Wei Jianing--Vice General Director from the Development Research Center of the State Council

Summary:

I. Global economy will remain in the doldrums and the Chinese economy is subject to expectations for reform.

First, European debt crisis lingers on as the result of its;semi-sovereign structure. Second, incessant American debt crisis seems to be fiscal in nature, but its fundamental cause is the American financial system. The super-sovereign status of the US dollar means that American debt risk is not subject to market disciplines. Third, Japanese debt crisis is even more serious, although its impact on other countries is not significant because the debts are mainly owed to the Japanese themselves. However, it is harder to tackle, because it must be repaid by the Japanese themselves. In view of the global economic outlook, the future trend of the Chinese economy will be subject to itself, in particular to the expectations for reform.

If reform can be accelerated, the Chinese economy can enter a new boom. In that scenario, the main objectives of macroeconomic regulation will be prevention of inflation and inflow of hot money.

If reform staggers, people will lose confidence in the Chinese economy, which may result in falling economic growth and lingering inflation. In that scenario, the objectives of macroeconomic regulation will be the prevention of stagflation with Chinese characteristics.

If expectations for reform break down totally, economy will enter a downward spiral. In that scenario, the objectives of macroeconomic regulation will be the prevention of crises - fiscal, financial, economic and even social crises.

II. The best way to prevent crises is to accelerate reform and opening up.

First, Shanghai Pilot Free Trade Zone has been approved and established. Its significance is comparable to the establishment of the special zone at Shekou in 1979. The establishment of this new free trade zone in Shanghai is as strategically significant as the development of Pudong, which was initiated by Deng Xiaoping.

Second, the Third Plenary Session of the Eighteenth CPC Central Committee put forward the main objectives of reform, which is both right and smart. Although reform in China should still focus on reform of the economic system, other aspects need to be considered. The balance between government regulation and market mechanism is the key to reform. Of the two, market mechanism should be the dominant force.

Third, the Third Plenary Session stressed the importance of maintaining the authority of the Constitution and laws through further legal reform and building a fair, efficient and authoritative socialist judicial system to protect the rights and interests of the people.

Finally, the Third Plenary Session decided to set up the Central Leading Group for the Deepening of Reform, which is a new coordination institution for reform. This decision shows that the new leadership is serious about carrying forward reform in China.

III. New consensus and new competition on reform are needed in today's world.

In times of crisis, growth rate is not important. The most important thing is structural adjustment and transformation of the economic pattern. What counts is the speed at which we reform our system.

Over the last three decades, China has secured tremendous achievements. One piece of valuable experience drawn from this period is that opportunity for accelerated reform lies in crisis. The decisions made at the Third Plenary Session of the Eighteenth CPC Central Committee will undoubtedly push the Chinese economy to a new level characterized by higher quality, higher efficiency, less pollution and narrowing gaps between the rich and poor.

The present world is plagued by crises. Therefore, China needs to accelerate its reform; other countries should also reach a consensus on reform so as to compete with one another. Reform can help the world get out of crises and stimulate the recovery of the global economy. Looking into the future, we believe that countries who take the lead in reform will be the first to get out of crisis and reach new heights. It is our firm belief that the Third Plenary Session will not only usher in a new phase of reform in China, but also promote the new consensus on reform in the world.