Strong, sustainable and inclusive growth in a new era for China – Paper 1: Challenges and ways forward


This is the first of two ‘policy insight’ papers that offer an outline of strategies and policies for an innovative, sustainable and low-carbon approach to China’s development. They are intended to inform decision-making for China’s 14th Five-Year Plan (2021–2025).

The old growth story in China is coming to an end. The phase of development driven by investment in physical capital will be increasingly supplanted by investment in assets such as knowledge and social capital as well as investment in and the preservation of natural capital. Recognising the challenges that China is facing – including climate change, new technologies, and clarifying the scope of the Belt and Road Initiative, as well as recovery from COVID-19 – this paper aims to offer an approach to growth and development that could spell out a new development strategy for the country as the 21st century progresses.

The authors set out six areas of reform, which are complementary and interwoven:

  1. Price, regulation and enterprise reform. If private sector investment and innovation are to be fostered within a strong and sound investment climate, then both price signals and regulation should take account of potential market failures. An example would be a strong carbon price.
  2. Financing investment in the four forms of capital. This will require a combination of private and public finance. Wise regulation is of great importance, for avoiding both the problems of excessive risk-taking and the potential distortions and risk of directed credit.
  3. Public finance and the functioning of cities. Cities will be the focus of most of the investments, particularly infrastructure investments, of the new era and their public finances must be managed well. To do this they will need strong revenue streams from local taxation and payments for services.
  4. Internal governance. Private investment is at the heart of the growth model of the new era and it is very sensitive to the quality of governance, as well as the quality of infrastructure services. There are three elements of the quality of governance in relation to investment: the soundness of policies; the predictability of policies; and the functioning and behaviour of institutions.
  5. Management of radical change and dislocation. Key elements include: training and retraining; support and finance for local entrepreneurship; moving mobile government activities to the affected localities; help for workers in relocating; and social safety nets.
  6. Global governance. The challenges of the global commons, particularly climate change, are of great urgency. China is now in the vanguard of action and international collaboration on climate change. This presents it with great opportunities in terms of its own new model of growth but also in terms of global leadership.

Plan of the paper

  • Section 1 reviews the economic achievement that China has made and looks forward in relation to climate and sustainability and challenges in a new era. It also outlines the desired features of the new growth story.
  • Section 2 explains the reasons why the earlier approaches of development are coming to an end and sets out some of the central elements of the new growth strategy in a changing world.
  • Section 3 outlines the core action areas, innovations and investments for the next phase, in particular China’s 14th Plan and the broad policy instruments to guide these innovations and investments. More detailed studies for investment in the four capitals to manage a structural transition are covered in Paper 2.
  • The final section sets out the economy-wide reforms that can underpin the processes of transformation and growth described in the paper.

This paper and its follow-up were originally prepared before the COVID-19 outbreak; the pandemic has changed the situation in many important ways, inside and outside China. The fundamentals of the medium- to long-term analyses of these papers have not changed. However, the short term is very different and it will be important to integrate, both in China and the world, the recovery from the COVID-19 crisis with the transformation of the economy embodied in the transition to a low and zero-carbon world.

Read Paper 2: Valuing and investing in physical, human, natural and social capital in the 14th Plan here