Op-Ed Contributors

Maintaining rapid growth

By Xia Bin (China Daily)
Updated: 2010-09-13 08:17

It is critical, although by no means easy, to strike a balance between economic growth and structural coordination, as well as between economic planning and free markets.

What we are doing today is taking some initiatives of the planned economy era, such as restricting credit capacity by way of government intervention. These are only expediencies in this period of economic transition. In future, however, with the market economy model fully developed, such macro controls will be on the wane or disappear altogether.

The government must take careful policy decisions in the midst of such issues. Even though we can insist on the overall principle of macro controls, the details must be made flexible. It should reflect changing economic circumstances without altering the general direction of macro stability measures.

The property market can be readily taken as an example. Volatile home prices do not mean giving up the principle of macro controls.

Vice-Premier Li Keqiang has repeatedly stressed the importance of building economically affordable houses and curbing speculation in the realty market.

The aim of establishing a consumption-driven real estate market has remained unchanged, but the homes must mainly be sold to those who actually live in them, not to investors.

The property market forms only one part in regulating the financial system.

Even so, by monitoring the real estate market, we are working toward setting up a healthy regime that can ensure steady development in the long run.

The government also aims to establish long-term regulatory regimes for the financial system as a whole.

In other words, the ultimate objective of the state is to regulate the economy in order to ensure that it develops steadily in the long run.

Transient fluctuations will not alter China's determination in this direction.

In my view, the following viable proposals may help China boost its economy and optimize its structure.

The first is related to urbanization.

We should pay more attention to reforming the hukou system rather than focusing on building more homes. Migrant farmers need job opportunities and recognition; without basic amenities they will not consider the city their home.

Second, trimming shares owned by the state in public companies. By selling a part of its shares even while preserving control over the economy, the state can raise funds to stimulate consumption and provide relief to those in need. It can also help to form a virtuous circle of the economy.

Last, the possibility of floating deposit rates. The rising Consumer Price Index (CPI) means there is a perfect opportunity to introduce floating deposit rates that would help in garnering more funds.

The author is director of the Finance Institute at the State Council's Development Research Center.

(China Daily 09/13/2010 page8)