As I have already mentioned, given the world economic outlook, 6.5 – 7 percent is not a low target. The question is how to go about achieving it. The producer price index has been declining since late 2014. The decline in the growth rate of investment has also been accelerated since the end of 2014. Those declines cannot be fully explained by structural changes in the economy. I am afraid that those numbers suggest that the aggregate economic outlook is not so good. Therefore, while reforming the economic structure is still important, some aggregate measures have to be implemented in order to secure the achievement of the growth target for 2016. In Premier Li's report, the expected growth rate of M2 is 13 percent, which means that the government is going to maintain liquidity supply to the economy. But both economic theory and the experience of advanced economies in the Great Recession tell us that fiscal stimulus might be more important when short-run economic growth is under threat.

Obviously, the Chinese government has realized this. It plans to increase fiscal deficit by 2.18 trillion Chinese yuan while at the same time, cut the tax burden for firms. The total tax cut is estimated to be 500 billion Chinese yuan. These fiscal measures will inevitably increase the leverage of the central and local governments. As necessary measures to control sovereign risk, the government is going to speed up fiscal and tax reform in order to enhance both the capability and willingness of local governments to honor their debts. To prevent the government stimulus package from encouraging excessive risk-taking in the financial sector, the government will address financial regulation in 2016. Despite that, the report still mentioned some reforms in the financial sector to enhance its efficiency, including the development of private banks, direct finance, and insurance for rare disaster risk. The details outlined above represent this year's major tasks for financial sector reform.

The demand-side policy also emphasizes the development of the domestic market. The development of service consumption, internet and information, smart home, express delivery, second-hand automobiles, parking, new-energy automobiles, and tourism are specifically mentioned in the report. The government also addresses investment in infrastructure. Furthermore, urbanization is taken as the key driver for the development of the domestic market. In 2016, the main tasks are to accelerate the integration of rural migrants to the urban community, to reform the housing sector and to improve urban planning.

The government addresses the supply-side policies as drivers for economic growth. In particular, reforms in the government sector are planned so as to eliminate entry barriers and reduce the operating costs of the business sector. Tax benefits are going to be offered to innovating firms and the government will help create platforms for multilateral cooperation in research and development. The government also plans to give more autonomy to public universities and research institutes and provide incentives to researchers to innovate. Through mergers and acquisitions, debt restructuring and bankruptcy procedures, so-called "zombie firms," which are unproductive shall be eliminated.

In summary, the government's major task in 2016 is to achieve a growth rate necessary for full employment while continuing reforms on the economic structure. The "innovating" part of the policy mix, required in order to complete this task, is to address innovation in the private sector. Moreover, prudence so as to avoid excessive risk-taking is a non-negligible part of the policy package if the desired outcomes are to be achieved.

The author is an assistant professor at School of Finance, Renmin University of China.

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