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China is Capable of Keeping a Medium-to-High Economic Growth this Year


3. Favorable conditions for realizing economy’sgrowth

First, comprehensively deepening reform will provide suitable institutional environment for economic growth. China is now implementing a new round of economic reforms. Some reform measures will produce an immediate effect and some will work in the long run. Previous reform measures will become more effective upon further implementation. For example, the deepening of commercial system reform, the easing of industry market entry requirements and the breaking of market monopoly will further inspire the market entities; the further reform of interest rate liberalization will surrender part of the profits to real economy, reducing capital cost for companies and enhancing their competitiveness; 50% of government examination and approval items as well as 76% of enterprise investment project examinations are canceled. Following these easing measures, we should continue to push for administrative reform, laying better foundation for the market economy’s conclusive configuration competence. It also helps to raise the efficiency of economic operations.

Second, there is space for reinforcing proactive fiscal policy. In 2015, China’s fiscal deficit was 1620 billion yuan, 270 billion more than last year. But deficit rate was around 2.3%, lower than some major economies. This means there is more space for structural tax reduction and periodic increment of deficit rate. The increment of deficit rate helps to expand demand, and structural tax reduction could lower operating cost for enterprises and improve the allocation of resources. Moreover, the leverage effect of financial fund is likely to befurther enhanced. Following the promotion of PPP model and various government investment funds, financial fund will produce better leverage effect, mobilize more non-governmental capital investment and transfer potential investment demand into real investment demand.

Third, the working space for monetary and financial policy is still quite big and so is its flexibility. 1.There is space for interest rate reduction. Compared with developedcountries’ long-term zero interest rate or even negative interest rate, China’s deposit and lending interest rate, especially lending rate, is still quite high (nowadays, six-month lending rate is 4.35%). In 2016, the government could lower interest rate to a certain extent to satisfy the real economy’s credit demand and lower financial costs. 2.Liquidity operations are adequate. The required reserve ratios(RRR) of financing institutions reaches up to 15%.The People's Bank of Chinahas become more and more skillful in its use of liquidity operations like pledged supplementary lending(PSL), medium-term lending facility(MLF) and credit policy support loans. There is still great space to release liquidity by lowering RRR and using a variety of tools. The government could also allocate credit resources to key areas and vulnerable links by differential reserve dynamic adjustment mechanism. 3.Foreign exchange reserve remains relatively high. After the recent exchange rate adjustment, China still possesses the largest reserve in the world, and the balance of foreign exchange reserves stood at 3,300 billion dollars at the end of 2015. China’s capacity to cope with financial market fluctuations remains high which could prevent drastic fluctuations of exchange rate and stabilizeinvestors’ expectations.

Fourth, there is huge space to optimize resource allocation with industrial policies. The effectiveness of industrial policies is disputable in theoretical study, but not in real economicoperations. In reality, the question is how to make industrial policies more effective and that is why the Central Economic Working Conference proposed that“industrial policy should be implemented with targeted measures. Accurate industrial policy could allocate resource factors to more effective economic departments. At present, a key point of industrial policy is to properly handle the “zombie companies”. The government could encourage merging and reorganization, debt restructuring and bankruptcy liquidation so that market clearing will be realized and resources could be reconfigured to high efficiency departments. This could not only help industries in difficulty with the cutting of overcapacity, destocking and cost reduction, but also optimize resource allocation, accelerate the upgrading of traditional industries and expand effective supply.

Fifth, effective implementation of livelihoods policy helps to expand demand. On the one hand, there are plenty of financialfunds to be used in livelihood sectors like poverty alleviation, social security and living standard improvement. Governments at all levels have excessive financial surplus that could be used to secure people’s livelihood, bolster weak links and enhance economic growth once the financial surplus is fully cleaned up, structurally optimized and strictly supervised. On the other hand, housing consumption and investment demand could be raised by shantytowns transformation and the reduction of unsold homes. In 2015, 5.8 million shantytowns started rebuilding and according to government plan, 6 million shantytowns will be added to the current rundown urban areas. During this process, the government should provide monetary indemnity and make proper arrangements for these residents and encourages migrant workers to buy homes in towns and cities. These moves will reduce the number of unsold homes, revitalize stock capital in real estate market and form new investment demands.

Sixth, further opening helps to allocate resources more effectively. Nowadays, with swift globalization,economies around the world become more integrated. The Chinese government has taken opening-up as one of the five development concepts of innovative, coordinated, green, open and shared development toguide China’s development in the next five years and even in a longer time. We will follow the total arrangement of the 13th Five-Year Plan, further promote “One Belt and One Road”initiative construction, bringChina’s open economy to a higher level and allocate production factors including resource, capital and technology with a global perspective. On the one hand, we should push for further openness, especially in the service industry, which helps to raise efficiency of resource use and optimize resource allocation. At present, we have four pilot free trade zones: Shanghai, Tianjin, Fujian and Guangdong. Introducing their experience to other areas will increase investment and trade facilitation as well as investment and consumption demand. On the other hand, through international productivity collaboration, advantages of more competitive industries could be fully used. Through years of development, China now has a batch of competitive industries with advanced technologies. China will cooperate with other countries, especially countries along the “One Belt and One Road”. This allows China’s competitive industries to further realize their productivity potential, boosting China’seconomic growth.

Seventh, mass entrepreneurship and innovation strategy will further enhance innovative vitality and economic growth impetus. In the past year, supported by a series of mass entrepreneurship and innovation policies, creative vitality in society has been fully stimulated. In 2015, the number of newly registered corporations reached 4.43 million; employment in urban areas increased 13.12 million people; China’s capacity for providing job opportunities through economic development has been enhanced. In 2016, we will take more powerful measures in areas like technical innovation, enterprise establishment, credit assurance and venture capital investment to beef upmass entrepreneurship and innovation. This would increase effective investment, create effective supply and lead domestic consumption demand.

In conclusion, China is capable of keeping its medium-to-high economic growth in 2016. We should make proper macroeconomic policies andstrengthen our confidence for future economic development. Both theoretical and empirical studies show that positive expectations based on objective awareness of China’s development conditions and rational analysis of China’s development prospects will have a sound effect on economic stability. As long as we follow the central government’s deployment, concentrate our efforts on proper expansion of total demandand steadfastly move forward with structural reform on supplyside, our objectives of realizing economic and social development will surely be met.

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