Effective solution required for fixing oversupply

By Chen Gong Source:Global Times Published: 2018/1/15 22:58:39

Illustration: Luo Xuan/GT

Considering macroeconomic trends, global market competition, pressure to protect the environment and various uncertainties, we expect China's economy to grow more slowly in 2018 than in 2017, with expansion of about 6.5 percent.

The government may make timely adjustments and policy changes based on the economic situation, which will affect the actual growth rate to a certain extent.

There are some forecasts that can be made for this year about domestic and global economic conditions.

First, China faces tough challenges in maintaining sound growth while achieving other development goals, given its structural problems and the world economic environment. To address these challenges and problems, it's essential for China to maintain a certain economic momentum, which means that China must expand its debt issues to achieve its multiple goals.

There are several factors involved with a proactive debt expansion policy. China needs to maintain its fiscal stability to cope with the impact of the US tax reform, and it needs new capital investment to revitalize the real economy and create a more prosperous domestic market. In addition, there is still room for the Chinese government to expand its debt issues.

Further, China needs time for its structural adjustments and economic transformation. It also needs to prevent economic growth from sliding too fast, and it needs lots of money to achieve its political and social goals as well as its global strategies.

Given all these factors, debt expansion seems to be the most efficient and effective solution.

There are of course restraints on debt issues, but still we believe that it is realistic for China to start considering a new stimulus package now. It is generally estimated that in the next three to five years, China may need to issue 30 trillion yuan ($4.65 trillion) to 50 trillion yuan in debt to meet its needs. The money should not continue to be invested in infrastructure; it should be used to help the real economy cut costs and increase strength.

Second, China's economic growth is peaking, and in the future, various ineffective factors will be eliminated from economic growth. Also, there is no denying that China's effective GDP growth in the past was not as high as people expected.

In the meantime, we need to be wary of two views. One is the excessive concern about China, mostly seen in overseas media. However, what those commentators worry about doesn't actually apply in China. The other is excessive optimism about the Chinese economy. With 1.3 billion people, China's global influence is undeniable, but its competitiveness is on a path of decline and correction, not on a sustained rise.

Third, the Chinese economy is facing unprecedented pressure from the rise of global protectionism. In particular, US President Donald Trump's "America first" strategy, including tax reform that is expected to attract the return of US manufacturing capital, has actually led the world into a new era of trade protectionism.

The problem is that protectionism can be contagious. If you don't take countermeasures, you will become a victim of global trade protectionism. In this sense, various countries will tend to be conservative instead of pro-free trade in the future.

Fourth, a global crisis is brewing amid overproduction. For a long time, overproduction has been regarded as a kind of strength. While excessive supply may mean meager profits, massive production can still generate huge capital and exert a certain market influence.

But that's not the case now. A typical representative of overproduction is the previous economic model in China. Excessive production has led to serious environmental problems, wealth disparities, social instability and a rapid rise in various costs. There are solutions to overcome and address such domestic problems. But what's more complicated is that overproduction also has an impact on global markets, affecting the competitive relationship among countries.

Since the old Chinese model did create certain wealth, many countries, including India and those in Southeast Asia and East Europe, also want to copy the model to compete with China, which will exacerbate the global overproduction problem.

Meanwhile, the environment is under severe pressure, and government finances are strained in various countries. All these factors have resulted in serious consequences: prevailing conservatism, widespread anti-globalization and debt accumulation.

To sum it up, the world is in a state of excessive supply, a result of overcapitalization, and it's necessary to find an effective solution to the problem.

The author is the chief research fellow with Beijing-based private strategic think tank Anbound. bizopinion@globaltimes.com.cn


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