How can economics reflect the true reality of China and be constructed on the basis of China’s success stories? On the evening of March 29, lectures of dialogue with celebrities in RDCY have embraced the famous economist, Zong Liang, who is chief researcher of Bank of China gave us an in-depth analysis.

Over the past four decades, China has scored notable achievements in economic growth by implementing reform and opening-up policy. However, the relevant economics theory system still remains immature. The policy helps shape a model of economic growth of China and serves as a source of innovation for economics theory. The core of reform lies in a balance between market and government, and requires people to facilitate market-oriented reform and constantly delegate power to lower levels to boost innovation. Openness refers to active integration into globalization in order to foster globalization and international trading theory innovation. Thus, the heart of the matter is to review and conclude what has been achieved in the past years since the inception of reform and opening-up. That means making ground-breaking efforts in the field of economics based on China’s experiences, getting acknowledged worldwide and defying test of practice. It is the way of truly exhibiting China’s stories.

It is a systematic project to combine China’s narration with economics theory innovation, which demands understanding of several aspects as follows.

First, China’s narration is the engine and the source of innovation for economics.

In 2018, China ranks the first worldwide in terms of consumption aggregate. It is expected to grow continuously in the future. Meanwhile, there existed no major economic crisis in past several decades and Chinese economy has achieved integration of quality, quantity and speed. For another, China has enjoyed a growing international status from participating into WTO to proposing BRI, a community of shared future for mankind. A prominent phenomenon is that some people emphasize our problems and ignore our merits and achievements. Their pessimistic attitude accounts for lack of adequate recognition of progress that China has made as well as a good narration of China’s success stories.

The key to China's success lies in finding out a set of "systematic" and more reasonable ideas and methods from practice. From gradually improving the market economy model to letting the market play a decisive role, China is gradually improving the socialist market economy system, thus forming a market economy model with Chinese characteristics. In this process, China adheres to it that the practice is the testing standard based on problem-oriented manner, which contains a deep economic logic.

Second, dilemma and solution of economic theory

Due to a variety of schools of economics, conclusions of certain objects vary from person to person. The relationship between the government and the market is not as diametrically opposed as western economics suggests. In practice, the market mechanism is conducive to improving the effective use of social resources through the "invisible hand", but it has its limitations and requires the government to play a timely regulatory role through the "visible hand".

Many famous economists have made good points on this issue. Practice has proved that the traditional planned economy model has problems and the complete market economy also has defects. Since the beginning of reform and opening up, China has blazed a trail of combining the market with the government. The success of China's economic development model is an important exploration of the relationship between the government and the market from opposition to unity.

Third, the market economy model that carries Chinese characteristics should be shaped through innovation.

Macroeconomics has established corresponding theories respectively from the perspective of market economy and state intervention and played a better role in the relevant scope. There exists no complete market economy in the world or in history. Only in the early days of capitalism, against the background that aggregate supply was much smaller than aggregate demand, it was very close to a complete market economy. In essence, a market playing a decisive roles is the system combing effective market with promising government, representing the market economy model.

The five major models of market economy have their own characteristics. The first one is American model featuring liberalism. Second, the European model is social and market-oriented economy. Third, the Japanese model is characterized by government-guided market economy. The fourth one is Swedish model that centers on welfare market economy. The fifth is the Chinese model, which boasts socialist market economy (efficient market and active government). From the perspective of the combination of market and government, the market components in western states are relatively prominent while the role of the government in China's market economy model is slightly stronger. From the perspective of reality, China is tending to strengthen market-oriented reform, while the United States is inclined to strengthen the role of the government. The degree of marketization of the two countries presents a new feature of convergence.

Fourth, logics of western economics can’t meet requirements of economic development.

The first and foremost one is the adjustment of macro policy or object. Macroeconomic objectives in macroeconomic theory include full employment, price stability, economic growth and balance of payments. These four goals are derived from Keynesian theory. The macro-control objectives should take the supply and the demand side into comprehensive consideration, but the Keynesian theory only considers the demand side, and the four targets set are unreasonable. Economic growth and full employment can be unified as economic growth to some extent. In view of the need to consider the supply side, there should be the goal of structural optimization or adjustment, which proves a reasonable way.

Secondly, the importance of macro-control has become increasingly prominent. It is necessary to establish a regulation system that organically combines the supply side and the demand side. Even western economics theory rises to the level of total supply and total demand, it has not formed a complete theoretical system. China has realized the combination of supply-side and demand-side regulation policies in practice. China hails supply-side structural reform which requires to adopt a comprehensive approach, focus on supply-side reform and take demand management into consideration. That means both supply-side structural reform and appropriate expansion of aggregate demand are needed.

Fifth, China’s success stories have provided a profound theoretical foundation for economics innovation.

The success of China's economy is the success of the socialist market economy model, which contains profound economic theory foundation and innovation opportunity and plays an important role in macroeconomic theory innovation. We believe that rational comprehensive economics that originates from practice and serves practice will not only be applicable in China, but also have a broader scope of application. It will provide an alternative economic development model for the world as well as a profound foundation for economic innovation.

In the future, several conditions are indispensable if China wants to keep a long golden development period. The first one lies in good qualities of China’s economy. Second, the government can take effective measures to improve labor productivity and keep technological innovation stable. Third, we need to ensure a certain degree of reasonable demand. We will maintain stable growth in the short term and optimize the structure in the long run, avoid major risks and maintain high-quality growth. At the same time, we should pay attention to the impact of external environment on our economic development, and vigorously shape a good external environment.

The article was originally published at RDCY.org. It  was translated by Kuang Chuang, an intern of Chongyang Institute for Financial Studies at Renmin University of China.