Faced with downward pressures from the Chinese economy, it is necessary, in the short term, to guide market expectations and meet demands, so that the economy can grow at a stable rate and run within a reasonable range.
In the middle and long term, the focus of China’s macro policies should be put on structural adjustment, in order to increase supply, optimize the market environment for competition and guide the exit of overcapacity from the market.
During the new normal, the government should take both short-term and long-term measures to strike a balance between stable growth and restructuring, in order to maintain the good momentum of economic development and seek sustainable growth.
Following are specific suggestions:
Strengthen expectation management. The top priority of current macro policies is to reasonably guide market expectations. To ensure this goal is met, it is of great urgency to accelerate the construction of infrastructure projects and key projects that have been determined. The central bank should, on the premise of a steady monetary policy, take appropriate fine-tuning measures to reduce the financing cost for enterprises, and also pay great attention to the use of structural policy to prevent potential risks.
Increase investment in infrastructure construction. Given the fewer incentives to invest in real estate and manufacturing, the key to stabilizing economic growth at present is maintaining a relatively high growth in infrastructure investment. Efforts should be made to implement the existing 172 water conservancy construction projects, and speed up the construction of 800 million mu (53 million hectares) of high-standard basic farmland. Such efforts will not only promote agricultural modernization, but also boost economic development. China’s urbanization drive will also lead to the construction of urban facilities, which will create huge market demand.
Speed up the exit of production overcapacity and assets reorganization. The key to accomplishing China’s economic transition and upgrade is to drive assets reorganization through a production capacity adjustment. To do so, efforts should be made to make good use of the market’s role in boosting capacity adjustment and promoting administrative supervision. The authorities should also impose supporting financial policies, encourage companies to merge and reorganize, and explore the exit mechanisms of enterprises.
Promote mass entrepreneurship and innovation. Entrepreneurship and innovation is the long-lasting motivator of economic growth, and the upgrade of China’s economy relies on reform and innovation. The key to fostering new growth points is to expand reforms, remove obstacles that restrict entrepreneurship and innovation, thereby motivating the creativity of the public. At present, more needs to be done to further streamline administration and delegate power to lower levels, and to provide better services and policies for the public. The governments should especially expand reform and remove restrictions on enterprises in order to facilitate starting businesses and innovation and create an environment for fair competition.
Foster a capital market with long-term, stable and healthy development. The capital market bears great significance to stabilizing economic growth, promoting economic restructuring, deepening reform and preventing financial risks. Therefore, efforts should be made to strengthen the institutional improvement of the capital market, boost direct financing, and enhance market regulation.
Carry out international production capacity cooperation. In the new era, we should focus our efforts on promoting a new round of opening up and actively conduct international capacity cooperation. China should take the opportunity of the implementation of the Belt and Road Initiative to carry out international capacity cooperation with countries along the route, in order to transfer the country’s overcapacity, boost industrial upgrades and promote economic development.
(The author is Yu Bin, an economist at the State Council Development Research Center, a government think tank.)