China to tackle industry, housing oversupply

By Chu Daye Source:Global Times Published: 2015-12-22 1:13:01

Key meeting sets tone for 2016 economic tasks

China has set its 2016 economic priorities on tackling industrial overcapacity, reducing housing inventory and defusing financial risks, according to a key economic meeting that ended on Monday.

The government will also gradually raise its deficit and make monetary policy more "flexible," according to a statement released at the end of the four-day Central Economic Work Conference, where the country's economic policymakers chart the growth blueprint for the following year.

Experts said addressing those issues are interlinked and fixing those aspects could help the country's economy emerge from the current downturn.

As some industrial sectors in recent years have been struggling from weak demand and falling prices, the government has been determined to encourage shedding off outdated industrial capacity.

China will create conditions for bankruptcy procedures based on market rules, and speed up the hearings of bankruptcy liquidation cases, said the statement.

A string of policies on fiscal and tax support, the handling of non-performing assets and caring for the unemployed should be put in place, the statement said, adding businesses should seek more mergers and acquisitions to solve the problem and the capital market needs to facilitate the process.

China's deficit-to-GDP ratio in 2015 stands at 2.3 percent, up from 2014's 2.1 percent, but still lower than 3 percent, which is considered as alert level internationally.

"The rise in the deficit level is necessary to ensure a proper GDP growth rate as the other tasks, such as trimming production overcapacity and deleveraging, are detrimental to GDP growth," said Tian Yun, director of the research center of the China Society of Macroeconomics.

Tian said the extra budget could be used to help relieve the debt issues local governments face.

President Xi Jinping said China must, over the next five years, maintain an average growth of at least 6.5 percent to realize the country's goal of doubling its gross domestic product and per capita income by 2020 from 2010.

The meeting pledged to revitalize the housing market, currently facing high inventory and lackluster sales, and provide assistance to rural residents seeking to buy homes in urban areas and to encourage property developers to lower prices.

"To revive the property sector is key, as the oversupply of steel and cement will be automatically solved if the property sector picks up. Allowing more rural residents to become urban dwellers will help boost the property sector and increase consumption," Tian said.

While the government pushes these measures, it must avoid financial risks caused by bankruptcies, Tian said. When the government solves this problem, more investments will follow, Tian said.

'Supply side' reforms

The government will favor "supply-side" reforms to help generate new growth engines and strengthen "effective supply" to prop up sectors that are losing steam.

Xu Hongcai, Director of the economic research department of the China Center for International Economic Exchanges, said the supply-side reforms are multifold.

"We have been experiencing difficulties providing high-quality products, as in the case of rice and milk, and we are unable to provide what the market needs, as shown by the inadequacy of public services such as nursing homes and hospitals," Xu said.

"To solve this, we need to reduce the relative costs for the corporate sector," Xu told the Global Times.

More efforts will be made to eradicate so-called zombie firms, companies that regularly report losses, according to the statement.

"Trimming outdated industrial capacity is also part of the supply-side reforms but the government must be cautious about the negative effects of closing down companies in unprofitable sectors," Xu said.

China will strengthen overall supervision and regulate various financing activities, the statement said.

The government also said it will further open up to the world, attracting more foreign investment by slashing restrictions, widening market access and improving the business environment.

"The US Fed's decision to raise interest rates makes dollar assets more attractive for investors and encourages capital to flow out of China. We saw about $530 billion flow out in the first nine months of 2015," said Andrew Colquhoun, head of Asia-Pacific Sovereigns, Fitch Ratings.

 Xinhua contributed to this story

Economic reform highlights:

Cutting capacity: Policies will be designed to allow bankruptcy cases and mergers to resolve industrial overcapacity, as the supply glut has been choking growth.

Destocking: Reduce property inventory and stabilize the ailing housing market. Reform household registration system and encourage rural residents to buy properties and settle down in cities.

De-leveraging: China will effectively defuse local government debt risks. It will strengthen supervision, regulate financing activities, and clamp down on illegal fund-raising.

Opening-up: Facing a continued economic slowdown, China seeks to attract foreign investment by slashing restrictions, widening market access and improving the business environment.

Posted in: Industries, Economy

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