Economist Elaborates on Hot Economic Issues
By staff reporter CHEN JUN
CHINA Today held an interview at the ongoing session of the Chinese People's Political Consultative Conference (CPPCC) with President of China Academy of New Supply-side Economics and former president of Chinese Academy of Fiscal Sciences, and CPPCC National Committee member Jia Kang. The celebrated economist shared with our readers his take on certain hot issues pertaining to the Chinese economy.
Supply-side Reform
Jia views China's supply-side reform as neither a disavowal of the demand side nor blind copying of U.S. supply-side policies based on tax cuts. He instead regards it as a systematic long-term endeavor based on successful supply-side management experience both at home and abroad that emphasizes development of the supply structure.
"It is unrealistic to expect tax reductions to solve all problems, because that leads to the misconception of omnipotent taxation leverage. Tax cuts are just one of many alternatives, and incapable of single-handedly revitalizing the whole economy. They are best employed in coordination with other tools," Jia said.
China's supply-side reform, Jia stressed, is not a return to the planned economy, but adheres to the precondition of the market playing a decisive role in resource allocation. Its aim is to improve the quality and efficiency of China's economic growth by combining an efficient market with effective, but limited, government input.
Overcapacity
"The market holds the key to eradicating overcapacity," Jia said. "The government must ensure a just market environment in which the fittest survive and thrive and those that don't measure up are eliminated through fair competition. The reason why there are so many zombie enterprises in China is that market forces have not yet been brought into full play. If the market is given full rein and the government doesn't meddle in it, we can expect notable changes in the next one or two years."
Jia reiterated his view that the government should alter its functions and behavior and launch reforms that tackle certain vested interests. He holds that the most daunting prospect of efforts to eradicate overcapacity, and of supply-side reform as a whole, is the toppling of established interests. This, he believes, is a mission that demands firm resolve on the part of the government.
Laid-off Workers
Dissolving superfluous production capacity is a priority of this year's supply-side reform. A key aspect is outplacement of workers. "In the course of phasing out superfluous capacity the Chinese government encourages enterprises to opt for mergers and regrouping rather than bankruptcy, so minimizing the number of laid-off workers," Jia explained. But he cautioned that the government must be aware that merging and regrouping must be chosen rather than mandatory measures.
Jia Kang warned of teething problems in supply-side reform. He believes the trickiest part of it will be the resettling of closed enterprise employees. "China has established, and been constantly improving the social security system, and the government must make unremitting efforts to ensure its optimum function. What's more, it must make preparatory plans for businesses that have no choice but to go into liquidation, and provide outplacement training for their workers. The government should stave off conflicts before they can escalate through consultation and mediation. More work must be done in this respect to explore experience and improve practice," Jia said.
Growth Rate of above 6.5 Percent
China has set itself an annual growth rate target during the 13th Five-year Plan (2016-2020) period of above 6.5 percent. Is this viable? The economist explained, "This is the bottom line of our target. The next five years will be decisive in realizing the goal of building a moderately prosperous society in all respects by 2020. We hence need an economic growth rate of at least 6.52 percent, accompanied by supporting social policies."
In view of the current downward economic trend, Jia said, "This leaves narrow leeway for a downward economic operation, as economic growth slid to below 7 percent in 2015. The first quarter of 2016 is predicted to dip to 6.5 percent. Therefore, to maintain stable economic growth within the 6.5 percent to 7 percent range, we need to focus on optimizing economic structure and promoting growth quality. Elimination of superfluous production capacity sometimes impedes economic growth further, but we must insist on it in the long run.
Moody's Credit Rating of China
On March 2, international rating agency Moody's Investors Service revised China's credit outlook from stable to negative. Jia Kang holds that it overstated the difficulty China's economy has encountered, and that we should make rational judgments that avoid pessimism within the global market.
"Western media occasionally carry reports that China's economy is weakening and in danger of crashing. In such circumstances, the recently released credit outlook caters to the western propensity to focus on China's economic problems and contradictions. However, it does not provide sufficient evidence to support the extreme theory regarding China's collapse," Jia said. He prefers to consider the new rating as a warning. "We are facing multiple difficulties. Our measures should target current problems in order to maintain a stable economy, transform pressure into motivation, and proactively solve problems. Highlights such as achievements in the field of employment have already become apparent in China's economic restructuring," Jia said.
Jia also calls for an optimistic approach to the international rating agency's report. "We should focus on our own development, at the same time releasing information in a timely fashion in order to accumulate constructive comments on every aspect. We can thus be more competitive in the global market and build the image of a major responsible country."
The Polarized Domestic Housing Market
China is at present facing severe challenges from the real estate market in the form of diametrically opposed tendencies in metropolises and third- and fourth-tier cities. Jia Kang holds that different policies should be applied to suit different situations. In metropolises, we should speed up housing supply and implement institutional policies such as a pilot real estate tax ; in cities with housing inventories, meanwhile, we should depend not only on migrant workers to digest this overcapacity through purchasing surplus housing, but also on supplementary policies. For instance, it is an open question as to whether or not local governments could buy up this housing and transform it into public rental buildings, shared property houses, or even affordable commercial housing.
