the relationships between internal government agencies, the central government and local governments, and various departments.


Second, we must strengthen the protection of intellectual property rights, ensure the effective implementation of independent innovation, and prevent bad money from driving out good money.


Third, we must reform the management system of state-owned enterprises, stimulate their entrepreneurial innovation, and make it so there is no “fear of trouble in the rear” in the technological innovation efforts of state-owned enterprises.


Finally, we must give private enterprises the treatment of state-owned enterprises, encourage private enterprises to participate more in national S&T projects and major technological innovation activities, and enhance the independent technological innovation capabilities of private enterprises.


Unleash the Innovation Talent Dividend


“Innovating to win and high-quality development: the key is relying on people,” said Sun Rui, a researcher at the Chinese Academy of Personnel Sciences and director of the Talent Theory and Technology Research Office. As China’s development shifts from factor-driven to innovation-driven, talents become the first resource for development. To fully stimulate and release the talent dividend, the development of Chinese talent undertakings must shift from prioritizing quantity and scale to prioritizing quality and level.


Enhance the Training of Top Talents


Since the founding of New China, from youth classes to independent recruitment and on to top talent training programs, our country has been striving to cultivate top innovative talents relying on basic disciplines. According to data from the Ministry of Education, since the implementation of the Top Talent Training Program 1.0, more than 10,000 students have been trained. Of these, 98 percent of the 6,647 graduates continue on to postgraduate studies and 32 percent entered programs ranked in the top 50 globally for advanced studies, gradually showing their potential to become leading talents in science in the future.


In recent years, the state has improved its arrangements for training top talents in basic disciplines.


Arrangement 1: Start the implementation of the Top Talent Training Program 2.0.


In 2018, the Ministry of Education partnered with six departments, including the Ministry of Science and Technology, to initiate the implementation of the Top Talent Training Program 2.0. The plan calls for the construction of a batch of top talent student training bases in the fields of basic science, basic liberal arts, and basic medicine. At present, 199 bases have been selected in two batches.


Arrangement 2: Starting from 2020, the independent recruitment of colleges and universities will be canceled and the Plan for Strengthening Basic Academic Disciplines (强基计划) will be implemented.


This will focus on key areas such as high-end chips and software, smart S&T, new materials, advanced manufacturing, and national security, as well as humanities and social science fields where talents are scarce. It will highlight the supporting and leading role of basic disciplines, focusing on enrolling students in related majors such as mathematics, physics, chemistry, and biology as well as history, philosophy, and ancient writing systems. This aims to select and train students who are interested in serving the country’s major strategic needs and have excellent comprehensive qualities or top attainment in basic subjects.


Refine the Talent Evaluation System


Innovation is driven by talents, and the science of talent evaluation standards is of critical importance. The Proposals emphasize that we must improve the S&T talent evaluation system oriented toward innovation capability, quality, practical results, and contributions.


At present, in the field of innovation, the administrative tone of evaluations is too pronounced, the evaluation methods are one dimensional, the evaluation classifications are insufficient, and the “Four Only” evaluation problems are prominent.


The paradigm of scientific research evaluation, innovation evaluation, and talent evaluation under the path of traditional catch-up development, planned management, and imitative scientific research has guided a large number of “from one to ten” imitative innovations [innovations building on an established foundation] but has not effectively stimulated the production of a large number of “zero to one” original innovations [with no established foundation or model to follow].


Sun Rui said that in the context of the advancement of national strategies, traditional, plan-based, and programmatic talent evaluation methods have a hard time meeting the strategic needs and practical requirements of development in the new era.


Since the central government issued the Opinions on Deepening the Reform of Institutions and Mechanisms for Talent Development, Guiding Opinions on the Classification and Promotion of the Reform of the Talent Evaluation Mechanism, and other policies in 2016, important steps have been taken in the reform of China’s talent evaluation system. Compared with the traditional evaluation system, major progress has been made in providing different talent evaluation guidance for basic, applied, and philosophy and social science research talents as well as different categories of talents such as education and healthcare. This has given professional evaluations a more in-depth “hierarchical classification.”


In Sun Rui’s view, the “Four Only” problem in current talent evaluation is still due to the insufficient implementation of “hierarchical classification” talent evaluation, the deviations of talent evaluation standard decision mechanisms, and the insufficient flexibility of talent evaluation. Some departments and units are also accustomed to using traditional simplified, “one-size-fits-all” evaluations, or indirect evaluation of the “number of results” instead of direct evaluation.


He emphasized that it is necessary to deepen the reform of hierarchical classification talent evaluation mechanisms; use professional attributes and job requirements as the basis; give full play to the roles of diverse entities such as the government, the market, professional organizations, and employers; and establish a talent evaluation mechanism that conforms to the patterns of growth of different talents and the characteristics of different careers in a classified manner.


Improve Task Implementation and Talent Selection Mechanisms to Get the Best Out of Talents

健全任务实施与人才选拔机制 实现人尽其才

In just three seconds, AI can complete a quantitative analysis based on a patient’s CT images and give auxiliary diagnosis results for Covid-19. During the pandemic, the “Intelligent Evaluation System of Chest CT for Coronaviral Pneumonia,” jointly developed by the Shanghai Public Health Clinical Center and YITU Technology was deployed in dozens of designated treatment institutions. This is one of many AI application scenarios implemented by the Ministry of Industry and Information Technology through competitive bidding (揭榜招标, revealing a list of issues to be solved and soliciting proposals publicly).


In talent training and evaluation, it is even more important to select talents and entrust them with important tasks. Open competition (揭榜挂帅, revealing a list of issues to be solved and finding to best people for the job), in essence, is to target key and core technologies for focused research efforts; break restrictions on identity, education, and age; and establish a set of institutions and mechanisms for selecting and appointing talents and allowing those with ability to stand out.


In 2018, the Ministry of Industry and Information Technology issued the Work Plan for Soliciting Units to Undertake Key Tasks of Innovations in the Next Generation Artificial Intelligence Industry. It is hoped that through the method of open competition, a group of units with strong innovation ability and mastery of key and core technologies will be selected from the many entities active in AI innovation. Subsequently, a number of innovative private enterprises in the AI field, such as Intellifusion, Megvii, and UISEE, have all won “national brand” (国字号) tasks.


From “open competition,” “soldier’s pledges” (军令状), and “milestone assessments,” to “reward system” and “horse-race system,” in recent years, China has continuously optimized and adjusted the organizational, implementation, and talent selection mechanisms for major S&T tasks to allow capable people to stand out. The core of these efforts is to stimulate the innovative vitality of talents through market mechanisms and to make the best use of their talents.


Sun Rui recommended that a unified national human resources market system be established to coordinate the work of talents inside and outside the system through a market-based approach. We must consolidate the basic structure of talent big data statistics, establish a monitoring system for supply and demand in the talent resource market, and build a socialized third-party authoritative talent archive information access system. We must allow professional associations and industry alliances to better play their roles in talent work and use market-oriented means to fully explore and align with the needs of talent innovation and entrepreneurship.


Promote Production Chain Optimization


Why is the world’s second-largest economy still subject to others? Clues can be found in a news story from China’s auto industry that occurred not long ago.


At the beginning of December last year, a news article that stated domestic car companies suffered from a chip shortage that affected their production aroused concern. A small chip can cause many domestic auto companies to “admit defeat” at the same time, which is shocking to many people. How can the world’s largest producer and consumer of automobiles be so weak?


With the rise of the “New Four Modernizations,” the importance of chips in the automobile manufacturing industry has become more and more obvious. In 2019, over 2.5 billion in-vehicle micro-control units, or MCUs (the most important functional chips in automobiles), were installed worldwide. The chip market is mainly divided between five major foreign suppliers such as Infineon. China’s auto chip self-sufficiency rate is less than 10 percent, and the security of production chains and supply chains is very fragile.


The problem is that similar situations exist to varying degrees in many industrial sectors in China.


In an interview, Xu Zhaoyuan, deputy director of the Industrial Economic Research Department of the Development Research Center of the State Council, said that China is already the world’s largest industrial producer. In most industrial product fields, China can produce very advanced products. But many of these products are just the result of assembly and system integration, and they need to rely on foreign core basic components and key basic materials. “In other words, China’s supply chain for the production of ‘advanced products’ is not advanced. It still has many shortcomings, deficiencies, and weaknesses.”


Winning the tough battle from product modernization to production chain modernization has become one of the core tasks in building a modernized socialist country in an all-round way.


Addressing Shortcomings: Remain Calm in a Crisis


In this car chip crisis, there are also car companies that were able to remain relatively calm, such as BYD. In an announcement, it stated that in addition to its own use, the IGBT chips produced by the company are also sold abroad, and there is no “stranglehold” problem.


This is mainly due to its strong self-developed core technology. As early as 2005, BYD built a team to enter the MCU field. In 2009, it launched its first generation of insulated-gate bipolar transistor (IGBT) technology and continued to expand its deployments and deeply cultivate this field. At present, BYD has become the only Chinese car company that has mastered the entire IGBT production chain, covering material research and development, chip design, wafer manufacturing, module design and manufacturing, and vehicle applications.


“Addressing shortcomings and enhancing our independence and ability to control [technology] is the primary task in raising the level of production chain and supply chain modernization,” said Xu Zhaoyuan. In particular, if the production chains and supply chains for important products cannot be autonomously controlled, once they are placed in a “stranglehold,” this can “suffocate” the entire national economy.


“The pain of the ‘stranglehold’ is felt in industry, but it is rooted at the very foundation,” said Huang Qunhui, director of the Institute of Economics of the Chinese Academy of Social Sciences. The greatest shortcomings faced in the modernization of Chinese production chains are the weak industrial foundation and the low capabilities of the industrial foundation.


Taking the “Four Bases of Industry” as an example, in the field of advanced manufacturing, from 2016 to 2020, China expects to make industrial base breakthroughs in 287 core basic parts, 268 key basic raw materials, 81 advanced basic processes, and 46 industrial technical foundations, for 682 items in total.


“The industrial infrastructure reengineering project is the core battlefield for China’s attempts to raise the level of industrial chain and supply chain modernization.” Xu Zhaoyuan believes that three aspects must be properly grasped in this process, namely, viewing enterprises as the mainstays, application-driven, and the new structure for leveraging national capabilities.


He believes that, first, industrial infrastructure reengineering is not a matter of major theoretical innovation or scientific research, but more of technological breakthroughs. Enterprises are the mainstays of technology application and innovation. Therefore, various policies must support and facilitate enterprises’ leveraging of their capabilities and enthusiasm to enhance the industrial infrastructure and stimulate enterprises to play their leading roles.


Second, breakthroughs and improvements in industrial infrastructure capabilities require products to have practical application opportunities. Applications allow us to continuously discover problems and iteratively improve products. We must adhere to an application-driven approach rather than “prototype engineering” (样品工程).


Finally, the industrial infrastructure must be reengineered in accordance with the current reality of the dispersed layout of R&D and innovation forces in China. We must conscientiously use policy to guide and gather relevant R&D forces to key enterprises so as to give full play to the combined innovative forces of all parties. Otherwise, we can only rely on market forces and the resources of enterprises themselves. This will make it difficult to achieve the goal of industrial infrastructure reengineering in the short term.


Solidifying Advantages: Forming Advantages and Clenched Fists


Another important initiative to improve the modernization of the national production chains and supply chains is to promote the extension of production chains and supply chains to high value-added stages.


There are two paths. The first is to promote the in-depth integrated development of informatization and industrialization.


Tongyi Ceramics is a leading enterprise in the ceramic industry in Zibo, Shandong. It previously faced the common problems in the industry such as high energy consumption, heavy pollution, and serious low-quality competition. Targeting enterprise pain points, Haier Kaos launched an industrial internet sub-platform for the ceramics industry. One end connects with ceramics users and the other connects with upstream and downstream resources in the ceramics industry to promote the transformation of enterprises to large-scale personalized customization. Empowered by this platform, Tongyi Ceramics’ revenue increased by 30 percent, profits increased by 32 percent, efficiency increased by 35 percent, and inventory decreased by 30 percent.


Making full use of industrial internet, 5G, AI, and other new technology development platforms and achievements and accelerating the promotion of digitized and intelligentized upgrades are important means to raise the level of industrial chain and supply chain modernization. These are also important ways to give play to China’s latecomer advantages.


According to data from the Ministry of Industry and Information Technology, China has established more than 70 industrial internet platforms with strong industry and regional influence and has connected 40 million pieces of industrial equipment.


“Many Chinese companies have experience in the development of smart manufacturing, industrial internet, and cloud-based platforms, but they are currently facing two main contradictions,” said Xu Zhaoyuan. First, the technology is still immature, and the digitized and intelligentized transformations of enterprises often require One Enterprise, One Policy. As a result, service companies still have insufficient capabilities to help enterprises in their intelligentized transformations. Second, there is a contradiction between the enterprises’ transformation and upgrade needs and their capabilities. Many enterprises, especially industrial enterprises, have weak profitability, so it is difficult to provide sufficient funds and resources for transformations and upgrades. In these two areas, policy support needs to be brought into full play.


The second path is to develop strategic emerging industries.


Recent history shows that every technological breakthrough in the world will give birth to a large number of emerging industries and form new economic growth points. A country will win in the new round of competition mainly when it has fully explored and brought to bear the role of emerging technologies and cultivated and developed strategic emerging industries.


The Proposals propose that “we will accelerate and expand industries such as new-generation information technology, biotechnology, new energy, new materials, high-end equipment, new energy vehicles and green and environmentally friendly products, and the aerospace and marine equipment industries.” It points out the directions and key areas for the development and expansion of strategic emerging industries during the 14th Five-Year Plan period.


Wei Jigang, a researcher at the Industrial Economic Research Department of the Development Research Center of the State Council, said that many of the above-mentioned strategic emerging industries require a large number of new technologies that are still in their early stages. In many fields, China is “almost on the same starting line” as foreign countries. If China can build a new technological system at a faster speed, overtake at the turns, and achieve leapfrog development, it will be able to break out of the strategic containment and blockade of advanced technology that some countries have imposed on China and achieve the goal of catching up with developed countries. “Therefore, for the immediate future, accelerating the development of strategic emerging industries is of particularly important significance.”


In 2019, the added value of China’s strategic emerging industries accounted for 11.5 percent of GDP. Industry forecasts predict that this proportion will reach about 20 percent in the next five years.


The strategic emerging industry market has huge potential, but it also faces significant risks. Compared with mature traditional industries, the technological route is uncertain; the social and economic environment and infrastructure suitable for industrial development and product application are not perfect; and there is a high demand for talents, data, and other elements.


Xu Zhaoyuan told our reporter that in recent years, China’s strategic emerging industries have achieved remarkable results and accumulated a lot of experience, but there were also some lessons learned. To further promote the development of the industry in the future: First, we must do a good job with regard to prudent and inclusive supervision. During the development of strategic emerging industries, supervision should not be too strict at the beginning, leaving room for exploration, refinement, improvement, and even trial and error in the development of the industry. Second, we must wisely concentrate government support to prevent the development of strategic emerging industries from rushing forward with the result of low-level redundant construction and to prevent moral hazards such as exploiting policy loopholes and cheating. Third, we must improve the level of supervision. Supervisory departments must have strong summary, research, and prediction capabilities, and we must improve policies in a timely manner to provide ongoing support for the development of the industry.


Strengthen the Domestic Market


The Chinese market is already very large. In terms of consumption, despite the decline due to the impact of the pandemic, total retail sales of consumer goods in 2020 still reached 39.19 trillion yuan. In terms of investment, in 2020, national investment in fixed assets will be 51.89 trillion yuan. In terms of market players, at the end of 2020, China had about 125 million market players of various types. In terms of import scale, in 2020, China’s imports in the goods trade were valued at 14.23 trillion yuan.


Its ultra-large market is the source of China’s development potential and advantages. In the context of profound changes in the external development environment, China’s development must transition to a greater reliance on its internal market. It is neither safe nor realistic for a big country like China to mainly look to external markets for its own development.


Break Obstructions and Facilitate Smooth Circulation

打破梗阻 畅通循环

At present, what is the main obstacle to the full release of the potential of China’s ultra-large-scale market? In two words: poor circulation.


“Just as the unobstructed circulation of qi and blood determines a person’s health and longevity, economic circulation usually determine the health and development capacity of an economy,” said Han Baojiang. Compared with the super-strong domestic demand and the super-large domestic market that we must bring together to give people a higher standard of living, there are various structural “supply and demand obstructions” in the economic system that seriously affect the smooth circulation of China’s economy. This in turn compromises China’s economic efficiency and exhausts the momentum of economic development.


To prescribe the right medicine, we must first clarify the “breakpoints” and “blockage points” that hinder the smooth circulation (循环) of production, distribution, circulation (流通), and consumption and their reasons.


Zhang Zhanbin, director of the School of Marxism Studies of the Central Party School (National Academy of Governance), clarified these points one by one.


The main pain points and blockage points in the production stage are the insufficient supply of technology and the restrictions in some high-tech fields imposed by others.


The main blockage point in the distribution stage is the income of residents. On the one hand, residents’ income as a proportion of GDP is relatively low, which will reduce overall demand to a certain extent, thereby affecting overall supply. On the other hand, the income distribution gap is relatively large, resulting in an obviously dual structure in the economy and an excessively large gap between urban and rural areas.


The blockage points in the circulation stage are mainly due to the poor circulation of capital, land, talents, technology, information, data, and other factors in the market. In addition, logistics costs are too high.


One of the major blockage points in the consumption stage is the phenomenon of “losing reality and becoming virtual” (脱实向虚) in economic operations. A large amount of funds sit idle in the real estate and financial fields. This has not only led to the long-term lack of vitality in the real economy, but it has also pushed up housing prices, which is not conducive to the growth of overall social demand.


Now that the disease is identified, we can prescribe a cure: continuously deepen the supply-side structural reforms focusing on smooth circulation in the national economy.


“The main direction of attack is to improve the quality of supply, and the fundamental path is by deepening reforms,” Han Baojiang analyzed. The main direction of attack is to improve the quality of supply. This means that we must follow the requirements of the five new development concepts of innovation, coordination, green, openness, and sharing; continuously consolidate the results of the “Three Eliminations, One Reduction, and One Supplement” (三去一降一补); minimize ineffective supply and maximize effective supply; focus on improving the quality of the entire supply system; and improve the adaptability of the supply structure to the demand structure.


The fundamental path is to deepen reforms. This means that we must improve the institutions and mechanisms through which the market plays its decisive role in the allocation of resources, focus on the reform of the property rights system and the reform of the marketization of factors, improve the business environment, improve the market system, increase the efficiency of resource allocation, and continue to strengthen the internal motivation of micro-entities.


“It is necessary to effectively resolve the structural imbalance arising from ‘losing reality and becoming virtual’ and facilitate the circulation between finance and the real economy,” reminded Huang Qunhui. The executive meeting of the State Council in June last year proposed that 1.5 trillion yuan in financial support should be given to the real economy. Practical implementation mechanisms and specific measures must be adopted to implement this.


Break Down Barriers and Stimulate Consumption

破除障碍 刺激消费

In 2020, end-consumer expenditures as a proportion of GDP reached 54.3 percent, 11.2 percentage points higher than the capital formation total and also higher than the average consumption rate of 53.4 percent from 2011 to 2019. This is the highest level in recent years.


Consumption has been the primary driving force of China’s economic growth for many years. However, since 2015, China’s consumption growth rate has continuously slowed down.


In terms of consumption rate, the level of 54.3 percent is far lower than the 80 percent in developed countries. The low consumption rate means that the share of consumption in the economy is relatively low. This indicates that consumption still has great potential for driving economic growth.


How can we turn this potential into a reality? According to experts, we must, first, steadily increase residents’ willingness and ability to consume by stably promoting employment, improving social security, increasing transfer payments, and optimizing the income distribution structure.


Second, we must establish a strict supervision system; refine relevant laws, regulations, and institutions; optimize the product and service quality supervision system; effectively prohibit and crack down on intellectual property right infringement and the production and sale of counterfeit and shoddy goods; and protect the rights and interests of consumers.


Third, we must cultivate new types of consumption. During the epidemic prevention and control period, new online consumption methods such as live streaming product placement, online group buying, cloud travel, and telemedicine continued to emerge, which offset the lack of offline consumption to a certain extent and showed strong vitality.


Experts recommend that we should take advantage of this trend and vigorously promote the integration of online and offline consumption; support the consumption upgrade of services such as elderly care, health, housekeeping, cultural tourism, and education; actively develop new information products such as high-end mobile communication terminals and wearable devices; promote the update and upgrade of information consumption; and foster the development of new products, new business models, and new modes such as green consumption and smart consumption.


Precisely Implement Policies and Expand Investment

精准施策 扩大投资

Investment has always been an important driving force supporting China’s economic progress. During interviews, experts mentioned that the key to expanding investment space in the future lies in the word “effective.” The critical thing is to solve two major problems.


First, we must accurately select areas for investment. Although investment can promote economic growth, improper control can also lead to overcapacity and wasted resources. Therefore, we must properly select areas and projects for investment.


“Under the requirements of building a new development pattern, this year China will focus on improving the quality of the supply system, effectively strengthen demand-side management, firmly grasp the strategic basis of expanding domestic demand, and accelerate the cultivation of a complete domestic demand system,” Ning Jizhe, deputy chairman of the National Development and Reform Commission, said earlier. In fact, he pointed out the direction for expanding effective investment.


In terms of improving the quality of the supply system, China will use the construction of an innovation system as its starting point. A number of major projects will be initiated in areas such as the creation of independent and secure production chains and supply chains, research on key and core technologies; the development of national strategic emerging industrial clusters; and food security, modern seed industry improvement, and black soil protection. These efforts aim to solve a batch of “stranglehold” problems as quickly as possible.


In terms of effectively strengthening demand-side management, China will focus on tapping emerging consumption potential, expand effective investment with a focus on the “Two News and One Major” areas, systematically deploy new infrastructure, comprehensively promote the transformation of old urban communities, accelerate the construction of major transportation projects such as the Sichuan-Tibet railway and new land-sea corridors in the west, implement national water network backbone projects, and accelerate the construction of major water diversion projects across river basins and regions.


Second, we must innovate in investment methods.


“We must promote the innovation of investment and financing models for major projects, attract more private capital to participate in the construction of projects in key areas, and promote the formation of a combined force of the government and the market,” said Wu Yaping, a researcher at the Investment Research Institute of the China Academy of Macroeconomic Research. We must make good use of national policy tools such as PPP, government special bonds, corporate bonds, and real estate investment trust funds (REITs) in the infrastructure sector to continuously improve investment and financing institutions and mechanisms, promote the diversification of investment and financing methods, and accelerate the implementation of major projects.


Reshape External Circulation


On February 15, trade data published by Eurostat showed that China will surpass the United States for the first time in 2020 and become the European Union’s largest trading partner. In 2020, despite the impact of the Covid-19 pandemic, the pace of China-EU cooperation has continued to accelerate: the number of China-Europe express trains reached a new high, with 12,406 trains operating throughout the year, an increase of 50 percent year-on-year; China and Europe formally signed the EU-China Geographical Indications Agreement; and the China-EU investment agreement negotiations were completed as scheduled.


“China-EU trade has bucked the trend in this special period, further demonstrating that only open cooperation can achieve mutually beneficial results,” was the evaluation of certain analysts.


The new development pattern being constructed is by no means a closed domestic loop, but an open dual circulation system that involves both the domestic and foreign markets. As Zheng Yongnian, director of the Advanced Institute of Global and Contemporary China Studies at the Chinese University of Hong Kong (Shenzhen), said, on the one hand, since reform and opening up, China’s development has been achieved under the conditions of economic globalization and international great circulation (国际大循环). The Chinese economy has been deeply integrated into the world economy. Even if it turns to domestic great circulation (国内大循环), it will not be separated from international great circulation. On the other hand, in terms of international relations, to provide more products to the international public also requires China to both continue to join international great circulation and further promote international great circulation.


However, for China, the connotation of external circulation has changed.


“If we say that China has been taking the path of ‘using external circulation to drive internal circulation’ for many years, then in the future, we must build a path of ‘viewing domestic circulation as the mainstay and domestic and international dual circulation [as a system of] mutual promotion.’ The main idea is to use internal circulation to drive external circulation,” said Zhang Ming, director of the International Investment Research Office of the Institute of World Economics and Politics, Chinese Academy of Social Sciences.


China’s status and contributions as the factory of the world have long been seen widely. As the domestic demand market releases more and more dividends, China’s huge population, production capacity, and consumer demand will give China a unique place in the world for the foreseeable future—both as the factory of the world and the market of the world.


With the simultaneous progress of stabilizing exports and expanding imports, the industrial upgrade and the consumption upgrade, “Made in China” and “Made for China,” and “sell to the world” and “buy from the world,” China’s reshaping of the global economic structure and its creation of an external circulation system centered on itself is a matter of course.


Build the Chinese Market into the Market of the World


Let us turn back the clock to last year’s Third China International Import Expo (CIIE). Despite the impact of the pandemic, the charm of the Chinese market had not diminished in the slightest. On a one-year basis, the accumulated intended transaction value of this CIIE reached $72.62 billion, a new high.


Many manufacturers from different countries expressed the same view—the new development pattern that China is building will promote the continuous expansion of the domestic consumption market and bring massive business opportunities to countries around the world.


From continuously lowering the overall tariff level to continuously improving trade facilitation, from expanding import markets to expanding import product categories—in recent years, China has taken frequent actions to proactively expand imports. In November last year, nine departments, including the Ministry of Commerce, made a joint decision to establish 10 import trade promotion innovation demonstration zones across the country. It is hoped that in three to five years we will cultivate a number of import demonstration zones with innovative regulatory systems, complete service functions, and flexible trading models to promote the steady expansion of China’s import scale and continuous structural optimization.


During interviews, experts said that actively expanding imports plays an irreplaceable strategic role in building the new development pattern. On the one hand, the active expansion of consumer goods imports is conducive to stimulating consumption potential and vitality, thereby accelerating and promoting the formation of a strong domestic market. On the other hand, actively expanding imports will facilitate the better utilization of the domestic and international markets and their two types of resources, thereby promoting better connectivity and mutual promotion between the domestic and international markets.


In terms of their impact on countries around the world, following on the heels of “Chinese exports,” “Chinese imports” will become a new driving force for the development of the world economy. Wei Hao, a professor at the School of Economics and Business Administration of Beijing Normal University and director of the National Import Research Center, has calculated that between 2002 and 2007 the average contribution of Chinese imports to world import growth was only 10.7 percent. However, between 2012 and 2017, the average contribution of Chinese imports to world import growth reached 22.5 percent.


In terms of development trends, a basic judgment is that, with the increase in China’s national income level and the expansion of the scale and scope of the consumption upgrade, the scale of China’s demand for imported products will constantly increase.


Over the next 10 years, China’s cumulative goods imports are expected to exceed $22 trillion. With a vast domestic demand market stimulating a steady stream of surging power, the Chinese market is gradually becoming the market of the world. In the context of the long-term impact of the pandemic, this change is of great significance to the global economy.

未来10年,预计中国累计商品进口额超过22万亿美元。随着广阔的内需市场激发出源源不断的澎湃力量,“中国市场”正一步步成为“世界市场”。 在疫情冲击长期持续的大背景下,这一变化对全球经济具有重要意义。

Leverage Institutional Innovation to Build a New Pattern Open to the Outside


A pilot free trade zone is a comprehensive pilot area that explores new paths and accumulates new experience in order to comprehensively deepen reform and further expand opening up. Since the establishment of China’s first free trade pilot zone—the Shanghai Pilot Free Trade Zone—in 2013, it has undergone six expansions over seven years. Today, there are 21 pilot free trade zones in China, forming a new pattern of “coastal areas and inland connections.”


Today’s globalization is the globalization of the division of labor of factors of production. In terms of production, production and product chains have transformed into supply chains and value chains. The production links of products are allocated to different companies in different countries, and production processes require the common, instant, and standardized participation of production factors from multiple countries, requiring highly efficient and seamless connections. This requires countries to achieve compatibility and consistency in terms of domestic economic rules and systems.


For China, to create efficient external circulation, the arrangements of the domestic economic system must be coordinated and consistent with internationally accepted rules. This includes the continuous improvement of the foreign capital management system, continuous optimization of the business environment, and promotion of trade and investment liberalization and facilitation.


To this end, institutional innovation is the core task of the pilot free trade zones.


They issued the country’s first negative list of foreign investment, established the first “single window” for international trade, created the first free trade account, and took the lead in implementing the “separation of permits from business licenses.” At present, the various pilot free trade zones have formed hundreds of institutional innovation achievements, which have been replicated and promoted throughout the country.


In this sense, new high grounds for opening up, such as pilot free trade zones and free trade ports, have already become important test fields for China’s promotion of institutional opening up and advancement of the mutual promotion of internal and external circulation. In the future, China will further give effective play to the leading role of free trade pilot zones and free trade ports; introduce a negative list for the cross-border service trade; continue to expand opening up in the digital economy, the internet, and other fields; carry out reforms and innovations in trade and investment liberalization and facilitation in an in-depth manner; and promote the construction of a new economic system with a greater level of openness.


Promote High-Quality Development in Belt and Road Co-Construction


On January 26, the China-New Zealand Free Trade Agreement Upgrade Protocol was formally signed, achieving the further improvement of China-New Zealand free trade relations in terms of quality and efficiency on the basis of the Regional Comprehensive Economic Partnership (RCEP).


To date, China has signed 205 cooperation documents for Belt and Road co-construction with 171 countries and international organizations. Over the past few years, China has shared the dividends of China’s reform and opening up with co-construction countries by building a Belt and Road cooperation platform. In addition, China has formed relationships of complementary advantages and exchange between those who have and those who lack (互通有无) at the market level.


The construction of the Belt and Road focuses on the “Five Connections,” namely, policy communication, facility connectivity, unimpeded trade, financial integration, and people-to-people ties. Under the new development pattern, domestic and international dual circulation involves not only the smooth circulation between commodity production, distribution, consumption, and circulation, but also the smooth market-allocated flow and circulation of factors of production and resources.


Therefore, promoting the high-quality development of Belt and Road co-construction is also an important means by which China can reshape external circulation.


During an interview, Jia Jinjing, assistant dean of the Chongyang Institute of Financial Studies of Renmin University of China, said that since the proposal of the Belt and Road Initiative, as the cooperation pattern of “six corridors, six roads, many countries, and many ports” (六廊六路多国多港) has basically taken shape, the framework of the Belt and Road has been completed. Further promoting the high-quality development of Belt and Road construction can mainly focus on four levels.


First, improve project development mechanisms. On the one hand, we must attach importance to the compliance management of Chinese companies overseas, while on the other hand we must strictly guard against overseas compliance risks.


Second, improve financing mechanisms. In terms of the sources of funds, while making good use of domestic funds, we must strengthen the use of international funds; in terms of the nature of funds, while making good use of government funds, we must strengthen the participation of social capital; in terms of financing structure, while making good use of indirect financing, we must strengthen direct financing inputs; in terms of financing currencies, while making good use of foreign currency financing, we must strengthen the development of local currency financing; in terms of financial technology, we must give play to the important role of financial technology in promoting the transformation of the financial industries of countries along the route.


Third, build dispute resolution mechanisms. On the basis of existing dispute settlement mechanisms, we must make flexible use of various methods such as politics and law to construct dispute settlement mechanisms with regional characteristics and implement a dispute settlement model of “promoting regulation through development” or “both development and regulation.”


Finally, strengthen risk management mechanisms. First, we must improve the construction of export credit and insurance laws and regulations and encourage innovation in the credit and insurance businesses of countries along the route. Second, we must improve the construction of overseas investment laws and regulations and improve the ability to recover export credit insurance overseas investment insurance (出口信保海外投资险). Third, we must increase the level of national fiscal support and increase the business level of insurance agencies in their underwriting of countries along the Belt and Road.


Accelerate the Promotion of New Breakthroughs in Regional Economic Cooperation


On November 15, 2020, RCEP, covering 15 member states, was officially signed. The content of the agreement covers many aspects such as trade in goods, trade in services, investment, trade facilitation, e-commerce, competition policy, and dispute settlement.


The signing of RCEP marked the official birth of the world’s largest free trade zone and a new state for the regional economic integration of East Asia. It also demonstrates China’s confidence and determination to implement high-level opening up.


Some analysts believe that signing RCEP under the prevailing trend of global trade protectionism is of great strategic significance: First, it will strongly promote the process of economic globalization, helping reduce and eliminate trade barriers and promote market opening in particular. Second, it will help reduce production costs and resolve trade disputes and promote the development of the global economy in a balanced and fair direction. Third, it will promote the conclusion of a China-Japan-Korea free trade agreement.


“RCEP provides a massive institutional cooperation platform for the new development pattern of ‘dual circulation,’ allowing us to gradually break down obstacles and barriers to external markets in this process,” said Zhang Jianping, director of the Research Center for Regional Economic Cooperation of the Ministry of Commerce. In addition, RCEP also plays a very important driving role in “dual circulation,” including talents, resources, energy, and capital, which can be more efficiently allocated throughout the large market.


In the context of challenges facing the system of multilateral trade, regional economic cooperation similar to RCEP has become an important way for China to link to external economic circulation. Since the signing of RCEP, China has signed 19 free trade agreements, reaching 26 free trade partners. Accelerating the promotion of new breakthroughs in regional economic cooperation will help our country use more comprehensive, deeper, and more diversified opening up to further optimize the layout of foreign trade and investment, continuously keep in line with international high-standard trade and investment rules, and build a new economic system with a greater level of openness.


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Cite This Page

尚前名 (Shang Qianming). "How Should China Build a Modernized Superpower? [建设现代化强国,中国应该怎么做?]". CSIS Interpret: China, original work published in Xinhua Outlook Weekly [瞭望周刊社], March 1, 2021

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