In his report to the 20th National Congress of the Communist Party of China, Xi Jinping, general secretary of the CPC central committee, announced that “in pursuing economic growth, we must continue to focus on the real economy. We will advance new industrialization and move faster to boost China’s strength in manufacturing, product quality, aerospace, transportation, cyberspace, and digital development.” General Secretary Xi Jinping once again reiterated that we must continue to focus on the real economy, demonstrating our Party’s confidence in pursuing progress with stability and the strategic focus of adapting to complex current situations.

Pursuing progress with stability

The real economy is the basis for our people’s survival and development. Forming the real economy and its development process is also the process of human beings’ constantly expanding capacity to meet their growing material and cultural needs. Fundamentally, the fact that the Party unites and leads the people of all ethnic groups to promote economic development is to meet people’s growing material and cultural needs and to achieve common prosperity for all.

The real economy has supported China’s economic development and achieved great results. Since the 18th CPC National Congress, China’s GDP has grown to RMB 114 trillion—accounting for 18.5 percent of the world economy. The key to this impressive outcome lies in China’s dedication to developing the real economy.

The real economy, as economic activities that directly create social wealth, is a fundamental part of our modern industrial systems. To develop the real economy, the manufacturing industries, as the core of the real economy, should play a fundamental and leading role. To develop the real economy, we should grasp the key objective of developing manufacturing. The virtual economy should both emerge from and serve the real economy, effectively allocating resources as an intermediary to drive the real economy’s development.

Confronting complex situations

At present, China is confronting a confluence of profound changes unseen in a century, along with the Covid-19 pandemic. Sources of global turbulence and risk spots have increased significantly. The complexity and uncertainty of our current environment have been rising. China’s economic development is facing pressure from a contraction in demand, supply shocks, and weakening expectations. In this situation, maintaining strategic focus, strengthening and expanding China’s real economy are fundamental to tackling these complex current situations.

First, strengthening and expanding the real economy is the fundamental choice for China to enhance our comprehensive strength and face international competition.

Second, strengthening and expanding the real economy is the fundamental way to address China’s economic structural contradictions. In terms of structural contradictions, there are imbalances in the industrial structure, the regional structure, and the income structure. Confronted with these issues, supply-side structural reform should be promoted to inspire a change in economic development’s quality, efficiency, and driving forces. This will allow development’s fruits to benefit all.

Third, strengthening and expanding the real economy is the fundamental method which addresses financial risks. Financial risks are one of the most prominent risks in the Chinese economy. The root cause for financial risks is deviation between the virtual economy and the real economy. The best way to address financial risk is to strengthen and expand the real economy, leading the virtual economy to return to its role of serving the real economy, promoting high-quality economic development, gradually eliminating asset bubbles, and decreasing the leverage ratio through the growth of national fiscal revenues, and residents’ income levels.

Innovation-driven real economy

To enhance the quality of the supply system while concentrating on boosting the real economy, the innovation-driven development strategy should be thoroughly implemented. This will promote sci-tech, industry, enterprise, market, product, business forms, and management innovation, so as to accelerate the formation of the economic system and the development model buttressed by innovation.

First, basic research should be strengthened and independent innovation should be encouraged.

Second, the deep integration of the real economy with the internet, big data and artificial intelligence should be pursued.

Third, advantages of a new system for mobilizing resources nationwide should be brought into full play and the technological containment should be addressed with concentrated efforts.

Fourth, the competition environment should be improved to release enterprises’ vitality to innovate. A market-oriented, internationalized business environment based on the rule of law should be cultivated, to safeguard an equitable and efficient market mechanism, to provide support for entrepreneurs to capture opportunities to make profits, to innovate business models and to facilitate business activities.

Yuan Lei is deputy director of the Institute of Economics at the Chinese Academy of Social Sciences.