China's Macroeconomic Policy Report

Author: Chief Editor: Ma Hong et al.
Publisher:
Publish Date: 1998-09-01
Features: This book is the second volume in the series of China's macroeconomic policy reports. As a continuation of the previous book, it systematically elaborates on the background, key points, and implementation effects of China's macroeconomic policies introduced by the government in 1997. In 1997, both the internal and external environments of China's economic policies underwent significant changes. First, after several years of implementing moderately tight policies, China's economy successfully achieved a "soft landing" and demonstrated a favorable trend of "high growth and low inflation." In 1996, the overall retail price level in China rose by 6.1%, a decrease of more than 8 percentage points compared to the previous year, significantly below the 10% target set in the plan. The GDP growth rate reached 9.7%, meeting the regulatory targets. Second, the marketization of the national economy was further advanced, and long-standing bottlenecks that had constrained China's economic growth were alleviated. Signs of a shift from a seller's market to a buyer's market emerged after decades of shortage economy. Third, on July 1, 1997, China resumed its sovereignty over Hong Kong. After the return of Hong Kong, the economic ties between mainland China and Hong Kong were further strengthened, and the economic trends of Hong Kong became a significant factor influencing mainland China's economic policies. Fourth, starting in July 1997, Thailand experienced a financial crisis that quickly spread to other Southeast Asian countries and regions, and then further affected Northeast Asia, causing massive shocks to the Asian and global financial markets and impacting the economic growth and social stability in the region. These macroeconomic environmental changes brought dual pressures to China's economic operations: First, sustained rapid economic growth lacked favorable driving factors. In terms of consumption, with no new hotspots emerging, final demand's role in driving economic growth would not change significantly. In terms of investment, the contribution rate of total investment growth to economic growth also declined to 29.6% in 1996, a decrease of 14.2 percentage points compared to the average level during the "Eighth Five-Year Plan" period, slowing down its role in driving economic growth. In terms of exports, although the growth of net exports in recent years had a relatively obvious driving effect on economic growth, it was highly volatile. In 1996, the export growth rate was only 1%, the lowest since the reform, making it difficult to sustain rapid economic growth. Moreover, the significant devaluation of currencies in Southeast Asian countries caused by the financial crisis placed China's exports in a highly unfavorable position. Second, although the Asian financial crisis did not lead to financial instability in China, it raised the requirements for the stability and effectiveness of China's financial system. However, after years of accumulation, the potential risks in China's financial sector could no longer meet these requirements, making financial system reform even more urgent. At the same time, the significant devaluation of currencies in neighboring countries greatly increased pressure on the renminbi and reduced the room for monetary policy adjustment. Against this backdrop, in 1997, both planning policies, fiscal policies, and financial policies, as well as foreign trade and foreign exchange policies and labor and employment policies, exhibited new characteristics. Since most of the authors of this book worked in relevant government departments and some directly participated in the research and formulation of policies, they had a relatively accurate grasp of the background, key points, and implementation of macroeconomic policies. We hope this book will have certain analytical and reference value and provide useful assistance to readers. The publication of this book was supported by relevant central departments and China Financial and Economic Publishing House. We extend our sincere gratitude to them. Editorial Board, May 1998
Excerpt: The special importance of structural issues for China's economic growth also lies in the fact that China's rapid economic growth depends on rapid structural transformation. The differences in growth rates among different countries can largely be explained by the possibilities and actual intensity of structural transformation. Research on the economic history of many countries, including both developed and developing ones, shows that the "take-off" and accelerated growth of economies are largely driven by structural transformation. Therefore, rapid economic growth is inseparable from structural issues. Further, it must be clarified what kind of structural issues China is currently facing. It is both targeted and reasonable to say that the structure of asset inventories is unreasonable or that the production structure is not adapted to the consumption structure. However, we need a perspective that focuses on China's long-term development. From this perspective, the many structural issues currently facing China, as the main thread, are the "gaps" in the growth transformation we mentioned earlier. In short, it means that a batch of growth drivers have declined or are about to decline, while the new batch of growth drivers that should have emerged have not. Other structural and institutional issues should be understood and judged from this angle. One of the important purposes of studying macroeconomic issues is to propose ideas and policies to solve the various problems faced. The correspondence between problems and policies can serve as a meaningful validation. By studying the problems, policies to solve them can be proposed. If the implemented policies do not achieve the expected results, there is reason to doubt whether the research on the problems was "flawed." In this sense, the recent failure of macro-monetary policy requires us to seriously consider to what extent the economic downturn is caused by aggregate issues. To make policies effective, we should conduct a deeper study of the problems themselves and propose more effective policy combinations. As for policy combinations, they should be an organic blend of several policies, each with its own targeting while being mutually compatible. The premise is an objective, comprehensive, and in-depth understanding of the problems, especially to prevent a serious tilt in cognition by one-sidedly emphasizing one aspect.
III. Several Key Issues to Focus on in the Current and Coming Period Under the new situation of significant changes in China's economic operation and development pattern, macroeconomic policies should actively adjust to these changes. The basic approach is: while moderately adjusting aggregate policies, a series of targeted and high-impact deep reforms and structural adjustment measures should be implemented to alleviate and gradually resolve the "gaps" in growth transformation, ensuring the national economy maintains stable growth at a high speed. In this process, "development is the hard truth," and reforms and adjustments should be deployed and implemented around the needs and possibilities of development. Overall, substantive breakthroughs should be achieved in several key issues:——Accelerate the strategic restructuring of state-owned enterprises to ensure the layout and structure of state-owned economy align with market economy requirements. It is necessary to firmly implement the principles of encouraging mergers, standardizing bankruptcies, downsizing, improving efficiency through layoffs, and implementing reemployment programs, adopting a "focus on large and relax small" approach to resolve the issues of "exit" and "consolidation." While liberalizing and revitalizing small and medium-sized state-owned enterprises, large and medium-sized state-owned enterprises should, on the whole, emerge from difficulties and take decisive steps to establish a genuine modern corporate system.