The Central Economic Working Conference deployed vigorously developing real economy and fostering and strengthening the new kinetic energy as one of the important tasks in the economic work in 2017, which indicates on the one hand that China, under the policy framework of new normal, has formed a powerful policy support system and action sequence with the new development concepts as the guidance and the supply-side structural reform as the main line, and on the other hand, it objectively shows that, facing the stabilizing economy while slowing down and the differentiating trend, the current tendency of capital “separating from the real to the virtual” has increased the challenge to the development of real economy, and the tasks of correcting structural deviation remains arduous and heavy. At such a new historical time today, the central government pointed out that, the root source of the outstanding contradiction and problems in the economic operation of China is “major structural disequilibrium”, and demanded vigorously developing real economy and fostering the new kinetic energy. This will surely play an active foundation laying role in the healthy development of Chinese economy, and the associated economic policies will surely produced linked and amplified effect.
The real economy is the core and foundation of national economy, and the fundamental source of the competing power of a nation. Today, the virtual economy has been excessively developed, so it must be brought back to its original function. Only when the virtual economy has returned to its basic function, can the cost to develop real economy be reduced, the development environment be optimized, and the new kinetic energy of development be formed.
Question 1: How to deal with excess production capacity by category, so as to properly cut overcapacity?
The market and legal approaches should be used to address overcapacity. Addressing the serious overcapacity is to restore the normal supply and demand relationship in the real economy, and push the continuous recovery and rejuvenation of real economy business. There are mainly three types of outdated capacity: at the technical level, it is the production capacity based on backward technologies and process equipment; at the market level, it is the production capacity that has lost competing power; and at the policy level, it is the production capacity failing to meet standard or comply with regulations in environmental protection, energy consumption, quality, standard and safety. To cut overcapacity with market and legal approaches, the first two types of outdated capacities will be regulated all by enterprises and market. For the third type, the government should lead by the ox nose of disposing “zombie enterprises”, strictly implement relevant laws and regulations and standards, fulfill the target with various access thresholds, strengthen the awareness of rules while reducing the planning awareness, enhance the awareness of selection while reducing the awareness of instructions. These are the key factors in favorable governance of production capacity.
Question 2: Why is deleveraging of enterprises taken as the primary priority?
In the prerequisite of controlling the total leverage, deleverage of enterprises will be taken as the primary priority. Deleverage for real economy enterprises not only reduces their burdens and increases their profit, but also prevents the occurrence of financial risks. At present, as the debts of local governments and enterprise debts are mixed together, it is quite difficult to distinguish the boundary, therefore it is quite necessary to mainly deleverage for enterprises. Furthermore, the debt burdens of enterprises in China are quite heavy. If it goes on, it will surely endanger and empty the real economy, pushing the economy of China to the era of industry hollowing in advance. To continually lower the leverage of enterprises, first, we should support enterprises to convert their debts into shares in a marketized and legal manner; second, we should make more efforts in equity financing and reduce the ratio of bank loans; and third, we should strengthen the management of soft budget restriction on debts, and enhance the rigid restriction of the debt levers by the enterprises themselves.
Question 3: How to reduce the cost of real economy enterprises?
We should further reduce taxes, charges and factor costs for real economy enterprises. Cost reduction has the policy implication of bidirectional adjustment of unbalanced supply and demand relationship. Today, the question of cost, as it involves industry transfer, has become a focus in international industrial competition and domestic economic policies. Promoting the supply-side structural reform from the cost point of view can get the instant effect of development. Cost reduction includes factor cost and institutional cost. For the former, the most important way is to raise the productivity and to push enterprises to reduce cost and increase efficiency internally, such as cutting the energy cost and the raw material cost per unit product; for the latter, we should implement institutional reform to reduce various transaction cost, especially institutional transaction cost, such as reducing review and approval links, lowering the various intermediary and evaluation cost, cutting logistics cost and increasing the flexibility on labor market.
Question 4: How to rejuvenate the real economy by optimizing external environment such as market and industrial organizations?
In addition to measures of supply-side structural reform such as improving quality, creating brands and innovation drive, the present Central Economic Working Conference also put forth two direct and powerful measures to rejuvenate the real economy, as a new view angle to develop the real economy: the first is to construct a legalized market operation environment, strengthen the work to attract foreign investment, and give better play to the important role of foreign investment in promoting the development of real economy. With In doing this, the central government clearly linked the attracting FDI with the development of real economy, having the important significance of “bringing order out of chaos” in promoting the work to attract foreign investment. The second is setting to set the requirements of concerted development of biglarge, medium and small-sized enterprises in the view of optimizing industrial organization, i.e. upgrading the quality of large enterprise, and also creating conditions in market access and element allocation, to enable medium, small and micro enterprises to better participate in the fair competition on market. The method to rejuvenate and expand real economy by optimizing industrial organization boasts many advantages, and also has very big space of policy operation. For example, Nippon Steel and Pohang respectively account for over 50% of the iron and steel output of Japan and Korea, but Baosteel and Wu Steel, when combined, only account for 7.6% of the iron and steel output of China. The low level of industrial organization is one of the root causes of large scale overcapacity in various industries of China.
Question 5: How to create a low-cost development environment for the real economy from the viewpoint of real estate?
We should create a low-cost development environment for the real economy by suppressing the real estate bubbles. First, we should adhere to the positioning that “houses are built for residing purpose, instead of speculation”, to return its function as a consuming product. This will create a good atmosphere for lowering the cost in the manufacturing industry and encouraging innovation. The second is the action to increase the land supply to mitigate pressure in cities with high pressure of house price rising. In fact, this requires not only rationally increasing the land supply, but also raising the proportion of land for residential houses, and putting to good use the land in cities either laid idle or used with low efficiency. This is the fundamental method to lower the house price rise expectation in these cities, and will produce a significance suppressing effect on the continually rising house prices. The third is to require megacities to speed up the separation of some city functions, to drive up the development of surrounding medium and small cities. This is an important signal to vigorously develop city clusters, and it can not only suppress the rising house prices in these cities with over concentrated functions, but also produce the effect of cutting inventory real estate in tiers III and IV cities.
Question 6: How to lay the institutional foundation for the development of real economy enterprises?
Institutional foundation for the development of real economy enterprises should be laid by deepening the reform of state-owned enterprises and strengthening the construction of property right protection system. On one hand, reform of mixed ownership is an important breakthrough in reform of state-owned enterprises, substantial steps will be taken in fields of power, petroleum, natural gas, railway, civil aviation, telecom and military engineering according to the requirements of improving governance, enhancing incentives, highlighting owners and raising efficiency, and push ahead the reform pilot in state-owned capital investment and operation companies, to consolidate the foundation of the national economy of China. On the other hand, we should lose no time in compiling the civil codes, to strengthen the protection of property right of organizations of all ownerships and natural persons. Mistakes must be corrected whenever discovered, and misjudged and unjust cases that have damaged the property right of enterprises should be identified and corrected. This will also play a foundational supporting role in stabilizing the expectation of civil entrepreneurs and raising the investment initiative of privately run enterprises that has decreased gradually in recent years.
(Liu Zhibiao, Director of Jiangsu Industrial Economy Research Institute and professor of Nanjing University was specially invited to answer the questions)