Policy factors

    Although switching the extensive growth mode to intensive one has long been urged since the reform and opening up started in the late 1970s, the outdated mode dies hard. A number of institutional and policy factors help explain why.

    First, governments at various levels still enjoy excessive power over resource distribution. Local governments are exhibiting very strong investment and development impulses under the current administrative or economic set-up. Many localities, therefore, rush to expand their economic size and go in for high-energy, high-pollution industrial projects.

    Second, resource prices are in many cases distorted, failing to reflect the real value. This is because certain kinds of resources are still priced by the State, operating on the inertia of the old planned economy. The prices thus determined are often a bit too low. In addition, enterprises of different ownerships are treated differently in terms of the price of the same resource.

    Third, monopoly still reigns in some sectors. Profits for the monopoly enterprises are taken for granted no matter whether the product quality is good or not.

    Fourth, performance of local governments has long been gauged quantitatively by output values and economic growth rate to the neglect of energy consumption and the environment. Qualitative measurement of economic growth has been largely ignored.

    Fifth, laws and rules covering intellectual property rights protection have remained incomplete and the institutional climate for innovation is yet to be brought about. This is one of the main factors at the root of the extensive mode problem.

    In sum, the extensive growth mode must be immediately shifted to an intensive one, something the 11th Five-Year Plan has set the stage for.

(Source: China Daily)