Synchronization of new industrial revolution and supply-side reform
- By He Yafei
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China Today, March 22, 2016
To assess this potential level of the Chinese economy, a research group dedicated to the study of the "middle-income trap" from the Development Research Center of the State Council conducted extensive studies. The results of these studies indicated a potential growth of 9.8 percent over the period from 2001 to 2005, 11.2 percent between 2006 and 2010, and 9.7 percent between 2011 and 2015. The level is estimated to be 6.5 percent for the coming period, from 2016 to 2020.
During this period of more moderate growth, the challenge is to maintain the dynamism of the economy and to achieve a growth rate equal to or above potential, and this is an acid test for China's economic regulation. In this context, we understand the importance of carrying out the supply-side structural reform.
In 2014, China's GDP per capita at PPP stood at US $12,880, or 23.6 percent of that of the United States. For China, with a population of 1.37 billion people, this result was miraculous. The country, however, is in a delicate phase of transformation of its economic structures, from predominance of the manufacturing industry to services. This is the context of China's "new normal" stage.
Some people compare the structural reform to the Reaganomics in the United States. This comparison is groundless given the different context and objectives. China's supply-side structural reform cannot just copy foreign experience; it should be based on its actual situation to solve the structural problems and lay a solid foundation for sustainable development.
Professor Hu Angang of Tsinghua University explains in clear terms the general idea of this reform.
First, we need a stable macroeconomic policy i.e., the need to maintain the growth rate at around 6.5 to 7 percent, cut taxes and adjust local and national taxes, as well as a prudent monetary policy.
Second, we must develop a targeted industrial policy that optimizes the structure of supply. This means concretely supporting the development of strategic new industries, strengthening the competitiveness of labor-intensive industries, assisting in the upgrading of traditional industries, and closing zombie companies.
Third, we should adopt more flexible measures at the micro level to stimulate business vitality and boost consumption. China at present has about 20 million businesses. Simplifying administration, creating a fair and transparent market, and encouraging fair competition are essential.
Fourth, we must implement viable and adaptable reform policies and see to their effective enforcement. To be specific, they should be coordinated, value the initiative of local authorities, and take regional disparities into account. What's more, evaluation and supervision should be enhanced, so that the policies could be recalibrated and improved when required.
