Tsinghua professor talks economic reform
- By Zhang Lulu
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E-mail China.org.cn, September 13, 2013
China's economic reform has taken center stage again, following a slowdown in growth since 2012. The much-anticipated Third Plenary Session of the Eighteenth Central Committee of the Communist Party of China is due to open in two months, and is expected to set the agenda for China's economy for the next decade, people are wondering what kind of economic reforms will be introduced. Against a background of excessive money supply, soaring house prices and state enterprise monopolies, China's Inewsweek spoke to Professor Han Xiuyun of Tsinghua University.
"Stop printing more money"
Q: Many people believe that the excessive money supply in China has led to economic problems, for instance inflation. What do you think of this?
A: Excessive supply is not unique to China, but a problem shared by the whole world. It first started in the United States. China had to issue a considerable amount of currency during the financial crisis, which helped pull the economy through. But now we have to stop printing money.
China's economy did not perform well in 2012 and 2013 due to the tight monetary policy, but since Premier Li Keqiang took office a few months ago, he promoted the marketization of the interest rates, which has pushed forward the China's monetary policy reform.
Interest rates have to be decided by the market. Only through market competition can money be allocated to the right places and stabilize the economy.
"Property tax replacing house purchase restrictions"
Q: Some people think that the current soaring house prices are the result of excessive money supply. What's your view on this?
A: I don't quite agree. Though excess money supply contributes to high housing prices, it is the lack of channels for investment that is to blame. If there were other better ways to invest money in China, people wouldn't be scrambling for houses.
Q: What do you think of the restriction policies on house purchases?
A: Price limitations or the housing restriction policy will eventually be called off, but the prerequisite is levying property tax. Surplus houses should be taxed, so that house owners will have to sell or rent them, which will increase supply.
Q: Do you think there is going to be any adjustment to housing regulation policies in the upcoming Third Plenary Session of the Eighteenth Central Committee of the CPC?
A: I think that the meeting will propose some guiding policies. Policies on real estate should be long-term and regular, not short-term. I think that the forthcoming meeting will propose something, but not specific measures.
"A Competitive mechanism should be introduced in combating SOE monopolies"
Q: 2013 saw a lot of anti-monopoly investigations. The head of the Anti-Monopoly Bureau of China's Ministry of Commerce said in an interview that "the next focus of investigations will be on industries that are closely related to people's everyday lives, including petroleum, telecommunications, automobiles and banking." These industries have traditionally been monopolized by large-scale state-owned-enterprises (SOEs). Is it very difficult to investigate them?
A: It is indeed very difficult, but it has to be done, otherwise we cannot establish a true market economy. These industries lack competition: the huge SOEs can make money without competition; whereas private enterprises cannot. Efficiency can only come through efficiency. There should be a level playing field for all companies.
Q: In the face of SOEs, many private enterprises are repressed. Do you think it is the case that "the state is advancing while the private sector retreats?"
A: I think that the current administration wants to move away from this status quo. Its goal is a socialist market economy -- the private sector advancing while the state retreats. The market share of state owned enterprises should be reduced to around 30%.
Pressing problems in China's economic reform
Q: What do you think is the most pressing problem that China's economy is facing right now?
A: I think there are three urgent problems: corruption, monopolies, and vested interests, which are also the problems that the upcoming Third Plenary Session will seek to resolve.
The government is working to combat corruption, monopolies and is reforming government organizations, which involves removing vested interests.
Anti-corruption measures should be systematic. Staff downsizing is necessary in reforming government organizations. The anti-monopoly efforts should focus on creating a fair environment for all enterprises. It is companies that create wealth, offer job opportunities and pay taxes. If they perish, the country will as well.
Han Xiuyun is a professor at the School of Economics and Management, Tsinghua University.
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