BEIJING — 2015 is a landmark year for China on the road to upgrade its economic structure and opening the future of the 13th Five-Year Plan (2016-2020).
The Asia Infrastructure Investment Bank (AIIB) was established, as well as the Internet Plus was initiated, and China’s currency, the RMB, joined the International Monetary Fund’s (IMF) SDR (special drawing rights) basket of reserve currency. Also, the People’s Bank of China (PBOC), China’s Central Bank, had reduced the deposit reserve ratio and base rates.
AIIB comes into fruition
The AIIB was signed in Beijing on June 29, and on Nov 18, President Xi Jinping said the AIIB would become a platform for regional connections. The bank is expected to open up formally at the end of the year.
Its core ideas are “capability, honesty and sustainability” to help member states realize stronger economic growth and employment, said Jin Liqun, President-designate of AIIB.
Under the cooperation framework of AIIB, Chinese companies would participate in international public biddings via fair competition, enhance innovative technologies and strive to bring more well-being to Asia and other regions.
Top-level design for Internet Plus
In the 3rd Session of the 12th National People’s Congress (China’s top legislature) on March 5, Premier Li Keqiang proposed the Internet Plus to favor “mass entrepreneurship and innovation” to drive the Chinese economy forward.
The State Council (China’s Cabinet) had distributed the Guidance on Promoting Internet+ Action pamphlet to accelerate industrial structure upgrades and build new economic and social development.
By 2018, the Internet would be more utilized for public service, and merged into all fields of the Chinese economy and society. The Internet Plus would be a new driving force to support the innovative development of the nation’s economy and society by the year 2025.
IMF welcomes RMB to SDR currency basket
On Dec 1, the IMF welcomed the RMB into the SDR reserve currency basket, which goes into effect on Oct 1, 2016. It’s the fifth currency to enter after the US dollar, euro, British pound and Japanese yen.
The RMB would be more widely-accepted to facilitate international trade and cross-border investments for Chinese companies and make China the pricing country for many global commodities. The Chinese can travel, study and make purchases abroad more easily. The SDR speeds up RMB internationalization that would deepen domestic financial reform on exchange rates and interest rates. Nevertheless, Beijing would stay active in currency policy to reduce global financial risk.
Free trade zones expanded
On March 1, the State Council granted Tianjin, Guangdong and Fujian to have pilot free trade zones, while the Shanghai free trade zone was expanded. On April 21, the pilot free trade zones were listed in China’s 2.0 era.
The free trade zones boost reform, opening up and innovative development. Such zones streamline bureaucracy and encourage institutional innovation. In the Shanghai free trade area, “single window” services help enterprises with registration and to record import-export business registration.
In the six months after its expansion, more than 9,000 enterprises signed on, which account for the 20-year’s total since its founding. The assets of enterprises from the free trade zone have witnessed rapid growth, especially among newly-increased assets of the Shanghai banking industry in 2015.
PBOC cuts interest rates and reserve requirement ratio
In 2015, the PBOC cut interest rates and reserve requirement ratio several times to avoid economic deterioration and to save the stock market. The one-year lending rate was decreased to 4.35 percent and the one-year deposit rate stood at 1.5 percent. The reserve requirement ratio was lowered to 17.5 percent.
Easy monetary policy will continue as long as China’s economic growth slows down, deflation exacerbates and capital outflows in the short-term. Yet room for the reserve requirement ratio cut is much larger than for interest rates.
China’s macro-economy and financial markets may face increasing uncertainties. Accordingly, China should take precautions. Economic structure reform should be accelerated to transform the industrial structure next year.