New age, new balance and new break throughs
CHINA'S biggest annual political event, the National People's Congress (NPC), came to an endlast week. Signs show that China is transitioning to a new model. For instance, for the firsttime in past 25 years, its GDP growth rate has fallen below 7 percent; the excessiveproduction capacity may cause big problems in employment; the housing price is unbearablyhigh for most people; the debt is twice of its GDP; the old way of using governmentinvestment to stimulate economic growth has had much less marginal benefits.
For such a huge country, its transition to a new economic model is especially difficult. Thisyear's NPC passed a new five-year economic plan and Premier Li Keqiang hosted a pressconference. These events give us hints about where this ancient country can adapt itself to anew age. People in different sectors need clear information from the government. The stock marketfluctuated wildly in the previous year and the beginning of this year, which was partly due toinvestors' extreme opinions about this huge economy's future.
However, the key points of the NPC and the Premier Li's conference can be summarized intwo ways: New balance and new breakthrough. It is easy to understand that if the economy could smoothly transit to a sustainable growthmodel, it needs to balance the old model with the new model, which Premier Li emphasizedrepeatedly in the press confer- ence. First, the government will avoid a hard landing. Premier Li said the transition is difficult, but he stressed that hope is much bigger thandifficulties and if China sticks to the reform and opening-up policy, it will avoid a hard landing.Premier Li's answer shows that China's government has realized the difficulty of transition andis actively working on it and the main paths are reform and opening up.
While many experts worry about housing price and total debt, the fact is that China is bigenough to make space to solve the problem and the government has enough assets to dealwith bad loans.
China's service sector and massive application of modern science andtechnology equipped with improvement of legal system and property right registration andprotection can foster new and fast growing industries, such as advanced manufacturing, e-business, prosperous service industry and the profits and employment of these sectors canhelp avoiding a hard landing.
Second, the government will solve problems of excess capacity and laid-off workers.
Premier Li said that there are some industries that have serious problems of excess capacityand the government has already chosen steel and coal sectors as important breakthroughs tosolve the problem. The central government has set up a special fund of 100 billion yuan tohelp laid-off workers and the fund can be increased in case of need and the localgovernments will match their funds, too.
The problem of excess capacity is the most important issue of transition, with a stronggovernment's policies, the problem can be safely solved and the laid-off worker can realizetheir abilities in new industries.
Third, pension fund is ensured and many social policies of people's livelihood are on the way. Premier Li has stressed that pension will be ensured and other social policies of people'slivelihood, such as establishment of health insurance's networking around the country, areduction in social insurance, an increase in peasants' income.
These policies, aiming to reduce the financial burden of low-income groups, are important inthe transition of economic growth model in that they prevent social instability.
New balance policies aim to solve old economic growth model's problems while trying not tocause new problems. Since government investment can introduce new problems, it will beused carefully.
If the 13th Five-Year Plan can avoid a hard landing, solve excess capacity problem andimprove low-income groups' livelihood, China can have a good start for the new age. But inorder to transit to a new economic model, the economy needs some new breakthroughs. Ifthere is only balance and no breakthroughs, the balance cannot sustain. Premier Li stressed that finance sector should focus on helping the real economy. Thegovernment will try to reduce economic intervention and provide more services, too. PremierLi said the government will cut more approval processes and give power back to market.