Our Vision

Question 1: The book offers a God’s-eye view. Analyzing solely from economic data is insufficient; we also need to understand the environment in which policymakers operate and the driving factors behind their decisions.

Do we acknowledge that reforms have a degree of serendipity? Many reforms in China were navigated through trial and error, influenced by numerous factors, making it difficult for future generations to discern the rationale behind specific reforms or evaluate their effectiveness. For instance, the triggers for the tax-sharing reform were diverse, including uncontrolled inflation, reduced central fiscal funds, and regional development imbalances. While the consequences of the tax-sharing reform are complex, it effectively addressed many issues at the time. This tax system is relatively simple but highly efficient. As we plan the next round of fiscal and tax system reforms, considerations include how transfer payments under the tax-sharing system should be handled and whether it should be made more complex (progressive tax rates). Policies are time-bound, and reforms naturally come with uncertainties. Making reform choices is a courageous endeavor.

Question 2: After summarizing eight stages of economic development, what are the goals for the next stage? What is your vision, and how is it planned? How will it be achieved?

In our upcoming fourth book, “The Philosophy and principle of Inclusive Growth” we roughly outline our vision, which simply put, is that every worker should be able to earn a decent living through their wages. The vitality of individual innovation is the core driver of long-term, high-quality economic growth. The key to unleashing this core is the accumulation rate of labor wages and the cost of obtaining risk capital. Thus, the goal of reforms is to address these three issues: enabling people to earn a decent living through labor, accumulate entrepreneurial capital through labor, and obtain relatively cheap startup funds through the capital market.

This vision corresponds to a basket of minimal reform plans. Unlike Western reforms that focus on tax rates, tariffs, interest rates, and immigration issues, China’s reform goals are more complex, especially concerning state-owned enterprise reforms. Most reform issues ultimately relate to the property governance and modernization (management models) of state-owned enterprises. As for the planning and implementation methods, we are unable to answer.

Question 3: Fiscal and monetary policies are tools to achieve these goals, but they currently seem less effective. What new tools are needed?

The separation of fiscal and monetary policies was established during the reforms of the 1990s. However, current reforms present certain risks, with many opinions suggesting that monetary policy will cooperate with fiscal policy in the near future, handing the initiative for resource allocation to fiscal policy. This decision outlines a major reform idea: should the central government or the market spend money? If the central government, then through state-owned enterprises and local government projects. If the market, then through consumer subsidies and social security subsidies, allowing consumers to spend. These two major directions are difficult to reconcile. Many opinions suggest that the market approach is like spreading pepper evenly, having little effect compared to the central approach.

These two approaches are unlikely to solve growth issues. New tools beyond fiscal and monetary policies are needed to address growth issues.

Question 4: Past reforms were less market-oriented, leading to quick and efficient adjustments. Now, with marketization, more factors need consideration, including global conditions such as exchange rates and protectionist trade policies.

Why does the U.S. dare to engage in trade protectionism? Why are others reluctant to give up the U.S. market? When the domestic market is sufficiently attractive, the initiative for reforms is in hand. The key factor for marketization is relatively straightforward: how to stimulate domestic consumption. We believe that the growth of labor income and a sound social security system are central to unleashing consumption power.

Question 5: How do we address current short-term issues such as real estate, debt, and an aging population?

Question 6: Legalization is a prerequisite for marketization. How should it be established?

According to our fourth book, the legal system is a derivative of culture, which in turn is derived from ideas, rooted in social relationships between people. Without changing the mindset, it is difficult to establish a legal system similar to the West. For instance, can the China Securities Regulatory Commission penalize brokers of state-owned enterprises for serious fraud to the point of bankruptcy? This might be beyond everyone’s imagination. If we continue to think in terms of “left pocket to right pocket,” such issues will never arise.

During our research, the cases of India and Saudi Arabia stood out. India’s legal system is less developed compared to the West, yet it has achieved considerable success, particularly in the capital market.

Question 7: High-quality development means returning to manufacturing. Over the past few decades of urbanization, factories have relocated, and highly educated individuals naturally flock to resource-rich big cities. Without adequate support, many young people are reluctant to move to second- and third-tier cities.

Basic public welfare must be implemented, requiring significant changes to the tax-sharing reform. Currently, land prices in big cities are still too high, attracting an influx of social welfare resources. Additionally, manufacturing must rely on technological barriers to enhance product profitability, achieving higher labor returns.

Question 8: A critical economic principle is that risks should be borne by those who take them. If risks are not borne individually, they will be transferred through the system, failing to address the root cause. The principle of “bearing risks and sharing profits and losses” is crucial.

Effectively managing the budgetary soft constraints of local governments and the property governance of state-owned enterprises are world-class challenges.