2015年CRI Supply-side Reform Aims at Removing Regulatory Barriers: Observers

In contrast to demand-side stimulus 1 that focuses more on investment, consumption and exports, the new push toward supply-side economics is mainly aimed at removing regulatory barriers and giving the market a bigger say which products they like and don't like.

To get companies on-board with the policy, tax cuts, lower corporate 2 borrowing costs, new incentives 3 for specific industries, tackling factory overcapacity and property inventories 4 are going to be made priorities.

Addressing a meeting about China's economy for the 2015-2016 period, Yang Weimin with the Office of the Central Leading Group for Finance and Economic Affairs, says the new reform comes at a time when previous strategies are becoming less effective, and their side effects are actually creating new problems.

"There has been a severe structural 5 problems resulting from a supply glut 6 and insufficient 7 demand. For example, a large part of the new loans which have been put out have been used to repay old ones. They've also been used to invest in low-return projects or flown into the virtual economy. At the same time, the capital shortage in the real economy continues to worsen."

Addressing around 300 government officials, think tanks, and entrepreneurs at the meeting, Yang Weimin also says institutional problems are hampering 8 the market from playing a role in determining where the market is headed.

"For example, the exit strategy for overcapacity-plagued "zombie companies" often doesn't work because of opposition 9 from local governments and banks."

China's economy grew 6.9 percent in the third quarter of the year, the weakest pace of growth since the start of the global financial crisis.

Overcapacity, profit declines, as well as rising non-performing loans are mainly blamed for dragging down the growth.

When it comes to cutting industrial overcapacity, Zeng Peiyan, head of China Center for International Economic Exchanges, says a number of factors need to be looked at.

"The supply-demand balance should be always kept in mind when it comes to cutting overcapacity, property inventories and reducing leverage 10 and costs. It's also necessary to improve policies to prevent risk while trying to stabilize 11 the economy."

Zeng Peiyan, a former vice-Premier, is also calling for a change to the country's economy performance assessment 12 system to get a better handle on exactly how the economy is doing.

"Increasing development by optimizing 13 resources requires the establishment of new economic performance-measuring system that attaches equal importance to both the total-factor productivity and the growth of GDP."

Total-factor productivity is an economic variable which accounts for effects in total output not caused by traditionally-measured inputs 14.

Many economists 15 today view it as a measure of an economy's long-term technological 16 development.

The People's Bank of China, China's central bank, is projecting a baseline forecast for the country's growth next year at 6.8 percent.

It says factors such as the recovery of real estate sales and some modest improvement in external demand should help underpin 17 broader growth.

For CRI, this is Luo Wen.