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View the Situation and Seek Development with the Big Logic of New Normal

Submit Time:10-10-2017 | Zoom In | Zoom Out

Author:Wang Yiming | Source:People’s Daily (Page 07, August 22, 2017)


After the 18th National Congress of the CPC, the Party Central Committee with Comrade Xi Jinping at its core made the important judgment that the economic development in China entered a new normal, formed the policy system with the new philosophy of development as the guidance and the supply-side structural reform as the main line, and took the general work guideline of making progress while maintaining stability as the important principle of governance and methodology in doing the economic work. Comrade Xi Jinping emphasized many times, “the cognition, steering and leading of new normal should be taken as a big logic in doing our economic work at present and for a period in the future. In April 2017 at the meeting called by the Political Bureau of the CPC Central Committee to analyze and study the current economic situation and economic work, he emphasized once again that we must study and judge the economic situation with the big logic of new normal, and firmly press ahead the strategic economic restructuring. To view the situation and seek development with the big logic of new normal is the basic adherence in doing the economic work at present and a period in the future, with important significance in consolidating the fundamental of long-term improving economy, and pushing the Chinese economy to evolving towards a phase with higher form, more optimized division of work and more rational structure.  

The fundamental that the Chinese economy is general improving in the new normal has remained unchanged 

As the Chinese economy entered the new normal, the most visual change is the change in economic growth rate, but the essence is the economic restructuring and change of development pattern, and the result is the strategic opportunities for the economic development in China marching to a higher stage. Just as pointed out by Comrade Xi Jinping in 2014, economic development entering the new normal did not change the judgment that the development in China is still in an important period of strategic opportunities in which we can develop to the full extent, and what has been changed is the connotation and conditions in this important period of strategic opportunities; it did not change the fundamental that the economic development in China is generally improving, and only the way of economic development and economic structure have changed.  

The situation that the economy is stabilizing with improvement has become more apparent. In the Chinese economy in the new normal, the relations of main economic variables are in profound readjustment, and the pressure of economic downturn is increasing. How to view the new changes brought by the new normal in economic development? Comrade Xi Jinping has pointed out profoundly that, the economic development entering the new normal is the inevitable reflection of the features of the economic development phases in China, and is beyond the will of the people. Economic downturn is a challenge, but more a major opportunity to create pressure for transition of pattern and restructuring. After our unremitting strategic restructuring of economy in recent years, especially the supply-side structural reform since 2016, positive changes occurred in many aspects in the economic operation in China starting from the second half of 2016, the industrial product price index changed from negative to positive, the industrial added value growth rate rose again, and the enterprise profits stopped decrease to increase. In the first half of 2017, the situation of improving in stability of the economic operation became more apparent, the GDP rose by 6.9% on year-on-year basis, with the base of economic aggregate continually expanding, the economic growth rate was maintained in the range of 6.7%—6.9% in 8 consecutive quarters, ranking at the front among the main economies in the world. The improvement of Chinese economy in stability has raised the confidence of the world, and also expanded space for China to comprehensively deepen reform and realize the goals of macro policy.  

Deepening of restructuring has bolstered improvement of quality and benefit. To view the situation and seek development with the big logic of new normal, we should not only look at the growth rate, and should see more the changes in economic structure and improvement in quality and benefit. In the optimization of economic restructuring, consumption remained the main motive force in economic growth in the first half of 2017, with the contribution from end consumption to economic growth at 63.4%, steadily ranking at the top of the three main factors; the service leading economic feature became more apparent, the growth rate of the service industry was steadily higher than that of the secondary industry, and the proportion of the service industry in the total economy rose to 54.1%; industries adapting to consumption upgrading developed rapidly, and the output of industrial robots, urban mass transit vehicles, integrated circuit, solar energy cells and sport utility vehicle (SUV) increased respectively by 52.3%, 31.6%, 23.8%, 21.6% and 19.7%; in the traditional industries, the internal organization structures improved, and the market shares of the top ten enterprises in the cement, paper-making and excavators respectively rose by about 31, 5.2 and 17.2 percentage points from the 2012 level. As for the improvement in quality and benefit, in the first half of 2016, the profits of industrial enterprises rose by 22% as compared with the same period last year, being the highest level in the same period since 2012; the per capita disposable income of residents increased actually by 7.3%, 0.4 percentage points higher than the economic growth rate in the same period; the growth rate of financial revenue has accelerated, and the general public budget revenue of the whole country increased by 9.8%, 2.7 percentage points higher than that of the same period of previous year. These positive changes show that, as long as we maintain the strategic focus and make efforts to turn the pressure of downturn into the motive force to change pattern and regulate structure, we can bring the economic development to mount on a new stage.  

Push the economic development into the new stage of improving quality and increasing return. To view the situation and seek development with the big logic of new normal, we should adhere to the dialectics and the two-aspect doctrine, see both achievements and difficulties, and more important, we should have firm confidence and be bold to meet with difficulties, to open up new ways of development. At present, the global economy remains complicated and changing, and the main economies are in the situation of mild recovery. However, the subsequent influence of the international financial crisis is also persistent, the reverse adjustment of the relaxed monetary policy in developed countries can possibly trigger re-configuration of global assets and fluctuation on financial market, and the uncertainty in the economic policy of the United States can still result in external impact. There are still many contradictions and problems in the economic operation of China, the motive force for the economy to improve quality and increase benefit remains insufficient, the improvement of benefit in enterprises is resulted from rising prices to a very large extent, the unbalance in economic structure remains outstanding, the regional differentiation of industries and enterprises is still apparent, and we are facing challenge in realizing sustainable medium-high growth rate. In face of the new changes in economic operation, we should maintain strategic focus, and firmly grasp supply-side structural reform according to the big logic of new normal, make efforts to enhance the new supply forces in new technologies, new industries, new forms of business and new patterns, push the new supplies into the expansion period, consolidate the fundamental of long-term improvement of economy, and push the economic development into the new stage of improving quality and increasing benefit.  

Supply-side structural reform will lead the new normal in economic development 

What will be the orientation of macroeconomic management in the new normal of economic development? Comrade Xi Jinping pointed out that, although there are cyclic and aggregate factors in the outstanding contradictions and problems in the economic operation of China, the root is the major structural unbalance, resulting in unsmooth economic circulation. We must find ways in the reform on supply side and in structure, and make efforts to realize a new dynamic balance in the supply and demand relations. If we still mainly expand investment demand to drive up economic growth as we did in the past, it will be difficult to solve the problem of structural unbalance, instead, it will worsen the excess production capacity, reduce the investment return, raise the debt leverage and block the economic circulation. Therefore, we must shift the focus of economic work from the demand side to the supply side, and find ways in structural reform. Just as emphasized by Comrade Xi Jinping, supply-side structural reform is the inevitable choice when the economic development of China has entered new normal, and the strategic idea that must be established in the macroeconomic management of China in the new normal of economic development.  

Supply-side structural reform has stabilized and improved the economic development. Since 2016, the supply-side structural reform has unfolded step by step starting from cutting overcapacity, reducing excess inventory, deleveraging, lowering costs, and strengthening areas of weakness, playing a critical role in optimizing the supply structure and raising the quality and benefits. The overcapacity was further cut. On the basis of overfulfilling the target tasks of cutting overcapacity in iron and steel and coal in 2016, by the end of June 2017, iron and steel production capacity had been cut by 56.36 million tons, overfulfilling the target of the whole year; and coal production capacity cut by 111 million tons, fulfilling 74% of the annual target. Excess inventory in real estate was further reduced, and at the end of June, the area of commodity houses for sale was reduced by 9.6% from the same period of last year. Preliminary result has been obtained in deleveraging, the macroscopic leverage ratio tended to stabilize, and the enterprise balance sheets were further improved. At the end of June, the growth rate of the M2 balance was reduced to 9.6%. At the end of May, the asset-liability ratio of industrial enterprises above designated size was 56.1%, a decrease of 0.7 percentage points on a year-on-year basis. Constant efforts were made to reduce cost, and measures to reduce taxes and charges were issued, expected to reduce the burden on enterprises over 1 trillion yuan in the whole year. It was more targeted in strengthening areas of weakness, and in the first half of 2017, the investment in ecological environmental protection, education, water conservancy and transportation was respectively increased by 46%, 17.8%, 17.5% and 14.7%. The supply-side structural reform has effectively improved the supply and demand relations, speeded up the clearing of market, offered important support to improving the profitability in industrial enterprises, and stabilized the economic development with improvement. Practice has proved that the decision on supply-side structural reform is completely correct.  

Supply-side structural reform has promoted realizing new balance in economy. At present, there are various contradictions and problems in the economic operation of China, although in different forms, their roots are major structural unbalance, mainly demonstrated as structural supply and demand unbalance in real economy, unbalance of finance and real economy and unbalance of real estates and real economy. To effectively solve major structural unbalance in economy, the supply-side structural reform has continually expanded new areas and enriched its contents. To solve problems of structural supply and demand unbalance in real economy and reduction of profitability of traditional industries, it was clearly required to energetically prosper real economy, push the real economy to adapt to the changes of market demands, speed up the upgrade of products, raise the product quality and technological level, and enhance the innovation capacity and core competing power of enterprises. To solve problems of finance and real economy unbalance and aggregating financial risks, we strengthened and improved financial oversight, suppressed excessively rapid rise of macroscopic leverage rate, to prevent and dissolve financial risks and safeguard financial security and stability. To solve problems of real estate and real economy unbalance and the co-existence of high house prices and high inventory, we speeded up the establishment of fundamental system and long-effect mechanism complying with the conditions of China and suiting the market laws, to promote the steady and healthy development of the real estate market. It is not possible to solve major structural unbalance in economy in one action, and it requires unremitting efforts and prolonged work, and to continually explore new ways in practice.  

The basic solution to supply-side structural reform is to deepen reform. Comrade Xi Jinping pointed out that, the ultimate goal of supply-side structural reform is to meet demand, the main direction is to improve supply quality, and the basic solution is to deepen reform. The most essential in deepening supply-side structural reform is to strengthen the function of market to allocate resources, improve the decisive role of market in resource allocation, and the institutional mechanism for the government to better play its roles. At present, it is most imperative to quickly establish the mechanism for enterprises to exit. Marketized and legalized exit channels should be established with disposing zombie enterprises as the breakthrough, to solve the problem “unable to exit and close”, so that market can be really cleared up; we should quickly form the industry upgrading mechanism, to push enterprise merging and restructuring by way of asset restructuring, capital integration and industrial merging, advance the reform of state-owned enterprise for mixed ownership, and promote the merging of manufacturing and service industries, the agriculture to connect with the secondary and tertiary industries, and traditional industries transplanted with new technologies and new patterns, to truly realize upgrading of industries; we should speed up and refine the innovation incentive mechanism, encourage knowledge creation, exercise strict protection for intellectual property rights and promote expansion of technological front and technological spreading, to really raise the total factor productivity.  

Adhere to the general work guideline of making progress while maintaining stability, and promote the steady and long-term economic development in China 

After the 18th National Congress of the CPC, Comrade Xi Jinping emphasized the general work guideline of making progress while maintaining stability at all central economic work conferences, and at the central economic work conference called at the end of 2016, it was further raised to the important principle for state governance and the methodology in doing economic work. Making progress while maintaining stability has embodied the idea of seeking truth from facts and a scientific attitude of following economic laws. Historical experience has proved that rush for quick results with no regard to reality often lead to getting half the result with twice the effort, more haste and less speed. Only by adhering to making progress while maintaining stability, can we better adapt to and lead the new normal in economic development, continually deepen the supply-side structural reform and promote steady and long-term economic development in China.  

Maintain a stable macroeconomic operation environment. At present, to maintain a stable environment for economic operation, we should maintain the continuity and stability of macro policy, implement proactive fiscal policy and prudent monetary policy, well grasp the rhythm, timing, dynamics and balance, pay attention to the matching of tight and relaxed measures, strengthen overall planning and coordination, and make the implementation of policies more effective. We should quickly implement measures to reduce taxes and charges, to enhance the sense of gain of enterprises. We should effectively formalize local governments in debt financing, and firmly restrict the increase of implicit debts. We should strengthen the coordination and cooperation between monetary policy and strict oversight of finance and deleveraging, well control the dynamic and speed of deleveraging, to prevent and control financial risks and avoid excessively rapid rising of leverage rate, while properly regulating the money supply to adapt to the new changes in money supply pattern, to maintain a moderate and stable liquidity of the financial system.  

Prevention and control of financial risks should be put at a more important position. In recent years, the financial industry in China has developed rapidly, and the financial risks have been generally under control. However, it should be noted that the pressure of financial risks gathering and releasing I also increasing under the comprehensive influence of international and domestic factors. In recent years, fluctuations have occurred on the stock, foreign currency, real estate and debt markets in China, the conductivity of various risks is increasing, making it more difficult to manage and control risks. We should enhance the baseline thinking, strengthen the risk identification in key areas, make up our minds to dispose of some risk points while maintain the economy and finance generally stable, to avoid excessive gathering of risks and ensure that no systematic financial risks will occur. Risks are challenges, but more opportunities to create pressure for transition of pattern and restructuring. We should innovate institutional mechanism for risk management, and promote modernization of risk governance system and governance capacity.  

More attention should be paid to stability and guiding of market expectation. Macro level regulation is expectation management to a very big extent. Especially, with the daily increase of the marketization level of economy, the overflow effect of macro policy will enlarge, the market players will be more sensitive to policy signals, so the importance of market expectation management will obviously rise. To stabilize market expectation, it is required to make policies more transparent, strengthen the communication with market players, strengthen the ability to guide expectations, but the most fundamental is to adhere to reform and opening up, deepen the reforms in basic areas and critical links such as enterprises, fiscal and taxation and finance, and build up a new system of open economy more quickly. At present, we should pay more attention to the construction of the property right protection system, lose no time in implementing the Opinions of the Central Committee of CPC and State Council on Completing the Property Right Protection System and Protecting Property Right by Law, stimulate and protect the entrepreneurship, and enhance the confidence of market players by properly implementing major reform measures.  

(Author entity: Development Research Center of the State Council) 

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