Governance modernization vital to China’s long-range goals

By GUO JINXING / 04-28-2022 / Chinese Social Sciences Today

The Smart City Operation and Command Center in Sanmenxia City, Henan Province Photo: CFP

The 19th CPC National Congress drew up a two-stage development plan for accomplishing the second centenary goal of fully building a modern socialist country by 2049. The first stage, from 2020 to 2035, features the basic realization of socialist modernization. In the second stage, from 2035 to the middle of the 21st century, the CPC will strive to build China into a great modern socialist country that is prosperous, strong, democratic, culturally advanced, harmonious, and beautiful.

The 14th Five-Year Plan (2021-2025) for National Economic and Social Development and the Long-Range Objectives Through the Year 2035 expounded on a set of concrete goals for the first stage, along with development strategies to attain them. 
Among these goals, the most striking one is bringing the per capita GDP up to the standard of moderately developed countries by 2035, when China’s per capita income will reach the average level of developed nations. 
Given that the Chinese population is as large as the combined population of all high-income countries, and population growth is inherently quite slow across the world, the long-range objective for China’s per capita GDP means that the economic aggregate will hit a new high when China reaches the goal. This will revolutionize the world pattern, which has maintained a stable shape since the Industrial Revolution. Its far-reaching implications are self-evident. 
Joining the ranks of moderately developed countries necessitates the establishment and improvement of institutions that can bolster long-term economic growth. Modernizing state governance, including the system and capacity for governance, is a crucial institutional guarantee to that end. Basically modernizing China’s system and capacity for governance is also one of the long-range objectives for 2035. 
Status quo
A clear understanding of the current per capita GDP in China, and in moderately developed countries, is essential to aligning the nation with moderately developed economies with regard to the indicator. 
First, meeting the high-income threshold, as defined by the World Bank, and materializing the per capita GDP goal for 2035 are entirely different visions. Since the PRC was founded in 1949, especially since 1978 when reform and opening up began, China has economically caught up with many countries. 
According to the World Bank classification of countries by income, China crossed the low-income threshold of around $1,000 from 1997 to 1999, entering the stage of lower-middle gross national income (GNI) per capita. In 2008, the figure went beyond $4,000, approximately the upper limit of the range for lower middle-income economies, bringing China to the category of upper middle-income countries. In 2020, its per capita GNI exceeded $10,000. 
Based on current growth rates, China is on track to cross the GNI per capita threshold of $12,500 during the 14th Five Year Plan Period, thus securing a high-income status by World Bank standards, which will be a landmark among the significant achievements in China’s economic development. 
However, it is worth noting that the GNI threshold is inconsistent with the levels of moderately developed countries benchmarked in China’s 2035 goal. The World Bank categorized countries by income to determine their qualifications and conditions for international economic assistance, so the high-income threshold is relatively low compared to the levels of truly developed economies. 
In fact, in 2019, the World Bank’s high-income threshold accounted for only 31% and 28% of the average income levels of OECD member states and high-income economies, respectively. Therefore, even if China crosses the World Bank threshold and reaches a high-income status, there remains a substantive gap before reaching the development goal for 2035 with respect to the per capita GDP. 
Second, for many years, the per capita GDP in developed countries has grown at an average annual rate of around 1.5%. If China aspires to markedly narrow the income gap between itself and developed nations, within a limited period of time, it must maintain faster growth. 
In the last 30-odd years, China registered an annual growth rate of higher than 8% on average. In PPP (purchasing power parity) terms, the per capita GDP jumped from below 5% of the average of OECD countries in 1990, to 36% in 2019. The achievement is remarkable. 
Therefore, to approach the average levels of moderately developed countries in the next 15 years, China still needs to take economic development as the central task, and continuously enhance the quantity and quality of growth. 
From the perspective of economic research, high-quality economic development is marked only by considerably closing the relative income gap with developed economies, instead of merely crossing the absolute, almost changeless, GNI threshold set by the World Bank. 
Just as studies of the “middle-income trap” reveal, it is never easy for developing nations to lift themselves from middle-income economies to developed ones. Since the 1960s, only about 20% of more than 50 middle-income economies have managed to avoid the trap, while roughly the same proportion of these economies fell back to the category of low-income economies. In addition to economic growth, developed high-income countries will undoubtedly face grimmer challenges. 
The stark disparities in technology and income between developed and developing nations have become a major impetus motivating low-income and lower middle-income countries to grow rapidly. China’s continued economic catch-up objectively requires efficient transformations of development and innovation models and the complete, accurate, and comprehensive implementation of the new development philosophy. This development context and shift in development model calls for efforts to adjust and improve previously effective strategies, policies, and institutions. The modernization of governance is the fundamental institutional guarantee for these transformations. 
Institutional advantages
Late-mover advantages are key determinants of late-developing nations’ economic potential. However, whether the potential can be translated into reality depends on state capacity or capability. Theories have been quite mature alongside rich practical experiences regarding methods for boosting development in the catch-up stage with distinct late-mover advantages. Maintaining public order, spurring market development, improving infrastructure, providing public services, speeding up capital accumulation, and even directly mobilizing the reallocation of production factors, are all important measures for economic acceleration and sustained high growth in this stage. Strong state capacity is conducive to these ends.
In any age, there are countries with late-mover advantages like China, but few have performed as well as China in terms of development. The primary reason lies in China’s strong state capability, which is the nation’s most fundamental institutional advantage. 
China’s strong state capability is largely owed to the sound organization and leadership of the CPC. During the past centennial, through revolution, construction, and reform, the CPC accumulated abundant leadership experiences, cultivated an excellent talent team, and fostered strong capabilities in organization and mobilization, laying a solid foundation to shape and develop China’s state capacity. 
Based on the state capacity, the CPC rolled out a series of reforms to social systems following the PRC’s founding, thus quickly completing socialist reconstruction, and gradually establishing an independent and sound industrial system. 
After 1978, timely adjustments were made to development strategies to transition from the planned economy to a market economy, unleashing huge growth potential. As socialism with Chinese characteristics entered a new era, China successively proposed important thoughts, such as the new development philosophy, the new development paradigm, and the modernization of the system and capacity for governance, to comply with the evolution of the principal contradiction facing Chinese society.
In view of changes in domestic and international situations, China has expedited building the new development paradigm—with the internal circulation as the mainstay while domestic and international markets reinforce each other—advancing reforms to various economic and social systems, and maintaining a peaceful and stable economic and social order. These are all reflections of China’s state capacity and institutional advantages. 
Promoting governance modernization
The modernization of state governance, in essence, aims exactly to improve the quality and adaptability of the governance system, so as to cope with changes in domestic and international situations as the Chinese economy enters a new development stage. As such, the groundwork will be in place for realizing the long-range objectives for 2035, and the second centenary goal by the middle of the century. 
To raise the per capita GDP from the current upper-middle levels to those of moderately developed countries, it is vital to substantially transform development models and drivers, highlighting the need to adjust related systems, policies, and strategies. This is manifested in reforms to the system for governance and improvement of governance capacity. 
In the economic takeoff and catch-up stages, the optimal allocation of factor resources and imitation-based technological advances were primary drivers of growth. In the new development phase, economic development will rely more heavily on returns to scale and independent innovation. This is closely related to the two major development strategies emphasized in the 14th Five-Year Plan, namely the new development paradigm with a promising domestic market as the mainstay and an innovation-driven development strategy. The modernization of governance is the basis for actualizing the two strategies. 
To build the new development paradigm, it is first necessary to further unify the domestic market and promote commodity and factor circulations, strengthen the foundational role of consumption in economic development, and enhance investment efficiency. This requires government efforts to update and revamp hardware infrastructure like traditional road transport, network information, and civil engineering, and entails better government support in software infrastructure, such as the business environment, market supervision, public services, and social security. At the same time, importance should be attached to facilitating domestic and international circulations by relying less on export-oriented policies and elevating rule-based governance levels and capacity. 
The innovation-driven development strategy based on independent innovation requires a radical overhaul of innovation models. Independent innovation is buttressed by free exploration on technological frontiers, so full institutional guarantees are indispensable to the rights of innovation subjects to coordinate the interests of innovation beneficiaries and those suffering losses, building an innovation system that can not only incentivize innovation, but also ensure economic and social stability. 
All in all, modernizing the system and capacity for governance will play a basic role in the institutional guarantee for constructing the new development paradigm and smoothly realizing the long-range objective of bringing China’s per capita GDP up to the levels of moderately developed countries by 2035. Its theoretical logic and implementation path should be examined in greater depth. 
Guo Jinxing is an associate professor from the Center for Studies of Political Economy at Nankai University.