Struc­tural re­form key to China’s growth: an­a­lysts

The Pak Banker - - BUSINESS -

Chi­nese tourists have grabbed global at­ten­tion for their fren­zied shop­ping over­seas in re­cent years, bring­ing home goods from de­signer out­fits to qual­ity life ne­ces­si­ties, elec­tric cookers for in­stance.

While do­mes­tic con­sump­tion is slack, en­thu­si­asm for haitao (buy­ing over­seas goods on­line) is run­ning high. The sce­nario is a per­fect op­por­tu­nity to ex­plain "sup­ply-side struc­tural re­form" in lay­man's term. The cur­rent sce­nario is a re­sult from a struc­tural im­bal­ance of do­mes­tic sup­ply, mean­ing Chi­nese con­sumers can't find a sup­ply of qual­ity goods they par­tic­u­larly want.

Fix­ing the prob­lem through re­forms is the key to China's econ­omy. At a sym­po­sium at­tended by min­is­ters and pro­vin­cial of­fi­cials on Mon­day, Pres­i­dent Xi Jin­ping said sup­ply-side struc­tural re­form will ad­vance eco­nomic re­struc­tur­ing by re­duc­ing non­ef­fec­tive and low-end sup­ply, and boost pro­duc­tiv­ity by ex­pand­ing medium-to-high-end sup­ply.

Sup­ply-side re­form, a buzz­word used by Chi­nese lead­ers and econ­o­mists, fo­cuses on bet­ter pro­vi­sions for high-qual­ity goods and ser­vices, lower costs for busi­nesses and stronger con­sump­tion. The phrase is cre­ated against the back­drop of a slow­ing econ­omy. China's econ­omy grew by 6.9 per­cent year on year in 2016, its slow­est an­nual ex­pan­sion in a quar­ter of a cen­tury.

How­ever, a V-shaped re­bound is be­yond the reach of short-term stim­u­la­tion. The root causes of the slow­ing econ­omy must be ad­dressed. China has been trans­form­ing from an ex­port- and in­vest­ment-pow­ered model to one based on stronger con­sumer spend­ing, in­no­va­tion and the ser­vice sec­tor.

Af­ter decades of eco­nomic re­form, the growth model and con­sump­tion de­mand have changed fun­da­men­tally, from a uni­ver­sal short of sup­ply to over­sup­ply in some sec­tors, and from an em­pha­sis of quan­tity to a pref­er­ence for qual­ity.

The root cause of the slow­ing econ­omy ap­pears to be lack of con­sump­tion de­mand, but the ac­tual cause is an im­bal­anced sup­ply struc­ture and mis­match be­tween sup­ply and de­mand.

That ex­plains why China im­ports a large amount of fine steel, while crude steel do­mes­ti­cally mass pro­duced is priced "as cheap as cab­bage", and the buy­ing over­seas frenzy against slug­gish do­mes­tic con­sump­tion. Fu­ture growth will rely on a bal­ance be­tween sup­ply and de­mand, a re­quire­ment for adapt­ing to the eco­nomic "new nor­mal".

At present, the pri­or­ity should be dis­solv­ing in­dus­trial over­ca­pac­ity, phas­ing out "zom­bie en­ter­prises", low­er­ing busi­ness costs, de­vel­op­ing strate­gic and emerg­ing in­dus­tries as well as ser­vice sec­tors, and ex­pand­ing sup­ply of pub­lic goods and ser­vices. Sta­tis­ti­cally, China is ac­cel­er­at­ing its pace in op­ti­miz­ing eco­nomic struc­ture. For in­stance, the share of the value added of the ser­vice sec­tor in the to­tal GDP in­creased by 2.4 per­cent­age points year on year in 2015.

The con­tri­bu­tion of end-user con­sump­tion, in­clud­ing res­i­dent and govern­ment spend­ing, to the na­tional GDP growth in 2015 jumped by 15.4 per­cent­age points from 2014, ac­cord­ing to lat­est of­fi­cial data.

Mov­ing in the same di­rec­tion, the sup­ply-side struc­tural re­form is ex­pected to in­ject re­newed vi­tal­ity into Chi­nese econ­omy.

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