Interpretations on four economic battles in 2016

President Xi Jinping, also general secretary of the Communist Party of China (CPC) Central Committee, put forward “four battles of annihilation” at the 11th session of the Central Leading Group on Financial and Economic Affairs. The “four battles of annihilation” coped with four issues including excess production capacity, lowering enterprise costs, reducing housing inventories and preventing financial risks, which drew extensive attentions. The Political Bureau of the CPC Central Committee made detailed deployment for the “four battles” at a meeting yesterday.

Stable economic growth in priority

After the economy grew 6.9 percent in the third quarter from a year earlier, the weakest pace since the global financial crisis, the market paid close attention to how China would set the GDP goal for next year. The meeting yesterday proposed that it should be kept at a reasonable range.   

When explaining the draft of suggestions on the 13th Five-year Plan, Xi pointed out that it was widely believed by major research institutions from home and abroad that China’s annual potential economic growth would be 6 percent-7 percent during the 13th Five-year Plan period. Hence, it is possible for China to keep the economic growth at around 7 percent, but it will face more uncertainties. Statistics show that more than 90 percent participants from the market and academic field believe that the GDP growth goal might be lowered to about 6.5 percent in 2016.

In the opinion of Zheng Yongnian, director of the East Asia Institute of National University of Singapore, it makes little sense in pursuing the figures 6.9 percent, 7 percent or 7.1 percent because they don’t vary a lot. We should pursue a stable growth. If the growth rate keeps stable at 6.5 percent-7 percent in the next five years,   the growth will be reasonable.

Deployment on “four battles”

Citizenization of migrant workers will play an important role in reducing housing inventories. It was required at the meeting yesterday to promote the new citizen-oriented housing system reform and enlarge effective demand to stabilize real estate market by accelerating the citizenization of migrant workers.

Yan Yuejin, a chief research officer with E-house China R & D Institute, thinks that the course of citizenization of agricultural population will quicken the pace of new-type urbanization and reducing housing inventories. But as for new citizens entering the housing market, relevant supporting policies such as resident registration policy and employment policy should be followed up.

In terms of eliminating surplus capacities, the meeting proposed to deeply implement the innovation-driven strategy, advance the mass entrepreneurship and innovation, and strengthen motive force and vigor in development. We should actively and reliably develop the superior enterprises and eliminate the inferior ones, and realize market clearing through merger, restructuring and bankruptcy liquidation.

Journalist learnt from the official sources that investigation team authorized by the leadership has recently carried out investigation and research on surplus capacity of steel sector to make every effort to realize transformation and upgrading of the capacity as soon as possible, and prevent systematic risk. Integration, adjustment, merger and restructuring will be speeded up for the industries with serious surplus capacity in next year to focus on strengthening a series of large enterprises.

In terms of eliminating financial risks, the meeting proposed to guarantee that the systematic or regional financial risks must not occur. Various insiders indicated in an interview that President Xi Jinping previously proposed to “prevent and defuse financial risks, and form a stock market with comprehensive functions”, which will be the major content for the coming central economic work meeting and also the direction for financial system reform and policy deployment in the next year.

To provide more fiscal policies 

Lowering the high costs of enterprises is the last one to be solved, which will have direct impact on sustainable development of the real economy. The meeting yesterday proposed to help enterprises cut the costs, such as the costs of systematic transactions, tax and fee burden, social insurances, financial costs, electric power price and logistics costs.

Hu Yijian, director of Institute of Public Policy and Governance under Shanghai University of Finance and Economics, pointed out that there is not much space for tax reduction in light of current situation. Under the premise of stable tax bearing on the whole, turnover taxes (e.g. added-value tax) on enterprises will be cut during the structural tax reduction in the next year. Along with individual income tax reform, resource tax reform, and legislations on environmental protection tax and real estate tax, these taxes may increase to some extent.

Yang Zhiyong, director of Fiscal Research Department under the National Academy of Economic Strategy from Chinese Academy of Social Sciences, mentioned that based on current situation, China will continue to carry out more aggressive fiscal policies next year. It will moderately raise deficit rate so as to increase fiscal expenditures, conduct structural tax reduction and clearing-up to cut the enterprise costs, and further expand the scale of local government bonds to replace the inventory debts.