Steady economic growth is the new normal
- By Liu Shijin
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E-mail China.org.cn, January 20, 2014
Fourth, most enterprises have a reasonable expectation of economic growth in the future. A survey in September showed that entrepreneurs believe that economic growth rate will continue to drop from the current 7.2 percent in the next five years. 81.4 percent entrepreneurs believe that the government should strengthen its policy stimulus only when the growth rate is below 7 percent. Of them, 34.4 percent maintain that the government needs to implement a stimulus plan when the growth rate is below 6 percent. Most enterprises hope that the government can keep the current macro economic policy stable. What is noteworthy is the fact that most enterprises are more willing than before to adjust their production mode and to strengthen innovation.
If the decisions adopted at the third plenum of the 18th Central Committee of the Communist Party of China are put into practice, and reform is deepened, it will create advantageous conditions for the economy to develop and grow. Three policy targets and reform measures for the realization of this target are as follows.
First, growth should be stabilized. Incomplete as the transition is, the impact of the economic downturn in 2014 cannot be underestimated. The focus of maintaining steady growth should be on investment, which needs a new mechanism in order to control risk and increase efficiency. A preliminary estimate shows that the increase rate of investment in fixed assets should be at 18 percent to maintain a growth rate of 7 percent. At present, 50 percent investment goes to infrastructure and real estate. As such, reform in the infrastructure sphere is badly needed in order to break the monopoly, introduce competition and attract new investors. For example, there is the great potential for the development of high-speed railway and also enough social capital for investment in this area. But the railway system is in heavy debt and therefore is difficult to get funding. It needs to open itself to social capital and to offer some programs for restructuring and financing.
The government also needs to pay attention to the real estate market. Residential housing occupies 40 to 60 percent of all construction land in such international metropolises as New York, London and Seoul, while such a percentage is only 23 on average in Beijing, Shanghai, Guangzhou and Shenzhen. The short supply of housing primarily accounts for continuous hikes in housing prices. The proportion of land for residential housing needs to be increased, and such plans should be made and published. At the same time, the system of rural land for residential housing needs to be reformed, the design of property tax should be accelerated, and should be levied on a trial basis before it can be levied nationwide.
Second, there needs to be a greater degree of efficiency and enterprises should be more profitable. The cost of labor, land, capital, circulation, the protection of property rights and access needs to be reduced in order for enterprises to restructure and upgrade.
Third, access must be expanded. Negative list management is a reform of great importance. This should take place as soon as possible to bring about a fundamental change in the government’s management of market access. Access should be expanded to basic industries and service industry. Major efforts need to be made in such basic industries as energy resources, telecommunications and finance, and in such service sectors as culture, healthcare and education so that the potential that has been depressed because of access control in the past can be tapped. For example, international petroleum futures market can be established through the Shanghai Free Trade Zone, which will result in a competitive petroleum market. In the sector of telecommunications and finance, access should be given to non-State capital so that a market for effective competition can be established to reduce the cost and promote innovation.
The realization of the three policy targets mentioned above will be conducive to steady growth in the short term and in the mid- and long- term structural adjustment and upgrading. As a result, the economy can rapidly shift to a period of stable medium and high growth rate.
Liu Shijin is deputy director of the Development Research Center of the State Council in China.
This article was first published at Chinausfocus.com To see the original please visit http://www.chinausfocus.com/finance-economy/steady-economic-growth-is-the-new-normal/
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