China plans to boost economic growth this year are moving ahead at full force. Several provinces organized economic mobilization meetings and many local authorities have issued policy packages concerning projects, consumption, foreign capital and the business environment. The situation is pressing. In a downward stage of cyclical development, China’s economy is facing its worst period of growth of the past three decades, partially due to the severe impact of Covid on market entities. While Covid policies are optimized, it is essential to boost economic growth.
Economic development is the pillar of all-round social progress. However, the pursuit of economic development as the central task has been a circulating topic even in recent years, revealing an earlier consensus on the significance of economic growth that yet should be kept improving. Authorities, from top to bottom, convened meetings on economic development to open the new year, sending a positive signal to society. All efforts to push economic performance are estimable. However, both decent numbers and quality matter to economic growth, so the breakthrough point should be found to target fundamental problems. Enhancing confidence and improving expectations should be the top priorities. A capable government can introduce effective measures as long as it respects economic laws, properly handles the relationship with the market and averts excessive effort or border-crossing. It is unwise to drain the pond to get all the fish, which is also the same for economic development. Lessons from the past warn us to prevent rash advances, formalistic campaigns and even falsification.
Lack of confidence and unstable expectations are the most prominent obstacles to the current economic recovery. In recent years, businesses have flinched at investment, while households have been unwilling to spend, which, in the final analysis, is put down to huge uncertainty. The People’s Bank of China conducted a survey of 20,000 urban depositors in 50 cities in the last quarter of 2022. It showed that residents’ willingness to save increased, with 61.8% picking “more savings,” compared with 22.8% and 15.5% choosing “more consumption” and “more investment” respectively. The termination and withdrawal of foreign investment are also closely associated with unstable expectations. The uncertainty is caused by the pandemic, local business environments, international geopolitics and many other factors. Boosting confidence and improving expectations are in themselves a process of healing economic trauma. This, however, cannot be achieved overnight. It requires solid effort and patience.
At the same time, it is necessary to see the conditions for economic recovery in a more comprehensive and rational way. We need to see huge potential in both the supply and demand sides while keeping a clear head and avoiding a rash advance. After the last peak in Covid infections, China’s market has experienced a quick recovery, which once again demonstrates the strong resilience of China’s economy. In 2023, infrastructure, manufacturing and real estate investment — three major forces driving domestic demand — are projected to make further improvements and achieve overall stability. But the three are all under some pressure. To solve dilemmas faced by real estate, relevant policies such as financing have been implemented and have accelerated the recovery of investment. Nevertheless, the current situation tells us that it will take some time for the sector to resume its role as the engine of China’s economic growth. In 2022, the relatively high investment base for infrastructure more or less limits the room for infrastructure to grow this year. As for investment in manufacturing, which also did well in 2022, many scholars expect that it will grow slower this year due to weakened overseas demand and obviously low rates of capacity utilization.
The aforementioned economic fundamentals impose limitations on the implementation of policies and put forward higher requirements for their pertinence. At the recent meetings of local legislatures and political advisory committees, 31 provinces, municipalities and autonomous regions set their respective regional GDP growth targets for 2023 with a weighted average of 5.6%. No matter what their basis for the targets is, it should be the prerequisite to respect the basic laws of the market and maintain a scientific basis for economic policymaking. In recent years, there have been growing concerns in the academic community over the source of funds, investment benefits and financial risks of infrastructure construction. In addition, after a three-year battle against the virus, many local governments are short of money and again face risks arising from local government bonds, which will also be a drag on the local economic recovery. Some provinces have managed good economic performance, essentially short-lived, because they are home to industries with great potential. However, such industries are not suitable for all regions, so local governments must avoid jumping on the bandwagon. The failure to develop a prosperous photovoltaic industry in some places provides a good lesson.
Spurring consumption is of high concern to governments at all levels. If we consider the immediate results of investment, it seems that boosting consumption is of special significance to the sustainable development of China’s economy. Communist Party of China (CPC) General Secretary Xi Jinping requested during the second group study session of the CPC Central Committee’s Politburo that a long-term mechanism for expanding household consumption be established, so that residents can consume with a stable income, be free from worry when consuming and be willing to consume due to the excellent consumption environment and a strong sense of gain. This direction is undoubtedly correct. Consumption mainly depends on two aspects: disposable income and consumer confidence and expectations. How can consumption be supported without sufficient income? And income is closely associated with stable employment, which requires tens of thousands of dynamic enterprises to absorb labor.
But to rejuvenate market entities, especially micro, small and midsize enterprises, governments at all levels must free up more space for them as soon as possible. Local governments have pledged to improve the business environment. The key of the task lies in fostering a free and equal legal environment for market entities. This requires governments to ensure fair supervision, services in place and the power to be restricted, which will naturally put market entities at ease. High-quality development calls for the overall progress of national governance, which might not seem directly related to the economic recovery, but is fundamental to boosting confidence and improving expectations.
In the end, it depends on deepening reform. The years-long comprehensive reform of the registration-based IPO system has been accelerated recently and delivered impressive outcomes. Taking such convictive moves is an ideal way to stabilize market expectations and demonstrate China’s determination to reform. Similar reform measures are also needed in other areas. By implementing reform with sincerity, action and optimized macro-control policies, China is expected to enable tangible economic growth that people can really benefit from.
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