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Better navigation of economy to avoid ‘dangerous shoals’

Updated: Aug 5,2015 11:12 AM

Premier Li Keqiang first explains the concept of “reasonable interval” at a forum on the economy in the Guangxi Zhuang autonomous region on July 9, 2013.[Photo/Xinhua]

Multiple macroeconomic regulating methods, such as “reasonable interval”, directional adjustment and fine-tuning, have been adopted by the State Council to navigate the economy away from “dangerous shoals’’.

The “guiding message”, from 100 executive meetings of the State Council, has attracted extensive attention from business analysts to provincial officials.

Reasonable interval: coordinated development of goals

Premier Li Keqiang first explained the concept of “reasonable interval” at a forum on the economy in the Guangxi Zhuang autonomous region in July 2013, a time when the country was confronted by a continued economic downturn and sluggish exports.

The government will not wield the sword of intervention as long as economic growth and employment do not slide below the “lower limit” and the prices of commodities do not rise above the “upper limit”; instead, it will commit to restructuring and further reform, according to the meeting.

“Macro-regulative efforts should stay firmly rooted in the present while looking ahead to the future, enabling the economy to operate in a ‘reasonable interval’,” Li said.

The concept has since been further clarified. A State Council executive meeting in October 2013 vowed to innovate regulative methods, identify limits of the “reasonable interval” and relieve pressure from the economic downturn.

If the economy forges ahead like a ship, the “reasonable interval” will serve as a “sea route” where the government has curtailed limitations.

In March, during an exclusive interview with the Financial Times, Premier Li reaffirmed the goal to keep China’s economic operation in the interval, which means to realize a 7 percent growth rate, relatively full employment and increasing income.

In July, he added that the government will pursue coordinated development of various goals, such as growth, pricing, incomes and environment.

Directional adjustment: relying on reform and the market

In China’s economic reality, some seemingly contradictory market phenomena constantly complicate decision-making regarding regulations. For example, the steel and cement industries have demonstrated a worrying trend of overcapacity, but in some cities, there is still a dire need for improved infrastructure.

The Premier explained “directional adjustment” at an economic forum in July 2014, saying regulating economic behavior must be specific, focus on “key links and areas”, and rely on reform and the market.

Through the window of the State Council’s executive meetings, one can have a clearer look at these “key links and areas”.

Since April 2014, eight meetings have discussed issues such as expanding the scope of tax preferential treatment and enhancing financial support for small enterprises, accelerating railway construction and improving urban infrastructure.

Therefore, it is not difficult to discover that “directional adjustment” has defined two directions: relieving the burden for small enterprises and farmers to stimulate innovation, and supporting public products and services to drive investment. The Premier prescribed the two directions as “engines” that will further fuel economic development in the long run.

Lin Caiyi, chief economist at Guotai Junan Securities, said setting a reasonable interval aims at securing stable growth while directional adjustment commits to further restructuring measures.

Timely fine-tuning according to the situation

Premier Li Keqiang puts forward the concept of “timely fine-tuning according to the situation” at a seminar with economists and entrepreneurs regarding the state of the economy on July 10. [Photo/Xinhua]

The latest clarification of regulative methods was in July when the Premier told provincial officials to implement pre-emptive or fine adjustments as situations change to release more dividends from innovation. The nature of the fine-tuning is to effectively control risks.

An executive meeting of the State Council in May 2014 called for timely fine-tuning of financial reform to better serve the real economy. Another meeting in March asked all levels of governments to closely monitor the latest update of the economic situation and make policy preparations and response plans.

Cao Heping, a professor at the School of Economics with Peking University, said timely fine-tuning suggests that the government has sought to improve “the decisiveness” of macroeconomic regulations.

Obviously, flexible implementation of the reasonable interval, the directional adjustment and timely fine-tuning has indicated that the administration is trying to achieve the best possible scenario of securing growth, advancing reform, adjusting structures, improving people’s livelihood and managing risks.

The economy still demonstrated a robust 7 percent increase in the first half of this year, against a backdrop of a global downturn and slow recovery.

The Premier said that he is confident that China can maintain this growth by the end of this year to promote the economy to a higher level.

“I have always been optimistic about the future of the Chinese economy,” he said.