How to sustain positive economic development amid market uncertainties
Editor’s Note:
The 2019 Annual Meeting of the Chinese Economists 50 Forum was held in Beijing on Saturday, with the theme “How to achieve the six stabilities and keep positive economic development in the long run.” Below are excerpts from speeches given by several renowned scholars and officials at the event.
Fang Xinghai, vice chairman of the China Securities Regulatory Commission
The current IPO system has led to highly consistent investor expectation in the secondary market as they mindlessly buy into roaring stocks, aggravating price distortions and resulting in low long-term returns on newly listed shares.
Reform to secondary market prices will create a good groundwork for IPO price reform in the future.
Liu Shijin, vice president of the China Development Research Foundation
If we compare [China’s] high-speed growth of the past three decades to eating fatty meat, after we entered a phase of medium-speed growth, transitioning to high-quality development, which will be the hard part, is like nibbling on hard bones. There are five sources of growth momentum during the highquality development stage. First, the improvement in low-efficiency growth sources. Second, the income growth of low-income groups and the upgrade in human capital. Third, the upgrade to the consumption and industrial structures. Fourth, cutting-edge innovation. Fifth, green development, which is not limited to pollution control and environmental protection.
Xu Shanda, president of SEEC Research Institute
Many private enterprises pledged equity to borrow money for stock or real estate investment, instead of investing in their main business, which is not recommended. What we should encourage is that companies should finance R&D and technology, which is conducive to economic development.
Cai Fang, vice president of the Chinese Academy of Social Sciences
What lies behind the economic slowdown is the disappearance of the demographic dividend, which has caused a decline in the potential growth rate, meaning there is no longer a gap between actual growth rates and potential rates. Now, the natural unemployment rate has climbed from 4 to 5 percent, indicating there is no cyclical unemployment at present and thus excessive strong stimulus is unnecessary.
The government should focus policymaking on public employment services like training and appropriately use macroeconomic policy tools to regulate the economy.
Lou Jiwei, chairman of the National Council for Social Security Fund
Industrial policy played a certain role in the early economic development stage, but later, the actual role of industrial policy was not all positive. Take the auto industry as an example. The current “big three” private car manufacturers have basically broken the constraints of industrial policies to grow up.
Fan Gang, director of China’s National Economic Research Institute and vice president of the China Society of Economic Reform
Structural reform on the supply side and the macro adjustment to the demand-side can be done at the same time.
While we must push forward with reforms continuously, whenever there are economic fluctuations, it is still necessary to take some macro-control measures.
That’s what developed countries and market-economy countries have done to stabilize their economies over the years.
We can’t hold back some necessary adjustment measures on the demand side just because supply-side reform fails to see results. We need action on both sides.
When we discuss reforms, don’t forget that if the reform isn’t rolled out amid a stable development environment and the economy doesn’t move at a stable growth level, it will be hard to advance many reforms.
Huang Yiping, deputy dean of the National School of Development of Peking University
The Chinese economy is in transition, but China’s financial system hasn’t turned around yet. This is why private enterprises are facing difficulty in financing recently.
Small- and medium-sized enterprises have been squeezed out of the formal financing market, pushing up interest rates on informal financing.
Interest rate liberalization is crucial for the financial system to support the private economy, which will increase interest rates on formal financing and lower rates on informal financing.
It is necessary to regulate the informal financial sector, but not eliminate it. Shadow banking and fintech sectors do pose certain risks, but they are the meaningful products of financial liberalization.
Wang Yiming, deputy director of the Development Research Center of the State Council
We are still a developing country, with capital stock and per capita stock much lower than in developed countries. So there is nothing wrong with stabilizing investment, which should be not seen as a sin.
The government should appropriately increase investment in emerging infrastructure, especially in 5G and industrial internet infrastructure, in which there is much room for investment.
Li Bo, vice chairman of the All-China Federation of Returned Overseas Chinese
The core of securities regulation is information disclosure, rather than letting the government decide or maintain stock indices at certain levels. Therefore it is essential to introduce registrationbased IPO system reform more quickly and comprehensively. Moreover, reform to the social security system for seniors should be swiftly enacted. If we want to increase the weight of long-term stable institutional investors in the A-share market, reform to the social security system for retirees is a crucial step.
Lu Lei, deputy director of the State Administration of Foreign Exchange
The development model characterized by a low factor cost and low addedvalue is not sustainable, which is a longterm challenge for China’s economic health. Meanwhile, overdependence on liquidity, reflected by low interest rates and leverage ratios, is the short-term challenge.
All the crises and lessons in emerging markets derive from internal imbalances, namely, that the real economy lacks competitiveness and operates with high leverage. External risk management and control may buy time, but it can only delay systemic risks if there is no effective internal structural reforms.