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