Fine-tuning crucial for growth

The nation's top economic planning agency said on Wednesday that domestic economic growth will be under pressure over the next two years and macroeconomic policies must be fine-tuned to ensure long-term expansion.

In an 80-page midterm evaluation of the implementation of the 12th Five-Year Plan (2011-15), the National Development and Reform Commission said that controlling risks in local government debt is an important factor in maintaining growth for the remainder of the plan period and beyond.

"Effectively controlling overall debt risk while making sure reasonable financing needs are met has an important role in stabilizing growth," the NDRC said in the evaluation.

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Macroeconomic policies need "tweaking" to achieve a combination that targets both demand and supply, with a focus on supply efficiency.

Current measures, which consist mainly of expansionary fiscal and monetary policies, are achieving diminishing results in stimulating growth, it added.

Inappropriate policies will worsen overcapacity, delay structural adjustments and exacerbate debt risks.

"The focus of growth creation should be turned to improving the market-based economic system and business environment," said the NDRC.

The People's Bank of China's hands are tied now as growth cools despite rapid credit expansion, a sign that the economy has grown less responsive to monetary stimulus. As China attempts to deleverage the economy from the debts generated from the 2008-09 stimulus package of 4 trillion yuan ($645 billion), the PBOC is running out of ammunition to generate growth when needed.

Beijing is relying on fiscal measures, mainly government-led investment, to keep growth at a level that creates sufficient jobs.

The economy got off to a tough start this year, with many economists estimating that first-quarter GDP growth may have slowed to the lowest level since 2009.

But Fitch Ratings Inc said in a report on April 4 that using investment to stimulate growth is not sustainable.

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