Sara Hsu
Sara Hsu

Much reform to a market-driven economy has been achieved in 2015, wrote the National Development and Reform Commission’s (NDRC) Report on the Implementation of the 2015 Plan. But there is much left to do says financial analyst Sara Hsu in the Diplomat.

Sara Hsu:

Still, as the NDRC reports, there are many challenges facing China’s economy, including lagging demand, rising costs and declining profitability, and hidden unemployment. Supply-side structural problems, including overcapacity, present barriers to growth. This poses a challenge to ongoing reform in 2016.

Going forward, therefore, the NDRC seeks to create more than 10 million new urban jobs this year to address the issue of hidden unemployment, maintain proactive fiscal policy to make up for demand shortages, promote supply-side innovations, and again promote entrepreneurship and innovation. The economy will become more market-based, as government restrictions are reduced and private investments are given equal treatment. Operating costs and the tax burden of businesses are to be reduced.

Chinese authorities will continue to promote consumer spending, with target growth in retail sales of consumer goods of 11 percent for 2016. This will be done by increasing the incomes of low and middle-income groups as well as setting industry standards to protect consumers’ rights. New areas of consumption shall be encouraged, particularly in the tourism and technology industries. Reform of the financial system will continue, diversifying financial institutions and stepping up the reform of state-owned banks, as will reform of prices and removing price controls in the power, petroleum, natural gas, and transportation industries.

Much has been done, and much has yet to be done. Cultivating market forces somewhat more rapidly may reduce the control the government must maintain over the economy. Certainly, streamlining the government approval process and encouraging market forces in particular areas makes sense. Encouraging a larger spread of markets will reduce the burden on the government, especially at a time when policymakers are challenged with a simultaneous economic slowdown and economic restructuring.

More in the Diplomat.

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