13th Five-Year Plan well crafted and tackles right issues: Expert

 

File photo of Denis Depoux. [Photo provided to chinadaily.com.cn]

The Chinese economy will not transform overnight, but the 13th Five-Year Plan is well crafted and tackles the right issues, says Denis Depoux, vice-president of Roland Berger Strategy Consultants for Asia.

While participating in the China Development Forum 2016 in Beijing on March 20, Depoux says that the 13th Five-Year Plan is crafted the right way and tackles issues such as overcapacity, environmental protection, social welfare, modernization of the manufacturing industry as well as shift to a service and domestic consumption economy.

"The start of the implementation of the 13th Five-Year Plan entails a high level of restructuring in those sectors with overcapacity. In the short run, in 2016 and the coming years, this might have a negative effect on the production of the concerned industries," Depoux says.

"But this is healthy," he says, adding that only "zombie" revenues and unhealthy price competition will disappear to the benefit of the "real economy".

There is also a strong commitment by policy makers to keep the balance and finance a social safety net easing the transfer of millions of people from idle production facilities to other new jobs: a 100 billion yuan support fund, relocation support and training, according to Depoux.

In addition, the service sector has grown more than eight percent in 2015 and is forecasted to further accelerate in 2016 - fueled by the continuous creativity and sophistication of the offline to online services sector, the logistics sector, the financial services sector, education, culture and healthcare, all related to household consumption.

"The service industry needs to be further encouraged through easier company establishment or tax incentives," Depoux says.

"China's economic transformation is all about implementation, with certainty, rhythm, and high visibility for stakeholders. It is about keeping the balance, for example, making sure that restructuring does not send millions of people in poverty, while never giving up on the objective, such as, a structural transformation."

While difficulties arise from the size of the economy and therefore the magnitude of the transformation, the size of the actions needed are actually creating resilience: manufacturing modernization, green transformation of energy production, etc. are already creating a new wave of domestic demand. Not only for consumer goods from new middle class households, but also for corporations and government authorities.

"The government also has to focus less on fixed assets investment, but also on creating the conditions for the economy to transform itself: fund public goods, such as infrastructure, but also professional education, research and development, cost-efficient and customer-driven public services," Depux says.