China: New Measures of Economic Policy

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China: New Measures of Economic Policy

Originally appeared at NSPM, translated by A. Djurich exclusively for SouthFront; Edited by Viktor Stoilov

In Beijing, traditionally from the 18th to the 21st of December, is held Central Economic Working Conference. The conference at the end of each year brings together the highest state and party officials of the legislative and executive authorities, as well as officials from the levels of provinces, autonomous regions and municipalities, representatives of the army and state enterprises. The first Central Economic Working Conference was held in 2006.

Since then, this body has been focused on the different needs of the development and direction of the Chinese economy. In 2006, the conference was devoted to accelerating the economic growth in, in 2007 to changes in the monetary policy, in 2008 to maintaining the stable and relatively fast economic growth, in 2009 to improving the transformation of economic development, in 2010 to providing a stable and relatively rapid economic development while maintaining social stability, in 2011 to progress while maintaining stability, in 2012 to improving the quality and efficiency of economic growth, in 2013 to search for steady economic progress and to reform all areas, and in 2014 to progress while maintaining growth and focus on the quality and efficiency.

Five main tasks

Judging by the reports of the Central Economic Working Conference, the main task of the Chinese government this year will be to accelerate the progress (economic growth) while maintaining stability. In doing so, it sets out five main objectives: taking measures in relation to the excess industrial capacity, constantly reducing debt, reducing corporate costs, reducing the unsold housing and supporting areas with weak growth.

It is expected, therefore, that China will ease the levies to companies and continue to simplify the administrative procedures along with the delegation of authority and lowering the tax rate. It is expected that there will be a reduce to the cost of financing companies and the “normalization of interest rates” in favor of the economy. The government is considering the reduction of value-added tax rates in the manufacturing sector, reducing the price of electricity, an improvement of the market-oriented reform of prices and lower logistics costs.

China finally settles “huji” (family register)

Developers of Chinese economic policies have called for the acceptance of construction investors to adjust marketing strategies and lower prices in order to increase demand, and decrease the number of unsold apartments. According to the National Directorate of Statistics, the price of new housing in China grew in November in 33 out of the 70 largest cities. It is expected that lower real estate prices will affect the cost of living.

China will also recall obsolete, mainly restrictive measures, in the purchase of real estate. The state has previously implemented similar measures in cities of the first order, by minimizing border participation and increasing loans from the Savings fund.

The state will also mitigate the policy of registration of the population. It is expected that, following the decisions of the Central Economic Working Conference, it will be possible to perform a registration of people, mostly workers, who are absent from the place of birth, or who live and work in other cities (“huji”). These measures will encourage the rural population to move more easily to the cities and to purchase or rent apartments. The rate of registered urban population in the total population of China was 35.9 percent, at the end of 2014, and the plan envisages an increase in this rate to 45 percent by 2020.

In addition, China will simplify all five areas of social security and pension system. According to the newspaper China Daily, the country has already lowered the rate of unemployment insurance from 3% to 2%, then the rate of insurance at work from 1% to 0.75% and the ceiling rate of maternity insurance from 1% to 0.5%. In China, currently about 40 million workers in the public sector allocates 8% of their salaries into the Pension fund, and in the future the government intends to consolidate the pension system, linking a urban and rural social security scheme.

Although details are not listed, the Central Economic Working Conference recommended the establishment of new mechanisms and systems which should lead to lower prices for medical services.

China will continue to strengthen the agricultural production to ensure the safety of the food supply and stable growth of the farmers income, modernization of infrastructure and technologies, all of which should improve the quality of production from agriculture. The Government will, according to the China Daily, adopt more measures and allocate more funds to strengthen the overall agricultural productivity and quality of agricultural products.

Beside the mentioned measures, China will strengthen the supervision, regulate the financing activities and start a program to address financial risks and work against illegal fundraising so that the rights and interests of the investors would be better protected.

Presented guidelines testify to the orientation of the Chinese government, which, on the one hand, wants to improve and highlight the marketability of the Chinese economy, but on the other hand also wants to make life easier for the citizens.

China’s economy in numbers

The session of the Central Economic Work Conference was preceded by a meeting of the Central Leading Group for deepen reform, held on December 9. The Central Leading Group has supported this measure, noting that it is necessary to raise the level of efficiency of the government officials. In this regard, it was decided to establish an educational sector that should contribute to the improvement of the judicial system and the human resources management.

This is also an opportunity to present the latest statistical trends within the Chinese economy. China’s foreign exchange reserves declined by 87.2 billion in November and now amounts to 3.44 trillion dollars. This is the third fall in terms of volume decline in the value of China’s foreign exchange reserves as of February 2013. Before that, the Chinese foreign exchange reserves decreased by as much as 93.9 billion dollars in August.

The Chinese Academy of Social Sciences, a leading “think tank” organization in the country, estimates that the growth of the Chinese economy will be between 6.6 and 6.8 percent this year. Li Yang, a researcher with the aforementioned Academy, said that rapid growth is no longer the main focus of the state. According to him, the goal of China is a comprehensive development.

The Chinese Academy of Social Sciences suggested to the National Bank of China to adopt a “structurally loose” monetary policy and a more flexible yuan exchange rate. The National Bank of China said it expects the growth of the Chinese economy this year to be 6.8%.

The Chinese share of world exports in 2015 should amount to 13%, according to the statement made in mid-December by the Ministry of Commerce of PR China.

From January to November last year, China was delivering products to developed and emerging markets. In 2014, the share of Chinese exports on the world market amounted to 12.4%.

The exports from China to the developed markets grew by 10% in areas such as railway equipment, energy and telecommunication products.

The Chinese currency yuan found itself on the lowest level in four years against the US dollar last month, and again in January. The value of the yuan has fallen by about four percent against the US dollar over the past year. After entering the basket of currencies of the IMF, the yuan declined by 0.83% against the US national currency.

The Chinese market was hit by a new crisis during the first work day of the new year, on Monday, January 4 . The Stock index in Shanghai and Shenzhen fell by 6.9 and 8.2 percent. The protection mechanism of the stock exchange, introduced last year, was activated, which interrupts the trade on stock exchanges initially for 15 minutes in case of a fall or growth in stocks of at least five percent. If the fluctuations continues, and after that, trading for the day will be completely suspended, as was the case on Monday. Similar was the January 7 when the trading stopped again less than half an hour after opening. China, on the same day, announced that it abolishes the mechanism of the stock exchange fuse.

The day after this incident, the National Bank of China announced that in December, through the instruments of medium-term lending, placed on market about one hundred billion yuan (15.4 billion dollars).  Loans by the central bank were given to 13 financial institutions with an interest rate of 3.25 percent.

Immediately thereafter, Bloomberg informed that since the end of September, the share of bad credit loans in China has increased to 1.2 trillion yuan (184 billion dollars). According to the same source, this year the five largest Chinese banks should generate profit of 144 billion dollars.

Conclusion according to Li Jiping

According to Li Jiping, a leading economics professor at the Renmin University, China has taken a series of measures to stabilize the growth in the past, starting from 2008, i.e. the beginning of the crisis in the US, when they adopted a stimulus package amounting to 4 trillion yuan ($ 616.8 billion dollars). These measures have been taken on the assumption that the problems could be resolved at a micro level  with macroeconomic policy measures.

This structural adjustment, however, failed because of the extra pressure caused by overproduction. The four trillion yuan investment was not enough to sustain a growth of 7 percent.

Now, China, according to Li Jiping, is facing three main tasks, one of which is, in the first place, structural adjustment. The next are innovations and strengthening the economic vitality on the micro-level.

In the initial period of reform, Professor Li Jiping claims that China had enough room for industrial growth. Now, China`s industrial sector is saturated, and its marginal utility falls off sharply. To maintain a healthy growth rate, China should create greater demand through increased innovations.

According to Professor Jiping, the Chinese economy was growing for three decades because of favorable factors, such as low basis of GDP, a large industrial area, cheap labor and resources, and then opportunities in the global economy. But in terms of a “new normal,” a stable economic growth requires an improvement of the economic vitality.

Chinese experts believe that the Chinese economy will continue to face downward pressure. It should be in mind that in the last five years the world economy grew an with an average of 2.5 percent (versus 7.8 percent of China). China participated in the growth of the world economy with 30% from 2009 to 2014.

The upcoming 13th Five-Year Plan, which will be adopted in March, is particularly important for China, because it ends in 2020. In the same year in which China celebrates the centenary of the establishment of Communist Party of China, previously determined for the year by which it must be constructed moderately advanced (prosperous) society. China’s GDP per capita last year amounted to $7,575, and in 2020 should amount to $ 10,000.

Therefore, the economic guidelines of the Central Economic Working Conference are of special importance for the year which represents the opening of the 13th Five-Year Plan. The results of these guidelines should give an impetus to the aforementioned plan, which for China is not only of economic but also of general social, and historical importance.

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