Mixed eco­nomic prospects in store

China Daily (Hong Kong) - - 2016-17: REVIEW & PREVIEW - -WANG Y AN FE I

Yao Yang, dean of the Na­tional School of De­vel­op­ment at Pek­ing Univer­sity, shared with China Daily his view of China’s econ­omy in 2017.

With some re­cent upticks such as re­tail sales data, how far do you see the sta­bi­liz­ing trend, con­sid­er­ing ex­ter­nal un­cer­tain­ties?

I’m ex­pect­ing the good trend to be sus­tained next year. China is still at the bot­tom of a six-year busi­ness cy­cle. The sixyear slow­down that China ex­pe­ri­enced af­ter the 1997 Asian fi­nan­cial cri­sis was a symp­tom of pre­cisely such a cy­cle. As long as we keep up with the re­form agenda, the econ­omy is ex­pected to bot­tom out. On ex­ter­nal sit­u­a­tions such as the new ad­min­is­tra­tion in the United States, I would say the US would be more will­ing to see a warm­ing up trend of the Chi­nese econ­omy rather than slow­ing down. To make it sim­ple, Chi­nese con­sumers have a greater ap­petite for US prod­ucts when they find them­selves with ris­ing pur­chas­ing power. Com­pared to ex­ter­nal un­cer­tain­ties, China should be more fo­cused on re­solv­ing do­mes­tic chal­lenges.

The Cen­tral Eco­nomic Work Con­fer­ence which closed on Fri­day listed five ma­jor tasks to be ac­com­plished, in­clud­ing cut­ting over­ca­pac­ity, de­stock­ing, delever­ag­ing, low­er­ing costs and im­prov­ing weak links. Which one is the hard­est task?

Great progress has been made in cut­ting over­ca­pac­ity this year and tar­gets set at the be­gin­ning of this year in steel and coal sec­tor are ex­pected to be achieved on sched­ule. But delever­ag­ing and cut­ting down prop­erty in­ven­to­ries saw slow progress. These two will be two hard nuts to crack next year.

What is the key to see ma­jor progress in im­ple­ment­ing the above two men­tioned tasks? Do you have any sug­ges­tions?

The key is to re­store mar­ket con­fi­dence. The cen­tral gov­ern­ment is­sued a num­ber of guide­lines this year. Strong in­cen­tives and clear pol­icy sig­nals from the gov­ern­ment would help en­cour­age mar­ket play­ers to fol­low guide­lines that have been is­sued in the past.

One ex­am­ple is the guide­lines on debtto-eq­uity swaps is­sued in Oc­to­ber, with which the State Coun­cil en­cour­aged lenders to swap loans for eq­uity. It might be a good so­lu­tion, but banks lack mo­ti­va­tion to par­tic­i­pate, con­sid­er­ing bad debt may end up with bad eq­uity if en­ter­prises fail to see an im­prove­ment. So it might be a bet­ter idea to give clear in­cen­tives to banks, say, 20 per­cent of bad loans are al­lowed to be writ­ten off if an en­ter­prise fails com­pletely.

On the stock­pil­ing of un­sold homes, I think the gov­ern­ment has enough to choose from its pol­icy tool­kit. For ex­am­ple, lo­cal govern­ments are able to is­sue bonds to help fund hous­ing as­sis­tance for low-in­come peo­ple in ru­ral ar­eas, ei­ther by low­er­ing in­ter­est rates or of­fer­ing cash as­sis­tance. Low­er­ing hous­ing stock­piles can be achieved along­side the na­tion’s ur­ban­iza­tion process. The key is to en­sure trans­parency.

Yao Yang

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