Cover Story

Correcting the “Three-Carriage” Economic Model

For the Chinese economy to transit into the 揘ew Normal，？the theory that economic growth is determined by consumption， investment， and net exports as well as policies based on this theory must be corrected. As for ways to do so， economist Wu Jinglian recommends shifting from extensive development to intensive development by optimizing the economic structure and promoting innovation.

Meanwhile， economist Wang Xiaolu warned that by consistently using monetary or fiscal stimulus policies to boost investment demand in order to pick up the slack of consumer demand， the government could risk over-investment and structural imbalance at a certain stage. Late economist Aoki Masahiko stressed that under the New Normal， increases in total factor productivity （TFP） would make a bigger difference in per capita GDP growth than ever before， which calls for a sound institutional environment.

China Responds to New International Rules

New international rules are being constructed. The TPP， TTIP， RCEP， and other cooperation mechanisms are introducing more external variables to China， which is currently in the throes of transformation. With an ever-changing international situation， China needs a vision with an international outlook to help it more smoothly navigate the 揹eep-water zone？of reform and economic 揳djustment period.？

China will continue to implement a more proactive opening strategy during the 13th Five-year Plan period. The One Belt， One Road initiative and the China-ASEAN Free Trade Area are working in coordination to allow the nation to explore a new round of internationalization. Recently， the State Council put forward the concept of 揵uilding a new open economic system.？On this theme， Caijing introduced related articles and discussed how to build a new pattern of opening up to the outside world.

Suggestions for SOE Reform

A new round of SOE reform is on the horizon. The newly published top-level design plan Guidance on Deepening the Reform of State-owned Enterprises seeks to achieve meaningful results in key areas and processes of SOE reform by 2020， and to make breakthroughs in promoting reform of different types of SOEs， improving the management of state-owned assets， and developing a mixed ownership economy.

The research report by SEEC Research Institute on SOE reform offers a series of practical suggestions on adjusting the layout of state-owned capital and helping decision-makers unlock tens of trillions of yuan in state-owned capital. The report can provide a reference for local government， government departments， and enterprises in exploring SOE reform.

The Future of the RMB Exchange Rate

Market perceptions vary about the future of the RMB exchange rate. China Finance 40 Forum Senior Fellow Zhang Bin believes that in the near term the RMB will have slight fluctuations up and down the line at the current exchange rate level; in the medium and long term there is potential for the RMB to become a strong currency， provided that no serious mistakes are made in macroeconomic management policies.

Zhang bases his judgments on monetary authorities？attitude and ability to intervene; the primary basis of his judgment on medium to long-term exchange rate potential is the economic fundamentals behind yuan-denominated assets.

Pros and Cons of Deindustrialization

An important indicator of nationwide economic transformation and upgrading is that the tertiary industry accounts for a larger percentage of GDP than the secondary industry， which has been achieved in China， with tertiary output making up 51.4 percent of China抯 GDP in the third quarter of this year.

However， deindustrialization at too fast a pace could stall economic growth. When the secondary industry shrinks too rapidly and emerging services with higher productivity are unable to become the dominant industry in a short time， more production factors and resources would be allocated to traditional services. Since production efficiency of traditional services grew slower than that of the secondary industry， 揺xcessively fast deindustrialization？would slow down economic growth， hinder upgrading of the services industry and exacerbate income inequality.