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Structural reforms are needed to unleash China’s economic potential

Source: Shanghai Daily | May 13, 2016, Friday | Online Edition

China should prioritize eliminating overcapacity and drive market-oriented reforms to unleash economic growth potential, experts told a forum today.

China's overcapacity amount to a third of the country's total production last year, higher than the global average of around 20 percent, said Liu Haiying, chief economist of Guofu Investment Management.

The ratio for China rose 10 percentage points over the past three years, and partly leads to a jump of non-government debt-to-GDP ratio from 110 percent in 2012 to nearly 200 percent in 2015, said Liu Haiying said on the Shanghai Investing Summit co-organized by the Darden School of Business at University of Virginia and the Pudong Institute of Finance.

Overcapacity could hurt investment returns in China, triggering capital outflow, and could block a third of the growth potential in the world's second largest economy.

Liu said that cutting overcapacity should be the priority of the government along with reforming measures to enhance market force and cut government intervention.

The government may cut stimulus measures to strive for a balance between growth and quality, according to Liu.

Yin Lei, CEO of Chongyang International Asset Management Co,   said that the government could continue expanding investment options for private capital and supporting advanced manufacturing activities to help cut overcapacity.

It could help diversify investment if Chinese individual investors cut their bank deposits and increase investment into wealth management products, Yin said.

The government should also enhance protection of intellectual property rights to encourage innovation, according to Yin.

The National Development and Reform Commission on Thursday said it would lift energy saving standards and further cut steel production.

By the year 2020 emissions of carbon dioxide per unit of GDP are required to drop 40-45 percent compared with 2005, and the use of non-fossil fuels should account for 15 percent of primary energy sources, the authority said.

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