China under Uncertainty： Outlook, Counterfactual and Policy Simulations, and Reform Implementation--A Summary of Annual Report （2016-2017）

China＇s macroeconomy is surrounded by increased uncertainties while facing persistent downward pressures entering year 2017. Major external challenges are imposed by the chaotic political climate and disorderly retreat from globalization of the US accompanied with the impending FED rate hikes, which may trigger a destructive trade war and exert pressures on RMB depreciation and capital flight. Remaining ingrained in major internal challenges are the gridlock risks accumulated from excessive financialization of real estate sector and swelling housing market bubbles amid escalating debt levels, and more fundamentally, the continued off-real-to-virtual movement in the general economy and ascendancy of government over market in resource allocation.Based on IAR-CMM model, which takes into account both cyclical and secular factors, the baseline real GDP growth rate is projected to be 6.5% in 2017 （6.13% using more reliable instead of official data）. Counterfactual analyses and policy simulations are also conducted to highlight the convoluted uncertainties surrounding China＇s macroeconomy. Through the lens of these analyses, we identify a root cause of the weak outlook as the persistently distorted economic structure due to procrastination in reforms of the institutions and governance, which not only impairs China＇s growth potential but also limits the power of its recent stimulating policies while exacerbating their side effects. Key to successful economic restructuring in the face of adversely evolving demographics are market-oriented reforms, with well-designed strategies to balance short-term stabilization and long-run development. Such reforms should hold center stage in China＇s transition towards a modern free market economy and regulatory state.

Conquering China＇s Unbalanced and Inadequate Development： Macroeconomic Outlook, Policy Simulations, and Reform Implementation--A Summary of Annual SUFE Macroeconomic Report （2017-2018）

Leaving year 2017 China＇s macroeconomy is continuously characterized by unbalanced and inadequate development. Whereas some aggregate indicators have shown improvement over the year, the cumulative growth rates in consumption and fixed asset investment have continued theirdownward trajectories. Worsening income inequality and resource misallocations, both between secondary and tertiary industries, and within the latter, pose serious challenges, let alone the systemic risk associated with the flourishing shadow banking system, rapid credit growth and debt overhang that weigh on the Chinese economy like the Sword of Damocles. This summary report highlights both the status quo and the consequences of the unbalanced and inadequate development embodied in China＇s persistently distorted economic structure, and the role of deepening reforms of the institutions and governance in resolving the problems. Our analyses based on IAR-CMM model provide a unified framework for addressing China＇s short-, medium-, and long-term issues ir~ an internally coherent manner. Looking into year 2018, our benchmark projection of real GDP growth rate is 6.7% （6.41% using more reliable rather than the official data）. Alternative scenario analyses and policy simulations are conducted to reflect various aspects of the economic challenges in the short to long runs. Through the lens of these analyses we conclude that rule-of-law based and market-oriented structural reforms should continue to hold a center stage in China＇s transition from a phase of high-speed but unbalanced growth, to a stage of balanced and adequate high-quality development.

Deceleration of China's Economic Growth: Causes and Countermeasures

China's economic growth has been declining continuously at a rapid rate since 2011. It dropped to 6.7% in 2016 by more than 3% from nearly 10% average growth rate during 1979-2010. As for its causes, there are different interpretations among Chinese economists. One of the interpretations, which is held by some scholars including Justin Yifu Lin, is that external and cyclical factors are the main causes for the decline. The author disagrees with this viewpoint and holds that the root cause of economic deceleration is the delay in deep institutional reforms. An inclusive economy and state coercive capacity are two essential ingredients for sustaining economic prosperity. China must further enhance economic inclusiveness, and accelerate its transition into an efficienc y? driven and innovatio driven economy through deepened comprehensive marketization reforms. Meanwhile, it should further strengthen the rule of law to build a limited government that is capable, accountable, effective and caring.

China＇s Macroeconomic Outlook and Risk Assessment： Counterfactual Analysis, Policy Simulation, and Long-Term Governance- A Summary of Annual Report （2015-2016）

Abstract This summary report highlights the confluence of continued downward pressures and deflation scares in the face of looming uncertainty in China＇s key macroeconomic landscapes. Counterfactual analyses and policy simulations are conducted, in addition to benchmark forecasts, based on IAR-CMM model and taking into account both cyclical and secular factors. Economic deceleration is projected to continue in the short to medium term, with real GDP growth declining to 6.3% （5.5% using more reliable instead of official data） in 2016 and facing a significant risk of sliding further down in 2017. Five key factors contributing to the weak outlook, additional to frictions and impediments associated with economic transition/restructuring and lackluster domestic/external demands, are identified, including： lack of new growth/ development engine, exhaustion of government-led driving force, the crowding-out of private sectors by state-owned enterprises （SOEs） with excess capacity／capital overhang, nonperforming government sectors and officials, and twist or misinterpretation of the ＂New Normal.＂ A root cause of these problems, lying with sluggishness in China＇s transformation into a market based economy, has to do with overpowered government but underpowered market in resource allocation and government underperformance in enforcing integrity and transparency in the marketplace and in providing public goods and services. At the nexus between inclusive growth and institutional transformation are market oriented and rule of law governed structural reforms and harmonious development. As such, fundamental institutional reforms that dialectically balance demand and supply side factors and properly weigh short run stabilization against long run development should be elevated to the top of the agenda.

China＇s Reform： History, Logic and Future

Abstract This paper is a brief introduction of the core content and basic concepts of the book China＇s Reform： History, Logic and Future, and gives answers to questions such as why China＇s reform and opening-up policy has achieved great success, why the catch-up mode, extensive and extractive development mode China adopted in the past three decades are no longer sustainable and what China＇s market-oriented reforms should aim to achieve in the next stage so that readers can have a profound understanding of China＇s reform. Planning ahead, from the perspective of sustainable economic development, China badly needs to transform from factor-driven growth to efficiency-driven and innovation-driven growth, the key to which is to further encourage the liberalization of thought, promote reform and opening-up, unswervingly follow the path of economic liberalization, marketization and privatization, to establish an inclusive modern market system, to allow the market to play a decisive role in resource allocation and the private economy to play a dominant role in the national economy. The market-oriented reform is a complicated project and China is faced with at least three different aspects of reform in some key areas--the main body of private economy, the liberalization of financial market and the marketization of land. Meanwhile, China needs to efficiently balance three elements of good governance, that is, the rule of law, execution and democratic supervision, so as to facilitate the modernization of state governance system and governance capability.

On the Fundamentals of a Successful Reform for National Prosperity--An Economic Analysis Based on the Practice of China＇s Reform

This paper discusses the fundamentals required for successful reform, i.e., the necessary institutional changes required to make a nation grow sustainably wealthier. It argues that enriching the people is a prerequisite for a prosperous nation and further reveals the inherent logic behind the statement ＂in order to enrich the people, they must be given private rights, and in order to protect the people＇s private rights, public power must be limited.＂ Based on this argument, we examine and analyze the experience of China＇s reform over the past 30 years and come to the conclusion that it is necessary to transform government functions and further deepen market-oriented reform. We hold that China＇s economic performance bears no special or exceptional economic law, and there does not exist the so-called ＂China Model＂ characterized by government taking the leading role as a relatively mature, stable, and widely applicable development model, but that there does exist a Chinese development path or experience featuring the inherent logic of ＂prospering the nation through enriching its people＂ that can be employed by countries all over the world.

The Nature and Avoidance of the ＂Middle Income Trap＂

The ＂middle income trap＂ is a significant theoretical and practical issue closely related to the economic and social transition and sustainable development of a country. This paper explores the essence of the ＂middle income trap＂ and ways to avoid it. It reveals that the inner nature of the ＂middle income trap＂ lies in the institutional transition dilemma, which results essentially from a lack of reasonable and clear definitions of governance boundaries between government and market as well as government and society. This lack of boundaries causes coexistent and interrelated government inefficiency, market distortion/failure and social anomie, leading to a stagnant transition from a factor-driven to an efficiency-driven and further innovation-driven economy. Moreover, this paper proposes that the proper way to avoid the ＂trap＂ can be found in the reconstruction of the state governance mode, that is, to transition from a development-oriented and omnipotent government to a public service-oriented and limited government, from factor-driven to efficiency-driven and further innovation-driven development, and from a traditional society to a modem civil society through defining reasonable and clear boundaries between government and market as well as government and society. Thus, reconstruction can establish a state public governance mode featuring the interactive role of government, market and society, and achieve the modernization of state governance systems and capacity.