Illustration: Peter C. Espina/GT
The Chinese economy now faces an unavoidable question that it is moving away from the real economy toward virtual industries. The main reason attributed to the tendency is that there are much slimmer returns on investments in the real economy than on injections into the virtual economy.
China's real economy, on its own, is burdened with overcapacity, the difficulty and high cost of fundraising and unaffordable operational costs. In addition, the country's manufacturing sector is suffering from the travails of restructuring, with its ability to beat competitors by achieving lower costs becoming weaker while new competitive advantages have not yet been generated.
Despite the challenges facing the real economy, some fields which feature technological innovation and industry and consumption upgrading enjoy relatively high growth and are luring capital inflows. As such, efforts to address the real economy issue include lowering costs and burdens to help the real economy stay afloat as well as reining in asset bubbles and preventing overheating in virtual industries. On top of that, the country should encourage the development of new technologies and products and the exploration of new markets to strengthen the real economy's competitiveness and foster new growth dynamics, so as to gradually mend the great disparity between returns on real economy investments and rewards from virtual economy injections.
Already the government has announced an array of policy measures to prop up the real economy. It's further advised that more efforts are needed, factoring in problems surfacing in business.
First, businesses should be considered the main force spurring innovation for the real economy. There's a dilemma in the implementation of scientific research plans in the country which mainly relies on national research institutions, universities and colleges but sees weak enterprise involvement. As a result, there is a need to ensure the efficient use of money and an increased rate of turning research projects into commercial successes. In light of this, the government needs to seek more opinions from the corporate sector when mulling over technology and industry development plans, to give enterprises a greater say in innovation-related policymaking and fully reflect the actual needs of enterprises. Also, more clarity should be given to the differentiated roles and positions of national scientific research institutions, universities and colleges, and firms' R&D departments. The country should let enterprises play a major role in all market-oriented technological innovation projects and set up national laboratories and tech innovation centers within eligible enterprises.
Second, the country should seek to improve financial services and funnel more funds into the real economy. Finance is the lifeblood of the real economy, however the fundraising bottleneck has continually weighed on the development of the real economy, particularly with small- and medium-sized businesses. For the real economy to be revitalized, an improvement in financial services needs to be included to seek out a balance in terms of profits between financial service providers and enterprises in order to channel more social capital into the real economy. Specifically, the country should strongly develop supply-chain finance backed by big businesses. A corporate credit management and information platform should also be built based on data collected from core manufacturing enterprises, and the platform should be incorporated into plans for a national credit system. Further, there's a need to build a multi-layered capital market and offer more direct financing conduits to enterprises.
Third, the country should give support to enterprises' expansion beyond the home market and thus moves the real economy into new growth spaces. Along with the implementation of the Belt and Road initiative, emerging overseas markets are blue oceans for domestic enterprises. However, cross-border financial services have long been a roadblock to domestic businesses' overseas expansion moves.
In this sense, commercial banks should be encouraged to build close partnerships with open-end financial institutions such as the Asian Development Bank, BRICS' New Development Bank and the Silk Road Fund to support projects along the Belt and Road route by offering targeted easing and tax preferences among other benefits. Domestic financial institutions should also strengthen their capacities to offer services in overseas markets, which means the government needs to simplify the approval procedures for commercial banks to set up overseas branches and to acquire businesses in overseas markets. Commercial banks should also be pushed to build a presence in countries and regions along the Belt and Road route. In addition, an inter-ministerial coordination mechanism should be established to put key industries and businesses in the real economy to top of the queue for foreign exchange transactions amid their cross-border mergers and acquisitions, in a bid to support domestic companies' acquisition of global industry heavyweights possessing key technologies and resources.
In doing this, China can give vitality to the real economy and develop a clutch of homegrown multinational corporations that are globally competitive. China can then possibly take the lead in the new round of globalization which is coming across as a game of globalization versus anti-globalization.
The article was compiled by Global Times reporter Li Qiaoyi based on a proposal submitted during this year's two sessions by Yang Yuanqing, chairman of Lenovo Group and a member of the 12th Chinese People's Political Consultative Conference (CPPCC) National Committee. firstname.lastname@example.org