Supply side focus of two sessions

Source:Global Times Published: 2016-3-1 20:58:01

SOE reform, financial risk prevention seen as key issues

With the slowdown in China's economic growth in 2015, a lot of hope has been pinned to this year's annual meetings of the National Committee of the Chinese People's Political Consultative Conference (CPPCC) and the National People's Congress (NPC), which begin on Thursday and Saturday, respectively. Domestic media reports have already highlighted many of the key reforms and policies on the table at the meetings. Supply-side reform has dominated the media coverage as the government seeks to tackle the overcapacity problems in some State-run industries. Media reports also cited State-owned enterprise (SOE) reform and financial risk prevention as other major issues at the top of this year's agenda.

Photo: CFP

China's GDP growth slowed to 6.9 percent in 2015, and the figure was not "easy" to reach due to the continuing downward pressure on the global economy, Xu Xianchun, deputy director of the National Bureau of Statistics (NBS), was quoted as saying in an article published on the NBS's website on Monday.

Xu also noted that there were consecutive gains in labor productivity and progress in industry restructuring.

However, the People's Bank of China (PBC), the country's central bank, announced later on Monday that it cut the reserve requirement ratio for commercial banks by 0.5 percentage points, a move to support economic growth while creating a "favorable" financial environment for supply-side reform, according to the PBC's website. 

Decision-makers will continue to focus on reform by making suggestions such as increasing the fiscal deficit, raising infrastructure spending and easing rules on bank lending, Wang Tao, China economist at UBS Securities, was quoted as saying in media reports, the financial news website reported on Monday.

"The government may raise the fiscal deficit target to 3 percent of GDP from 2.3 percent in 2015," she said.

By increasing government investment and cutting taxes, upcoming policies will definitely boost economic growth, Wang noted.

Monetary policy will also likely become more supportive, via injections of liquidity into the interbank market to help investment and projects, noted. Volume of new yuan-denominated lending in the country in 2016 is expected to grow about 14 percent.

Supply-side focus

Analysts predicted that policymakers will elaborate on supply-side reforms during the upcoming meetings of the National People's Congress (NPC), China's legislature, and the National Committee of the Chinese People's Political Consultative Conference (CPPCC), a top advisory body to the government, according to

The two sessions - as they are known -  should shed light on specific measures to tackle issues such as overcapacity and high inventories.

Compared with stimulating demand, which tends to be short-lived, supply-side management is expected to generate sustainable, quality growth, the Xinhua News Agency said in December 2015.

And instead of working on the demand side, attention has turned to stimulating business through tax cuts, entrepreneurship and innovation, while phasing out excess capacity resulting from the previous stimulus.

However, policies should be tailored to the different situations of China's first-, second- and third-tier cities.

Real estate prices in the first-tier cities of Shenzhen, Beijing, Shanghai and Guangzhou have jumped since 2015. However, if home prices continue to rise, houses would become unaffordable for local residents.

Meanwhile, in mid-sized and small cities, authorities have implemented additional favorable policies to encourage home buying, in line with the central government's efforts to reduce inventories, media report said.

Also, proposals about lowering enterprises' costs will be put forward at the two sessions, said.

In 2015, large-scale enterprises, or those with annual revenues above 20 million yuan ($3 million), generated about 6.4 trillion yuan in revenue, down about 2.3 percent, media reports said. They all face the same issues: limited financing, a hefty tax burden and a shortage of personnel.

Analysts suggested that proposals such as lowering corporate tax rates and reducing logistics costs could be on the agenda, according to

SOE reform

The country will also launch more pilot programs for State-owned enterprise (SOE) reform in 2016, in line with the central government's schedule for testing 10 items of SOE reforms, according to the Supervision and Administration Commission (SASAC) of the State Council, China's cabinet.

The SOE reform will proceed at a faster pace in 2016. It will cover many areas, including the investment of State-owned capital, the consolidation and closure of "zombie enterprises" and mergers and reorganizations of SOEs, according to media reports.

Three to five enterprises will be chosen for a pilot program for SOE mergers and reorganizations, according to SASAC.

The two companies in the current program are China Chengtong Holdings Group and China Reform Holdings Corp, media reports said.

More SOEs will be chosen based on the requirements for the reforms, Zhang Xiwu, deputy head of the SASAC, was quoted as saying in the statement.

The country will promote mixed-ownership pilots in many vital sectors, including power, petroleum, natural gas, railways, telecommunications and the defense industry, the Xinhua News Agency reported on Thursday.

Non-State-owned capital investment is planned to be brought into the pilots to create management structures and operation mechanisms that are favorable to the participation of market competition, the report said.

The first batch of companies for this pilot program will be announced in the first half of 2016, and the pilots will start in the second half of this year.

The SASAC is also scheduled to set up a unified information disclosure platform for SOEs, with the aim to provide information to SOEs, as well as offer the public access to the information, Xinhua said. It is expected to regulate the management of SOEs to prevent the loss of State-owned assets.

Financial risk prevention

The State Council asked relative departments across the country to set up and improve a long-term mechanism firmly based on the bottom line that any systematic and regional financial risk should be warded off, according to a statement released on February 4.

Economic, administrative and legal measures should be applied to deal with cases to secure stable social development, the statement noted.

Meanwhile, public education should be strengthened and the development of private investment and financing should be regulated.

Given the current complicated domestic economic environment, it is important to strengthen supervision over these sectors, noted.

Some private financial institutions are involved in illegal financing and their products are not covered by regulations, which would cause regional risks amid the sluggish economic environment, the report said, citing opinions of Li Xunlei, chief economist at Haitong Securities.

Therefore, the government will undertake severe regulations to control and punish illegal financing, Li said.

The domestic banking system is under great risk pressure, the foreign exchange market and the cross-border capital flow burden pose big risks, the report said, citing banking experts. It is hard to prevent the risks with so many industries involved, all of which need a lot of attention.

Economic reforms in 2016 will also include promoting the results of the Free Trade Zone pilot programs, advancing the construction of the "One Belt and One Road" initiative and further boosting a new round of high-level opening-up, the report said.

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