Sup­ply-side re­form a recipe for China’s eco­nomic re­bal­anc­ing

The Pak Banker - - BUSINESS -

Ko­cel Ma­chin­ery Com­pany, a State-owned en­ter­prise (SOE) that had been strug­gling in the ane­mic foundry in­dus­try, is re­cov­er­ing amid a wave of eco­nomic re­forms in China.

Af­ter pi­lot­ing an em­ployee stock own­er­ship plan and in­tro­duc­ing 3D print­ing tech­niques, the 50-year-old man­u­fac­turer, lo­cated in Yinchuan in west China's Ningxia Hui au­ton­o­mous re­gion, has seen im­proved pro­duc­tiv­ity and worker morale. A com­put­er­ized pro­duc­tion sys­tem has cut the time needed for cast­ing en­gine parts from over a month to just 10 hours. Pre­ci­sion ma­chin­ery has nar­rowed sam­ple er­rors to 0.3 mm from 1 mm. Work­shops are no longer filled with pow­ders and fumes.

"The com­pany has been re­born," said Ko­cel pres­i­dent Peng Fan. "I am con­fi­dent prof­its will dou­ble this year." Given that the foundry sec­tor is still dom­i­nated by old tech­niques glob­ally, Ko­cel is aim­ing to be­come an in­dus­try leader, Peng said. The SOE's trans­for­ma­tion is a re­mark­able ex­am­ple of on­go­ing up­grades in slug­gish tra­di­tional in­dus­tries, as China pro­motes an am­bi­tious eco­nomic over­haul to achieve re­bal­anc­ing amid down­ward pres­sure.

"Sup­ply-side struc­tural re­form" was pro­posed by China's pol­i­cy­mak­ers in Nov, 2015 as the lat­est rem­edy for eco­nomic ills caused by break­neck growth. It quickly be­came a buzz­word among econ­o­mists and will likely be a high­light of the up­com­ing leg­isla­tive ses­sion to con­vene on March 5.

An­a­lysts ex­pect the re­forms will be pri­or­i­tized in this year's govern­ment work re­port to be de­liv­ered by Chi­nese Premier Li Ke­qiang and fur­ther elabo- rated in the 13th Five-Year Plan to be ap­proved by leg­is­la­tors. The coun­try's most sig­nif­i­cant an­nual political event, the Fourth Ses­sion of the 12th Na­tional Peo­ple's Congress (NPC) is ex­pected to fo­cus on eco­nomic is­sues this year due to grim do­mes­tic and global out­look.

Around 3,000 deputies to the NPC, in­clud­ing those from Ningxia, where Ko­cel is based, will gather in Bei­jing to map out eco­nomic de­vel­op­ment over the next five years. For nearly three decades, China's eco­nomic mir­a­cles were en­vied and ad­mired, un­til a slow­down in re­cent years left many jit­tery. In 2015, the coun­try's GDP growth dipped to its weak­est level in 25 years.

What lies be­hind the sag­ging growth ap­pears to be struc­tural ills, ac­cord­ing to pol­i­cy­mak­ers. Growth fu­eled by in­vest­ment and ex­ports can­not last due to mount­ing lo­cal gov­ern- ment debt and weak­en­ing global de­mand. Tra­di­tional in­dus­tries, plagued by ex­cess fac­tory ca­pac­ity and fall­ing pro­duc­tiv­ity, are los­ing steam, while emerg­ing ones are not pre­pared to grab the ba­ton.

De­mand-side sup­port, such as in­vest­ment stim­u­lus, has be­come less ef­fec­tive as China's most press­ing eco­nomic is­sues lie on the sup­ply side, said Li Zuo­jun, a re­searcher with the State Coun­cil De­vel­op­ment Re­search Cen­ter, a govern­ment think tank.

As an ex­am­ple, Chi­nese shop­pers flocked to Ja­pan to buy heated toi­let seats last year, in­di­cat­ing a sup­ply­de­mand im­bal­ance rather than a lack of money or will­ing­ness to spend, Li said. De­spite a short­age of some prod­ucts, sup­ply gluts have been seen in sec­tors in­clud­ing man­u­fac­tur­ing, coal and steel.

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