Practical cases show that for a business or a region, it is typical to win at the turning point rather than at the starting point. How to win at the turning point is a major challenge for both businesses and the government. Firstly, the 13th Five-Year Plan period marks the key historical link for China’s economic transformation and upgrading, which will laid a secure foundation for the country’s sustainable growth in the next ten or twenty years. Secondly, the transformation and development in the 13th FYP period features the high integration of increase, transformation, and reform with transformational reform promoting the growth as a general trend. Thirdly, economic transformation and upgrading have enormous growth potential and market spaces, whereas we are confronted with an increase of multiple contradictions, risks and hidden dangers. To adapt to the general trend of economic transformation and upgrading, structural reform is needed to solve the structural contradiction for the major objective of economic transformation and upgrading in the 13th FYP period.
1 The 13th Five-Year Plan Period: A Basic Trend for Economic Transformation
Economic development owes its dynamics to structural change and institutional innovation. Economic transformation and upgrading represent the greatest potential and the focus of attention in the 13th FYP development. Despite the current economic downturn and increasing pressure of structural adjustment, the trend of economic transformation and upgrading has begun to emerge.
1.1 Industrial Structure Is Transforming from Industry Orientation to Service Orientation
(1) The general trend towards a service-oriented industry is reflected in five respects. One, since the year of 2000, China’s service industry has been growing rapidly with its value-added being doubled every five years. Two, the proportion of the value-added in the country’s GDP has increased apparently from 41.3% in 2001 to 50.5% in 2015. Three, the service industry has become the leading force boosting the GDP growth. In 2014, the tertiary industry contributed 3.5% to the GDP increase, 0.1% higher than the secondary industry. Four, the service industry has turned to be a major sector for making innovation and undertaking business. In 2015, there were 358 million newly registered service enterprises in China, an increase by 24.5% as compared with the previous year, constituting 80.6% of the total number of newly registered enterprises. Five, the service industry has become a major source for employment. By the end of 2015, employees in the service sector have made up 42.4 of the total number.
(2) It is an economic law that service-oriented industrial structure is formed in Late Industrialization, in which the development of the modern service sector whose value-added is higher than industry and agriculture indicates the general orientation in which industrial structure evolves. In this particular period of time, the value-added of the service sector makes up more than 60% of the GDP. Generally, China’s industrialization has undergone three stages since the reform and opening-up in 1978: the first stage is the initial stage of industrialization in which processed products and light industrial products took the leading position. The second stage is the mid-industrialization in which heavy industry and chemical industry constituted the major components of the industry. The third stage is the mid-and-late industrialization in which the service industry starts to become a leading industry. During the 13th FYP period (2016–2020), therefore, China has begun to enter Late Industrialization in which a service-oriented industrial structure is basically formed in terms of economic law.
(3) The 13th FYP period will witness the forming of a modern service-oriented industrial structure. Currently, there is still a big gap in comparing the process of China’s service industry with the corresponding stage of industrialization. In 2015, for example, the value-added of China’s service industry accounted for 50.5% of its GDP, 8–10 percentage points lower than the figure of the other countries of BRICS, and over 20 percentage points lower than that of the developed countries. The 13th FYP has set 56% as the expected target for the growth of service industry. Judging from the real situation, it is likely to reach 58% by 2020.
First, in the 13th FYP period or an even longer period, the conditions are favorable for the proportion of the service sector’s value-added in the GDP to increase by 1.2 percentage points. It is projected that it will rise to about 58% by 2020 from the present 50.5%, or likely approach 60%. Thus, a service-oriented industrial structure will basically be formed.
Second, the service industry is expected to maintain an average annual rate of increase by 8–9%. And its value-added is likely to reach over 50 trillion yuan (US$8.33 trillion) by 2020 from the present 30 trillion yuan (US$5 trillion).
Third, the internal structure of service industry has been optimized to a large degree. Currently in China, the producer-service sector, focusing on research and development, finance, and logistics, only accounts for about 15% of the GDP, 40% or so of the service industry, while in terms of the manufacturing power of Germany, the corresponding proportion is about 40% and over 70% respectively. China’s low proportion of the modern producer-service sector in the GDP represents an outstanding weakest link for the transformation and upgrading of its manufacturing industry. It is expected that China’s innovation-driven strategy will enable the proportion to reach about 25% by 2020, which will become a powerful driving force for the transformation and upgrading of the country’s manufacturing industry.
(4) The major conditions for the development of service industry will be dealt with in two aspects. In one aspect, the new round of technological revolution and the global trend of manufacturing transformation are facilitating the development of producer-service industry. In this context, global manufacturing in the future 5–10 years will be in the critical period transforming from production-oriented service industries to service-oriented industries. By now, among the 51 industries covered by the Global 500 companies, 28 belong to the service industry, namely, 56% of the total number of the companies are engaged in the service industry.1 At present, China’s industrial transformation and the new round of global technological revolution have been joined. This will effectively facilitate the transformation and upgrading of China’s manufacturing industry from production-oriented industries to service- oriented industries, creating essential external conditions for promoting the development of modern service industry, especially of producer-service industry.
In the other aspect, changes in residents’ consumption pattern have promoted the rapid development of living services industry. These changes are an important internal driving force for the transformation of a country’s industrial structure. Currently, demands for service consumption such as education, medicine, health, and tourism are rising rapidly and comprehensively, thus becoming an important driving force for the transformation of industrial structure and the development of modern service industry.
1.2 Urbanization Structure Is Transforming from Scale Urbanization to Population Urbanization
(1) Urbanization is still in the stage of rapid development. China’s scale urbanization reached 54.7% in 2014, and rose to 56.1% in 2015. Generally, the urbanization process still lags far behind the industrialization process. Practically, in Late Industrialization, the urbanization rate of permanent population should be about 65%. At present, this rate in China is just a little above 55%, which is nearly 10% lower and still has room for development. In addition, the development of China’s small and medium-sized cities is relatively slow. The regional distribution of new urbanization is not reasonable enough. And there is still a long way to go before urbanization arrives in Central and Western China.
(2) A new pattern of the urbanization of registered population will basically be formed during the 13th FYP period. Whether to coordinate urbanization with industrialization or to look at the practical needs of the overall construction of a moderately prosperous society, population urbanization ought to reach the following targets in the 13th FYP period:
One, the urbanization rate of permanent population will not be lower than 60%. By deepening the reform of household register system and speeding up the equalization of basic public services both in urban and rural areas, the urbanization rate of permanent population in the future five years will possibly increase at an annual rate of no lower than 2%. By 2020, the urbanization rate of permanent population in China will have possibly reached 65% or so.
Two, the urbanization rate of registered household population will reach 50% or so. Although the urbanization rate of China’s registered household population has surpassed 55%, that of its registered household population is rather low, only 39.9% in 2015, 16% lower than that of the permanent population. The low urbanization rate of the registered household population is an outstanding contradiction for China’s new urbanization process, which is not fit for the goal of building a moderately prosperous society in an all-round way. The 13th FYP sets 45% as the expected target for the urbanization rate of the registered household population, and this target is likely to reach about 50% if the household registration system reform is quick enough.
(3) The historical conditions for urbanization have undergone fundamental changes. In the beginnings of the founding of the People’s Republic of China there was no urban-rural binary household registration system in China. To accelerate its industrialization, China began to implement this system in the late 1950s. With industrialization growing till now, the historical conditions for the household registration system have changed fundamentally:
First, the urban-rural integration process has been accelerated notably. With the implementation of scale operation and acceleration of modernization in agriculture, there will be a growing trend for rural population to flow to cities.
Second, the structure of migrant workers from rural areas has undergone significant changes. As the post-’80s and post-’90s have become the main body of the migrant workers, most of them have settled in cities, and it would be difficult for them to return to the rural areas. One important objective of the household registration system reform during the 13th FYP period is to make the identity of “migrant workers” a past history.
Third, historical conditions have emerged to replace the urban-rural binary household registration system with residence permits. This practice will be a breakthrough for the comprehensive and further reform of the household registration system. To carry out the residence permit system in an all-round way, migrant workers should be given access to the same basic public services as urban residents. With regard to the design for residence permits, some people worried about the “basin effect” that might occur in large and medium-sized cities. In practice, however, the standard can be set higher for large cities, while for small and medium-sized cities it can be reasonably less strict. It is under such a condition that free population movement has begun to be allowed gradually. On the whole, with the prerequisite of accelerating the construction of public finance system and achieving the equalization of basic public services in urban and rural population, it is very likely for China to implement residence permits in an all-round way by 2020.
1.3 Consumption Pattern Is Transforming from Material Consumption to Service Consumption
(1) A historical key link for the change of China’s consumption pattern. Since 2008, China has generally entered a new development stage in which people’s development is an important goal. Urban and rural residents have spent more and more on the development of their own, which fully reflects a fundamental change in the stage of social development. In this new stage, urban and rural residents’ consumption keeps growing. For instance, China’s retail sales of consumer commodities increased to 30.09 trillion yuan (US$5.09 trillion) in 2015 from 18.39 trillion yuan (US$3.07 trillion) in 2011, with an average annual increase of 13.4%, 6.5% higher than the growth rate of the GDP.
(2) Consumption pattern that is upgrading rapidly. First, it is upgrading from subsistence consumption to developmental consumption. Urban residents’ consumption priorities have changed from industrial consumer goods to services such as education, medical treatment, health, and tourism. Rural residents’ consumption priorities have changed from living necessities to industrial consumer goods.
Second, it is upgrading from traditional consumption to new consumption. Chinese people’s demands for such new consumption as green consumption, information consumption, and convenience consumption keep rising. For example, in the past ten years, urban and rural residents’ information consumption has kept an annual increase rate of about 20%.
Third, it is upgrading from material consumption to service consumption. From 2000 to 2014, China’s urban residents’ service consumption per capita rose from 1960.92 yuan (US$326.82) to 7563.44 yuan (US$1260.57), an annual increase of 10.1%. And in terms of 2014, service consumption made up as high as 45.32% of the total consumption. It is expected that by the end of the 13th FYP period, this rate will increase to more than 50%, and even around 60% in some developed regions. This will be a powerful driving force for accelerating the development of modern service industry.
(3) The 13th FYP objectives for the upgrading of consumption pattern. The 13th FYP period will be a new stage in which urban and rural residents’ service consumption will grow in a rapid and comprehensive way; thus the contribution rate of consumption to economic growth will obviously be increased.
First, the increase rate of social consumer goods’ retail sales in 2015 was 10.6%, so it is possible for an average annual increase by 9–10% during the 13th FYP period.
Second, the overall consumption will rise to 50 trillion yuan (US$8.33 trillion) by 2020 from 30 trillion yuan (US$5 trillion) in 2015.
Third, the contribution rate of consumption to economic growth during the period of 2013 to 2015 increased from 48.2 to 66.4%. Considering that the increase was achieved despite the rapid decrease in contribution rate of investment, so the contribution rate of consumption to economic growth will remain steady at about 65% during the 13th FYP period.
2 The 13th Five-Year Plan Period: Economic Transformation and Upgrading and Economic Growth Potential
China’s economy will grow at an intermediate speed in the 13th FYP period. The growth will take on an “L” shape, while a new driving force for growth will begin to emerge, and economic structure will change notably. On the whole, during the 13th FYP period, the average annual economic growth rate will remain 6–7%, and the average growth rate is expected to reach 6.5%. It implies that China will not only cross the middle-income trap successfully, but also make steady contributions to the world economic growth in the new stage.
2.1 The Outstanding Features of Transformational Growth
(1) It is obvious that economic growth is relying more on economic transformation. During the 13th FYP period, economic transformation has great potential for economic growth. A breakthrough in economic transformation will not only ease the pressure on short-term economic growth, but also form an important foundation for the medium-to-long-term sustainable growth.
(2) The successful transformation or otherwise of a region is subject to its economic growth. For instance, the “new Northeast phenomenon” is mainly caused by being both less adequate and less open in transformational development in Northeast China.
(3) Economic transformation and upgrading will release growth potential. Thanks to economic transformation and upgrading, the potential economic growth rate will remain 6–7%, which is an essential foundation for China’s economic growth at an intermediate speed. As a new driving force is gradually formed, China is likely to achieve an annual economic growth by 6.5% during the 13th FYP period.
2.2 The Leading Role of Modern Service Industry for Economic Growth
(1) The effects of service industry on economic growth. The forming of the service-or...