China Should Establish Long-term Mechanism to Support Real Economy

Experts said that China should establish a long-term mechanism to support the development of its real economy, as the government has set its sights on boosting real economic growth and promoting entrepreneurship.

According to a statement released on Dec.14 after the country's annual central economic work conference, China will "take a firm hold" on real economic development and create a social atmosphere that encourages acquiring wealth through entrepreneurship.

"Real economy" refers to the part of the economy associated with the actual production of goods and services, including agriculture, manufacturing and the service industry. It is the foundation of a country's comprehensive strength and the material basis of people's livelihoods, analysts said.

"China's major task at present consists of economic restructuring and promoting economic growth, and thus it is crucial to restrain speculation and encourage real economic development," said Xiang Xiaomei, an expert with the Guangdong Academy of Social Sciences.

The government should speed up the creation of support policies for real economic development and establish a medium- to long-term mechanism for sustaining real economic growth, said Xiang.

Since April, Wenzhou, an economic hub in Zhejiang province known for its successful entrepreneurs, has been hit by a severe debt crisis.

Many small and medium-sized enterprises (SMEs) have been forced to turn to the high-interest underground lending market, as they couldn't get bank loans after inflation-combating government tightening measures put a brake on lending. Many later found they could not repay the loans due to bad economic conditions and investment losses.

The government has taken measures to help private firms weather the crisis, including allowing banks to lend more money to small firms and tolerate higher levels of debt.

On Dec. 5, the central bank cut the reserve requirement ratio for lenders by 50 basis points for the first time in three years in order to ease banks' credit crunch.

The central economic work conference, which sets economic policy guidelines for the coming year, emphasized that China will preset or fine-tune its monetary policy according to changes in economic development, employ multiple monetary policy tools and maintain a "reasonable increase" in its money and credit supplies.

"Judging from these signals, the credit supply will be eased in the coming months, which will undoubtedly be conducive to real economic development," said Xiang.

Source: Xinhua