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Eight Major Issues Relating to China’s Economic Development in 2016



Li Wei

2016 is the first year for the fulfillment of the goal of building China into a comprehensive well-off society and the first year after the launching of the national high-level think tank pilot project. At this moment, the "National Policy Consultation Working Conference 2016", an annual important meeting for think tanks of the Party organizations and government at all levels, came to a close in Shanghai on February 26th. Attending the two-day meeting were approximately300 representatives respectively from DRC, government policy research institutions of various provinces, autonomous regions, municipalities directly under the central government, provincial capitals and cities under separate state planning, and relevant departments of the central and state organs. Theyexchanged views and held discussions on research results and experience relating to policy consultation work in 2015, and made plans for addressing critical issues in 2016 concerningpolicy consultation.

Li Wei,President of DRC, delivered a keynote speech at the opening of the meeting, highlighting the following eight issues for policy research work in 2016.

1. Macroeconomic Performance and the Promotion of Supply-side Structural Reform

Li Wei pointed out that the principal contradiction of China’s current economy is the unmatched, uncoordinated and unbalanced relationship between supply and demand. The principal aspect of contradiction embodies supply-side issues, which means supply cannot adapt to the major changes in demand and make timely adjustments. Under this background, the central governmenthas put forward the task for supply-side structural reform. As for China’s current situation, supply-side structural reform is an important leveragefor making breakthrough and solving the contradiction between supply and demand and structural imbalance. However we should nottake a generalized approach toward supply-side reform. We need to distinguish the main emphasis of supply-side system reform from matching reform measures, and the connotations of industrial transformation and upgrading, and the upgrading of specific products. Supply-side structural reform contains many aspects. The focus of this year’s reform is cutting overcapacity, destocking, deleveraging, reducing costs and improving weak links, which include not only system and mechanism reform but also many policy adjustments.

2. The Trend of International Economic Performance in 2016

Through the review of world economy in 2015, we can see that developed economiestook a turn for the better whileemerging and developing economies’continued to decrease their economic growth. China’s foreign trade export dropped by 1.8%, but it has enlarged international market share. China’s commodities enjoy an overall strong international competitive edge. International investors have an optimistic view on China’s future economic development.

The year of 2016 will witness an increased risk at various levels of the world economic performance. China should take a proper attitude toward the liberalization of capital account and the adjustment of the RMB exchange rate forming mechanism, enhance investors’ confidence to make investment in China and stabilize the economic fundamentals.

3. Addressing Excessive Productivity

At the end of 2015, the Political Bureau of the CPC Central Committee and the Central Economic Working Conference both made the cutting of overcapacity as one of the five major tasks of 2016. Recently, the State Council has issued proposals and a number of policy measures on how steel and coal industriescould reduce excessive productivity and promote development. However, there are quite a few issues to be addressed. For instance, what is effective exit policy mechanism? What is the goal of eliminating excessive productivity? Which industry needs governmental support to cut overcapacity andwhich industry can depend on market to address this problem?

4. Major Risks Facing China’s Financial Sector

Financial risksshould be giventop priority toall risk control issues in 2016 and 2017. At present, the financial risks mainly focus on these issues: a. The huge risk pressure on banking system. b. The risks relating to foreign exchange market and cross-border capital flow. c. Non-governmental financial risks have been rapidly increased. d. It is hard to control the cross-market and cross-sector overlapping financial risks.

5. Reducing the Number of Unsold Homes and Potential Risks

It is an arduous task to reduce the number of unsold homes, especially for the third-andfourth-tier cities. Under such circumstances, we need to pay high attention to two hidden risks.First, in 2016 the real estate development investment might present a negative growth compared with that of last year, which will limit the increase of fixed assets investment and affect the growth speed of the whole economy. Second, efforts should be made to control the pressure on negative investment growth of real estate marketand the reduction of unsold homes as it will lead to financial risks and the increase of local debt risks.

6. Bringing into Play the Role of Social Policy to Support Economic Performance

The improvement of social policy system constitutes an important foundation for ensuring people’s wellbeing and controlling social risks and realizing economic transformation. In face of economic downward pressure,we should pay high attention to the following policy research: 1. The control of employment risks; 2. The improvement of social security system reform; 3. Strengthening public service system reform; 4. Enhancing old-age pension system building.

7. Formulatinga Competitiveness-oriented Agricultural Policy System

We need to build an agricultural policy system that conforms to China’s present development and international trade rules and can enhance competitiveness-oriented agricultural policy system through structural reform. The key links are listed as follows: 1. How to enhance China’s agricultural basic competitiveness? 2. How to enhance China’s agricultural non-price competitiveness? 3. How to enhance China’s agricultural supply competitiveness? 4. How to enhance China’s policy competitiveness?

8. Innovation Serves as a Major Approach to Foster New Driving Forces for Growth

We should hold a comprehensive and objective awareness of innovation development and enhance the determination and confidence of reform. We should depend on new ideas and new policies to realize innovation development and prevent blind investment in the name of innovation development, which would result in new economic risks. We should enhance the foundation of innovation development and improve industrial technology foundation and cultivate skilled talents and improve the quality of products. We need to grasp the key issues in terms of environmental innovation and pay attention to solve these problems. We need to improve enterprise innovation abilities and speed up the building of enterprise innovation mechanism.