Saturday, Jul 22, 2017, 8:51 AM CST – China

Editorial

China’s challenges and solutions,  according to its leaders

It has been estimated that reducing excessive production capacity by 10 percent in six industries would necessitate letting go about two million workers.

Delivered every year at the annual session of China’s National People’s Congress in March, the government work report is a major document to watch in order to understand China’s policies and perspectives. This year, as the slackening of China’s economy has dominated global headlines, the annual report, presented by Premier Li Keqiang, is particularly important.

In the report, Li identified three major concerns the government will focus on and address within the year. Firstly, total trade volume, including both imports and exports, declined by 7 percent in 2015, a sharp contrast with policymakers’ previously set goal of a 6 percent increase. As there is no sign that tumbling global economies will turn around any time soon, the import/export sector that was once a driving force of China’s growth will most likely continue to put downward pressure on its economy.

Secondly, the central government is tasked with the daunting undertaking of keeping unemployment in check. In explaining the rationale behind the annual GDP growth target of “6.5-7.0 percent” set for 2016, a relatively optimistic range given the economic difficulties China is now facing, Li said that the leadership’s major concern is keeping the unemployment rate low. It has been estimated that reducing excessive production capacity by 10 percent in six industries would necessitate about two million layoffs. As China aims to restructure its economy, the government will need to maintain a relatively high economic growth rate to mitigate the impact this restructuring will have on the unemployment rate. 

Thirdly, Li warned that the economic slowdown will pose a major challenge to the reform agenda that has been outlined by the leadership. Not only do economic difficulties leave less room for mistakes, but also they can lead to more trenchant resistance to relevant reforms.

Li outlined three general strategies to address the identified issues. He reiterated that the key to sustaining China’s economic growth remains in allowing the market to play a dominant role in the economy, a core concept China’s leadership has been advocating for the past few years. According to the annual government report, the authorities will continue to push forward related reforms, including introducing a “negative list” mechanism that will allow private capital to enter industries previously controlled by the State as well as publishing lists of powers and responsibilities of government agencies, thereby drawing a clearer boundary around government power.

The second strategy outlined in the government report is the continued adoption of a “positive” fiscal policy and a “stable” monetary policy, while at the same time launching “supply-side” structural reforms. This means that China will pursue its loose monetary policy and also maintain relatively high levels of investment in infrastructure projects, which will be a primary channel through which the leadership can stimulate the economy, thus keeping employment levels stable.

Lastly, the government pledges to improve public services, pushing forward reforms regarding education, medical services and social security. With better social services and a larger safety net, it hopes to soften the impact its recent economic troubles have on the general population, and keep potential social unrest at bay.

Li warned that 2016 will be China’s “most difficult year” since the global financial crisis in 2008 and urged officials to be prepared “for major battles.” As world economies have become even more interdependent in recent years, the outcomes of China’s economic battles will have global impact.

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