By Yao Di
BEIJING, March 21 (Xinhuanet) -- China’s supply-side structural reform will have profound implications for the future of its economy, said Li Yong, vice chairman of the China Association of International Trade.
Li made the remarks during a recent written interview with Xinhuanet on the analysis of the supply-side reform and its impacts on the economic landscape of China.
EXAMINE THE OTHER SIDE OF THE COIN
“Since the financial crisis in 2008, China has been dealing with its economic development by installing monetary and fiscal stimuli into the economy in an effort to jack up demand,” Li said. “[It] worked temporarily, but the economy soon started to become irresponsive to demand-oriented measures.”
“At this juncture in time, it is logical to examine the other side of the coin -- the supply side of the economy,” Li said.
Defining the supply-side as “the anchor of real economy,” Li highlighted the importance of adjusting China’s policy focus to the supply-side, or a “shift from demand-pull to supply-push.”
But the shift is not a simplistic flip of the coin, and in-depth reform is needed to facilitate the transition, Li said.
CARRY OUT SUPPLY-SIDE STRUCTURAL REFORM
Li pointed out that problems exist in the structure of China’s industries, noting “the pipe of our supply system has been clogged by overcapacity and excessive inventory, all of which have weighed down the performance of the economy in general, and the profitability of businesses in particular.”
To deal with these problems, Li shed light on the ways to reduce overcapacity and excessive inventory, two crucial tasks of the supply-side reform.
As for overcapacity, Li said more industries should be included in the drive of spinning off redundancies, ranging from steel, iron and coal to plate glass, cement, electrolytic aluminum, non-ferrous metal, textile and shipbuilding.
“The government has earmarked a 100 billion yuan fund for the next two years to cover contingencies of layoffs from the coal and steel industries,” Li said. “This is a reassuring move for the stakeholders of over-saturated industries to engage in capacity cuts.”
Li also sees three ways to fulfill this task, including clarifying processes and standards for the termination of redundant capacities, initiating a pilot to minimize uncertainties and unreasonable variations, and providing training for disengaged workers to get reemployed.
In terms of housing overhang, Li said, “consensus should be made between the government and the industry stakeholders on destocking solutions.”
“The government has demonstrated goodwill by its effort to line up a series of measures, including the rural migration policy, which will encourage farmers to purchase homes in cities,” Li said.
But these goodwill policies are often offset by speculative operations such as driving up home prices and resistance from some developers, Li said.
“Enough has been done on the part of the government,” Li said, citing the proposals of leasing alternatives, turning the inventory into affordable housing, and low rent housing schemes to dissolve the inventory.
Li also said the government should stay neutral and let the market play a decisive role during the process.
With the supply-side structural reform, Li foresaw that more quality, marketable and customer-oriented products and services will be provided to consumers in the future to meet their growing demand.
