Two policy directions to achieve steady economic growth, says report

A report published by the Chinese Academy of Social Sciences (CASS) has identified two policy directions for China to achieve steady economic growth: first, promote sustainable infrastructure construction and advance new-style urbanisation; second, develop high value-added modern services and high-end manufacturing.

The Chinese government think tank recommended in its report entitled Analysis on the Prospect of China’s economy (2014) – the so-called “spring blue book” -- released on April 28 the following two policy directions for the present and future.

First, innovative mode of financing to attract social capital offering long term benefits so as to promote sustainable infrastructure construction and new-style urbanisation. With relatively backward infrastructure, China’s road and rail density has much room for growth compared with developed countries. Under new-style urbanisation, whether it is infrastructure construction like transportation facilities or equity in providing public services, the country requires massive capital investment. Faced with a huge demand for funds and in the absence of innovative financing mechanisms, the country cannot support and sustain infrastructure construction and new-style urbanisation, says the report.

Given China's high savings rate will remain for some time, projects must be classified into transportation infrastructure construction and new-style urbanisation enabling the transformation of their enormous potential into an important driving force for sustainable economic growth. Also, this is only made possible with deepening reforms in investment and financing mechanisms as well as stepping up efforts to introduce social capital of long-term interest.

Proposed reforms include: first, allowing local governments to issue municipal bonds in accordance with law, broadening the channels for urban construction financing. Second, easing market access to build a diversified and sustainable mechanism for safeguarding funds for use in urbanisation. Third, encouraging public-private partnership to improve infrastructure construction quality; and lastly, establishing new policy-based financial institutions with clearly defined target customers.

The second policy direction to achieve steady economic growth is to break up the monopoly, relax market access and actively develop a mixed ownership economy, vigorously developing modern services with high value-added and high-end manufacturing industries. This is not only to improve the international competitiveness of Chinese enterprises and service quality requirements, but also an important growth point for improving the level of potential growth in the future.

An example is in the transformation of higher education reform. To accelerate the development of vocational education, market access must be relaxed to allow private capital flow into the vocational and technical education market. By encouraging enterprises and universities jointly set up vocational and technical schools, not only will it resolve structural problems in the job market, but also relieve the pressure on the investment in higher education. Another example is the running of medical services by social forces encouraged by the state, allowing private capital to enter the medical services sector, especially high-end segment. The effects are, on the one hand private capital can make profits and on the other hand some people who are willing to spend more money on medical care can enjoy better services.

In addition to breaking up the monopoly and relaxing market entry, there should also be increased efforts in finance discounting and targeted financial support. Also, market players should be given support and guidance in developing modern services including energy saving, information technology, biomedicine, high-end equipment manufacturing, new energy, integrated circuits, new materials and other high-end manufacturing, as well as promoting modern services such as finance, insurance, information and logistics, internet of things, cultural and creative industries, education and training, and health and pension.

The report was edited by Li Yang, vice president of CASS, and jointly released by its Economics Division, Institute of Quantitative and Technical Economics and the Social Sciences Academic Press. While reviewing China's economic situation of 2013 and in the first quarter of 2014, the report also gives a comprehensive analysis of China's macroeconomic situation in 2014.