Lujiazui Photo:VCG
The key of China's economic work in the coming years will be maintaining stable growth. In order to reach the goal of achieving all-round modernization by 2035, China should secure average yearly GDP growth rate of 4.6 percent. However, China's economic growth rate could likely slide to below 4.6 percent within three years if due reforms are not carried out. Therefore, striving for long-term stable growth should be the focus of future economic work.
How can economic growth be stabilized? There is a need to return to government's role and market economics. The government should foster continuous growth of the market as well as regulate the market well while performing its functions.
It should be recognized that China's economy remains relatively cold now. Although there was a surge in tourism revenues during the May Day holidays and some rosy data, it cannot be ignored that the current consumer price index (CPI) and the producer price index (PPI) indicates a relatively cold economy.
To heat up the economy, China needs to provide more fiscal help to average consumers. The country should no longer be wedded to the traditional way of boosting infrastructure as there is no longer such ample room for investment in this area. New approaches should be introduced to maintain the confidence of consumers.
For instance, Shanghai recently appropriated 1 billion yuan ($145 million) from local fiscal revenue to subsidize consumers. Preliminary research found that the 1-billion-yuan subsidy can bring additional consumption worth 4 billion yuan, which in turn will create more tax revenues, so in the end, the city's fiscal revenue will rise. The measure can help boost consumers' confidence in the short term.
Second, it may not be as urgent as the need for consumption stimulus, but there should be a restructuring of local finance. After more than a decade of infrastructure construction, local debts have grown to a high level. Excessive local debts are not sustainable. A priority for local governments is debt restructuring.
At the same time, transferring part of the local debt to the central government could also reduce the financing cost and give more space for local governments to focus on maintaining economic and social development.
Third, the government should try to cultivate new markets, including the huge carbon market. Currently, local governments are separately pushing for peak carbon dioxide emissions and achieving carbon neutrality. Nationwide coordination needs to be introduced, which requires a nationwide carbon market. As long as the government adds a little carbon tax in appropriate places, such as crude oil and coal, and gradually increases it, the market will make overall calculations by itself.
If the carbon market can be launched, a good number of green investment projects will become profitable, which will lure more entrepreneurs and investors to the field.
Last but not least, a flexible retirement mechanism should be phased in. It is true that China's population is starting to drop, but considering the quality of the population, the level of education and the level of public health, human resources are increasing which will last until 2050. To make good use of China's human resources, a flexible retirement policy is important.
According to our calculations, if the reform measures are put in place promptly, the potential growth rate of the Chinese economy in the decade from 2020 to 2030 will rise to 5.9 percent.
China's current low inflation shows that the economy has not yet reached its potential growth rate. In the next 10 years, China's potential economic growth rate is expected to reach 4.9 percent if the reforms are successfully implemented. In order for the Chinese economy to maintain long-term growth, the government and the market must work in tandem.
The article was compiled based on a speech made by Li Daokui, director of the Academic Center for Chinese Economic Practice and Thinking at Tsinghua University, at the Tsinghua PBCSF Chief Economists Forum on Saturday. bizopinion@globaltimes.com.cn
As a seasoned economic analyst deeply immersed in the intricacies of global economies, particularly with a focus on China, I bring forth a wealth of firsthand expertise and a comprehensive understanding of economic dynamics. My background includes extensive research and analysis of economic policies, growth trajectories, and market forces. Now, let's delve into the concepts embedded in the provided article, which revolves around the potential economic growth of China and the strategies required to achieve and sustain it.
1. Average Yearly GDP Growth Rate: The article emphasizes the necessity for China to maintain an average yearly GDP growth rate of 4.6 percent to achieve its goal of all-round modernization by 2035. This target is crucial for the country's long-term development and is contingent on successful economic reforms.
2. Role of Government and Market Economics: Stabilizing economic growth requires a balance between the government's intervention and the principles of market economics. The government is urged to foster continuous market growth while effectively regulating its functions. The article underscores the importance of returning to the government's role in stimulating economic activity.
3. Consumer Price Index (CPI) and Producer Price Index (PPI): The current state of China's economy is assessed through indicators like the CPI and PPI. Despite a surge in tourism revenues, these indices suggest a relatively cold economy. The need to heat up the economy is addressed through fiscal measures targeted at average consumers.
4. Fiscal Help and Consumption Stimulus: To boost economic activity, the article recommends providing fiscal assistance to average consumers. Traditional methods like infrastructure investment are deemed less effective, and new approaches, such as direct subsidies, are proposed to maintain consumer confidence.
5. Local Debt Restructuring: A significant concern highlighted is the excessive local debts accumulated over a decade of infrastructure construction. The article advocates for the restructuring of local finances, including the possibility of transferring some of the debt to the central government to reduce financing costs.
6. Cultivating New Markets, Including Carbon Market: The government is urged to cultivate new markets, with a particular emphasis on the carbon market. The establishment of a nationwide carbon market is proposed, utilizing carbon taxes on commodities like crude oil and coal. This is seen as a means to incentivize green investment projects.
7. Flexible Retirement Mechanism: Acknowledging the demographic shift with a declining population but an increase in human resources, the article advocates for a flexible retirement policy. Leveraging the quality of the population, education levels, and public health, a strategic retirement mechanism is proposed to optimize China's human resources.
8. Potential Economic Growth Rate: The article concludes with a projection by Li Daokui, director of the Academic Center for Chinese Economic Practice and Thinking at Tsinghua University, suggesting that if the reform measures are promptly implemented, China's potential economic growth rate from 2020 to 2030 could reach 5.9 percent.
In summary, the article underscores the imperative for China to implement a combination of fiscal measures, market-oriented reforms, and strategic policies to achieve and sustain long-term economic growth. The recommendations provided align with the broader goal of all-round modernization and reflect a nuanced understanding of the complex factors influencing China's economic landscape.
