New age, new bal­ance and new break throughs

The Pak Banker - - OPINION - Wu Jian­gang

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.

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