Ahead of formally launching the 13th Five-Year Plan (2016-20), Chinese leaders headed by President Xi Jinping announced an "overarching strategy" to lead the economy's ongoing transition at a closed-door conclave of top officials of the ruling Communist Party of China (CPC) yesterday.
At the Central Economic Work Conference, Xi told CPC leaders and economists that China's emphasis in 2016 will be on supply-side reform, or a package of supply-side policies to boost new demand and raise productivity, state media reported.
According to Chinese economists, this means China will no longer seek to fuel economic growth solely by using fiscal and monetary measures to boost capital investment, consumption and exports.
Until now, China used to rely on investment, exports and consumption, which are classified as demands.
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As the effectiveness of boosting growth on the demand side wanes, the government has started to reform the supply side to make effective use of production factors, including funds, resources, skilled workers, equipment and technologies, said state-run China Daily.
Outdated businesses will also be phased out.
The reform aims to accelerate growth by freeing up productivity and raising supply-side competitiveness. Measures will include cutting excess industrial capacity, reducing housing inventories and cutting production costs with policy support.
Under the new policy, the government will also gradually raise its deficit and make monetary policy more "flexible", an official statement here said.
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"The rise in the deficit level is necessary to ensure a proper GDP growth rate as the other tasks, such as trimming production overcapacity and deleveraging, are detrimental to GDP growth," Tian Yun, director of the research centre of the China Society of Macroeconomics told state-run Global Times.
Under the new policy the government will focus on tackling industrial overcapacity, reducing inventory, deleveraging, reducing costs and mending the shortcomings, the Times said in its editorial today.
"At present, the public opinion both at home and abroad on the Chinese economy is pessimistic. Certain doubts exist over whether the country can maintain medium-high growth, or overcome chronic weaknesses such as high energy consumption and overcapacity," it said.
Themes such as "China is the fastest growing economy" and "China is going to become the largest economy globally" were frequently mentioned in the world media in 2014, but such remarks have significantly diminished this year. In the meantime, negative speculations including "collapse of the Chinese economy" have been growing, it said.