Quality, Not Speed
Central Economic Work Conference Sets the Tone for 2013
The tax reform has reduced companies’ tax burden dramatically. The tax reduction in Shanghai from January to October reached RMB 22.5 billion, while that of Beijing in its first two months on the scheme amounted to RMB 2.5 billion. Across all trial areas, the annual tax reductions should reach RMB 100 billion.
At present, the reform only covers companies in the transport and some service sectors. Vice Premier Li Keqiang indicated in a meeting that the scheme should be extended to cover the postal service, telecommunications, railway transportation, construction and a number of other industries.
Gao Peiyong, director of the Institute of Finance and Trade Economics at the Chinese Academy of Social Sciences (CASS), remarked that if the standard tax rate is lowered by one percentage point, tax reduction would reach RMB 250 billion. There is still ample room for further tax reductions.
Sun Lijian, vice dean of the School of Economics of Fudan University, stressed that proactive fiscal reform to cut company tax and encourage consumer spending should boost the economy.
Regarding monetary policy, Sun said the quantitative easing policies currently pursued in certain developed nations would lead to surges of speculative “hot money” into developing nations. Quantitative easing would lead to an increase in the money supply, inflation, and hence downward pressure on those countries’ currencies. At the same time, the relative value of the RMB would rise, hurting China’s already-struggling exports. Against this background of uncertainty and growing calls for trade protectionism in some quarters, prudent monetary policy in China is a must.
Smart Urbanization
China’s rapid economic development has triggered an influx of rural residents to cities in search of work. While many have settled permanently in cities, a large “floating population” has emerged, members of which remain underprivileged in urban environments.
According to Vice Minister of Human Resources and Social Security Yang Zhiming, at present there are 250 million farmer-turned workers, 150 million of whom are migrant workers.
Statistics released by the Ministry of Housing and Urban-rural Development suggest China has experienced the largest-scale urbanization the world has ever seen. In 2011 the country’s urbanization rate reached 51.27 percent with 690 million urban residents. Last year was the first time the number of urban residents exceeded that of rural residents. Against this backdrop of a rapidly changing society, many people face problems in adjusting to life in the city.
The Central Economic Work Conference also drew attention to the opportunities urbanization presents. Rapidly expanding domestic demand is now possible, mainly thanks to urban markets.
Ha Jiming, vice chairman of Goldman Sachs’ China Investment Management Unit, presented an analysis of urbanization’s benefits. He projected that consumption-orientated investment would rise sharply alongside investments in the fields of healthcare, education, water and power supply, and communications.
Tang Min pointed out that urbanization should put the needs of migrant workers on par with permanent urban residents. They should have the same access to benefits and welfare enjoyed by permanent urban dwellers, he said.
Rural residents still account for half of the nation’s population, and the conference drew attention to the importance of agriculture to people’s livelihoods. Social stability can be maintained only when the country produces enough food to feed its people.
While food self-sufficiency is important, China has come to rely on imports of staple grains to satisfy market demand.
Chen Xiwen, deputy leader of the Central Rural Work Leading Group, said that the migration of 200 million rural residents to cities has led to a decrease in the self-sufficiency rate of grain. At the same time, demand for edible oil and high-end foodstuffs has increased as incomes have risen and living standards have improved.
Chen said that property law as it currently stands does not adequately protect valuable farmland. Non-agricultural industries have encroached on arable land, which is a resource that China sorely lacks. Chen pointed out that cultivatable land needs to be more strictly protected under the law, and farmers’ interests in production and management should be championed.
Deepening Reform
On the eve of the conference, General Secretary Xi Jinping visited Shenzhen in Guangdong Province. The city is a symbol of China’s reform and opening-up policies. By choosing Shenzhen as the first destination of his inspection tour, Xi showed his resolve to continue the reforms initiated by his predecessors.
The conference made clearer the significance and urgency of deeper reform to the structure of China’s economy. It hastened the imperative to conduct top-level design for economic restructuring and put forward a general plan, a roadmap and a timetable for reform.
The importance of GDP growth was downplayed at the conference. In its place, sustainable, healthy development was championed. This indicates that the new leadership will pay more attention to the efficiency and quality of growth, rather than just its speed.
