Op-Ed Contributors

Economic advice for policymakers

By Ma Jun (China Daily)
Updated: 2010-07-20 07:51

Third, the number of administrative decrees in macroeconomic regulation should be reduced and more economic leverages, including the interest and exchange rates, employed. Though the country has been implementing market-oriented reform for three decades, credit increase still depends on quota control and project investments are still subject to official approval. Flexible interest and exchange rates and other economic measures, which are useful macro-control tools used in mature markets, are not the favorites of Chinese policymakers.

But the policymakers need to realize that excessive reliance on administrative measures is not at all conducive to economic stability. Only after bubbles had been seen in sectors such as real estate, industries with overcapacity and local financing institutions, did the authorities intervene and raise investment thresholds. Such a step could cause major fluctuations in certain industries or even the whole economy. Moreover, a large number of administrative restrictions which only offer investors special opportunities will inevitably lead to more corruption.

Fourth, the country should expedite efforts to strengthen the social security system in order to minimize the side effects of macroeconomic policy adjustments. One important reason why China had to announce an ambitious stimulus package even when its GDP growth rate was far higher than other countries is that it feared a rise in unemployment could lead to serious social unrest. The reason of this fear: lack of a sound social security system.

China should accelerate its reform according to current strong social consensus on balancing income distribution. And the State-owned Assets Supervision and Administration Commission should transfer the majority of its holdings in listed State-owned enterprises (SOEs) to the social security system in order to raise pensions and grant retirement benefits to people in as many sectors as possible. And the government should use more dividends from the SOEs to make up for endowment, health and unemployment insurance and reduce personal income tax.

The author is the chief economist for Greater China at Deutsche Bank

(China Daily 07/20/2010 page9)