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Deepen reform to boost economy

By Bao Yujun (China Daily)
Updated: 2009-10-27 08:36

The problem of China's current economic operation is the coincidence of the global financial crisis and China's periodic adjustment, which is the first test facing China after its entry into the World Trade Organization (WTO). With relatively favorable conditions, China has the potential to get out of the economic downturn first and turn the crisis into an opportunity. In order to fulfill the possibility, we must continue to deepen the reform and make major breakthrough in further reforms.

First, the 10 measures for boosting domestic consumption need to be implemented in the spirit of reform; and, we should persist with the policy of market-oriented reform steadfastly and spur market vitality through leveraging government's stimulus package.

We could not turn from "market omnipotence" to "State omnipotence". Government as a "visible hand" and the "invisible hand" of market should coordinate closely. First of all, the source of the 4 trillion yuan ($586 billion) stimulus package should be guaranteed. Secondly, the investment priority should be elaborately calculated in a bid to both expand demand and set the stage for China's sustainable development in the future, rather than bringing new obstacles. More efforts are needed to promote democratic and scientific decision-making and adhere to making government affairs public. We should escape the trap of low efficiency of government investment. Thirdly, the huge stimulus plan should boost more private investment. If the 4 trillion yuan package is monopolized by State-owned enterprises with the support from the government, then, as usual, it will result in a return to our old system, which cannot achieve the end of stimulating demand and fueling economic growth. Therefore, advertised biddings should be applied to the newly-approved projects, offering fair competition environment for all enterprises of different ownership.

Second, boosting domestic demand mainly means expanding consumption demand and improving people's livelihood. This requires us to fundamentally readjust the structure of national income distribution.

It is necessary to analyze the reasons for the decline in consumption demand year by year and establish a fair public fiscal system. Public finance should be public and transparent, and the proportion of consumption in the national income distribution should be improved. In 2007, consumption only contributed 34.8 percent of the gross domestic product, which should be raised to more than 50 percent in future. The administrative expenditure should be compressed and input in the fields of education, healthcare and social security should be increased. Without the rise of consumption ratio, the domestic demand cannot boom, which may in turn lead to the old path of investment-driven growth.

Third, we need to speed up the reform of monopoly industries, and broaden fields and lower thresholds of license permit for the market access of private capital. Let the role of private capital be allowed full play.

In order to make the 4-trillion-yuan ($586 billion) stimulus package promote more private investment and bring about a magnifying effect, the following measures are proposed. First, resource-based State-owned enterprises with monopolistic status should turn in resource rent (resource tax) and profits. Second, the "36 clauses on non-public economy (the central government's first document aimed at boosting development of the non-public economy)" should be implemented to break the various restrictions on private capital by monopoly industries and the tertiary industry. Let private capital go abroad and optimize the resources allocation at both domestic and foreign markets.

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We need to accelerate reform of the financial system and develop all kinds of financial markets to set up a modern financial system with participants of different ownership under various management forms, featuring reasonable structure, sound functions and high efficiency and security level.

We should never slow down our pace of financial system reform under the pretext of the outbreak of the US financial crisis. The problem of the US financial system lays in the infinite magnifying of the leverage effect of the financial derivatives and lack of supervision. Meanwhile, China's problem is that the financial market is controlled too rigidly and cannot adapt to the diversification of the market subject.

China's small- and medium-sized enterprises still have difficulty in raising funds. Currently, on the one hand, these firms cannot receive credit; on the other hand, a large amount of private capital finds no investment opportunity. It is necessary to break the shackles of the current system and permit establishing regional small- and medium-sized joint stock commercial banks invested by private capital and mainly servicing small- and medium-sized enterprises.

The author is president of China Private Business Economic Research Council.