Tough tasks ahead for economic reformers

Source:Global Times Published: 2015-12-23 19:38:06

Illustration: Liu Rui/GT

Editor's Note:

The four-day Central Economic Work Conference closed on Monday, setting China's 2016 economic priorities as reducing excess capacity, de-leveraging, lowering corporate costs and improving weak links. How significant is the plan for China's economy? The Global Times has collected three pieces discussing the matter.

People at core of new construction models

The Central Economic Work Conference has mapped the major tasks for economic work next year. Besides the old formulations, the meeting has put forward a number of new concepts, through which the public can visualize the new impetus for China's economic development in the future.

First of all, the meeting has instilled new impetus into urbanization. The conference clarified the need to speed up the marketization of rural workers, and to turn more rural migrant workers into registered urban residents so as they can buy or rent properties in cities.

To this end, a property system attending to both buying and renting should be established. This means, following years of urbanization that centralized on reinforced concrete, China has entered into a new phase of urbanization with people at the core. For the real estate industry, the rental market is now providing major opportunities for development. The marketization of rural workers helps to reach a balance between consumption and supply as well.

In addition, the meeting helps to rectify financial order and revitalize the financial engine. Bailing out enterprises which cannot repay their debts has long been the practice in the Chinese financial market. As a consequence, credit risks cannot be used to price the financing costs generated among different bodies. The conference has made clear that credit defaults should be punished by law.

This means the traditional practice of bailing out firms that fail to repay debts will be struck a heavy blow. It will also be an important approach to deepen the market-oriented reforms of interest rates. In addition, these practices have triggered widespread illegal fundraising. The unlawful agencies, by offering high interest rates, scramble for funds against the legitimate financing institutions. Given the high liability costs, it is difficult for the lawful agencies to lower their financing costs.

Last but not least, the conference has improved the exchange rate formation mechanism and recovers the industrial traction. Analyses over major industrial enterprises show that the profitability of the industrial organizations is inversely proportional to the real effective exchange rate of the domestic currency. For China, the acceleration of industrial profits and the real effective exchange rate of yuan are moving in opposite directions. The conference clarified the need to improve the exchange rate formation mechanism. This means yuan interest rate liberalization is speeding up. With more flexible yuan interest rates, a large number of enterprises in China's secondary industry are anticipated to regain competitiveness.

Local authorities play key role in changes

China's "new normal" economy has mixed effects. On the one hand, new domestic demands and new growth momentum are constantly emerging. Service industries are witnessing a rapid growth, and the income of urban and rural residents is steadily increasing. On the other hand, most industries are witnessing overcapacity. Economic deflation is becoming increasingly evident. Most enterprises are going through financial difficulties, with their fiscal revenue growth declining. Given the frequent volatility in commodity markets, the public is becoming suspicious of the prospects of China's macro-economy. 

Next year is not only the start of the 13th Five-Year Plan, but also the outset of the crucial stage on building a moderately prosperous society. Facing an increasingly sophisticated international and domestic economic situation, as well as public suspicions against China's economic performance, the conference has systematically mapped the major tasks for next year's economic work.

With the 13th Five-Year Plan approaching, economic restructuring and industry upgrading have another important window next year. Stabilizing growth, promoting employment, increasing incomes and expanding domestic demand still remain the primary tasks for next year's economic work. Vigorously promoting structural reform to balance consumption and demands is the theme for economic work in 2016.

To smoothly realize next year's economic targets, structural reform should seek breakthroughs in cutting industrial capacity, reducing excess stock, de-leveraging, lowering corporate costs and improving weak link. Given the clarified economic tasks, joint efforts by the market, enterprises, society and local governments in implementing policies are particularly important.

Currently, there is huge overcapacity in local industries. Cutting overcapacity will inevitably affect the local employment and tax revenues. Local authorities will suffer much more pain than the central government. It is also a tough task to encourage rural workers to buy property in the cities. Whether local exchequers are willing to let go the rural residents at the cost of part of their tax revenues is hard to say. In addition, there are conflicting interests in de-leveraging. Lowering corporate costs requires more financial devotion from the local governments as well, and a tough time for local budgets. Local efforts will also have a direct influence on alleviating poverty. Despite all the uncertainties, the prospects of next year's economic work remain promising. China's macro-economy will see better development with joint efforts by both central and local authorities.

Beijing Youth Daily

Restructuring means better times to come

The five major tasks announced at the Central Economic Work Conference are mature policies at the decision-making level. China's GDP officially grew at 6.9 percent this year, the lowest in 22 years. Meanwhile, other economies, save for the US, are facing serious subprime crises. Following the regional political unrest, and the Federal Reserve's decision to raise interest rates, the course of the global economy in 2016 has become even harder to predict.

Given the above domestic and international economic background, launching "moderately soft stimulus" fiscal and monetary policies is a pressing and crucial task.

This will not only provide a buffer zone for China's economic structural reform, but also act as a precautionary measure against the potential impacts of global uncertainties on China's economy.

Cutting overcapacity embodies next year's economic restructuring. Reiterating this principle in the meeting is essential in the face of the economic downturn. To realize the above targets, the conference has highlighted the need to lower corporate costs and to improve weak links as well. This means the authorities will gradually pay less attention to administrative examinations, accelerate administrative reforms and moderately reduce taxes in 2016.

The meeting claimed that China will moderately increase the deficit and strive to reduce housing inventory in 2016. Unusually, the conference clarified that China will encourage the real estate developers to lower property prices, and help rural workers to live in cities and buy homes there. Judging by this, moderate fiscal incentives will be carried out gradually next year to tackle housing problems, especially in under-developed central and western China.

The communiqué suggests that next year's monetary policies will focus on reducing the reserve-requirement ratio, rather than cutting interest rates. Meanwhile, given the need to de-leverage, it is impossible for the interest rates to be constantly reduced.

Such fiscal and monetary policies will exert some influences on the overall situation, providing a sound base for China's opening up and a better environment for the deep structural adjustments.

Although both the domestic and international economic situations remain tough for now, China's economic performance is expected to pick up. Above all, this upward trend is anticipated to be strengthened by China's economic restructuring.

The Beijing News

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