Beijing: Reaching the dead-end of an exports- led growth, China has unveiled a new blueprint to make its monetary policy more “flexible” as it embarks on a supply-side reform to arrest the slowdown of the world’s second-largest economy and power its transition to a consumption-based model. Ahead of formally launching the 13th Five-Year Plan (2016-20), Chinese leaders headed by President Xi Jinping announced an “overarching strategy” to lead the economy’s ongoing transition at a closed-door conclave of top officials of the ruling Communist Party of China (CPC) yesterday.
At the Central Economic Work Conference, Xi told CPC leaders and economists that China’s emphasis in 2016 will be on supply-side reform, or a package of supply-side policies to boost new demand and raise productivity, state media reported.
As the economy slipped below 7 per cent for the first time since 2009 from the heydays of double-digit growth, Xi said China must, over the next five years, maintain an average growth of at least 6.5 per cent to realise the country’s goal of doubling its gross domestic product and per capita income. According to Chinese economists, this means China will no longer seek to fuel economic growth solely by using fiscal and monetary measures to boost capital investment, consumption and exports.
Until now, China used to rely on investment, exports and consumption, which are classified as demands. As the effectiveness of boosting growth on the demand side wanes, the government has started to reform the supply side to make effective use of production factors, including funds, resources, skilled workers, equipment and technologies, said state-run China Daily.
From now onwards, the government will be more focused on devising policies which, from the supply side, are aimed at helping the industries with more supportive polices. Outdated businesses will also be phased out.
The reform aims to accelerate growth by freeing up productivity and raising supply-side competitiveness. Measures will include cutting excess industrial capacity, reducing housing inventories and cutting production costs with policy support.
Under the new policy, the government will also gradually raise its deficit and make monetary policy more “flexible”, an official statement here said.
China’s deficit-to-GDP ratio in 2015 stands at 2.3 per cent, up from 2014’s 2.1 per cent, but still lower than 3 per cent, which is considered as alert level internationally.
