China to loosen central planning
In a speech to party cadres, new Prime Minister Li Keqiang said this month the central government would reduce the state's role in economic matters in the hope of unleashing the creative energies of a nation with the world's largest economy after the United States.
On Friday, the Chinese government issued policy proposals that seemed to show that Mr Li was serious about reducing government intervention in the market, and giving competition among private businesses a bigger role in investment decisions and setting prices.
Whether Beijing can restructure an economy that is thoroughly dependent on state credit and government directives is unclear, but analysts see such announcements as the strongest signs yet that top policymakers are serious about revamping the nation's growth model.
"This is radical stuff, really," said Stephen Green, an economist at British bank Standard Chartered and an expert on the Chinese economy. "People have talked about this for a long time, but now we're getting a clearly spoken reform agenda from the top."
China's leaders are under pressure to change as growth slows and the limitations of its state-led, investment-driven economy become more evident. This month, manufacturing activity contracted for the first time in seven months, according to an independent survey by HSBC. Economists are lowering their growth forecasts and weighing the risks associated with high levels of corporate and government debt that have built up over the past five years.
The proposals include expanding a tax on natural resources, taking gradual steps to allow market forces to determine bank interest rates and developing policies to "promote the effective entry of private capital into finance, energy, railways, telecommunications and other spheres", as a directive issued on the government's website says.
Frequently Asked Questions about this Article…
The article says China plans to reduce the central government’s role in economic matters and give private businesses and market forces a bigger role. The reforms are intended to boost competition, improve living standards for the middle class and make China more competitive globally, according to comments from Prime Minister Li Keqiang and recent government policy proposals.
Leaders are under pressure because growth is slowing and weaknesses in the state-led, investment-driven model are becoming more apparent. The article notes manufacturing contracted in an HSBC survey and economists are lowering growth forecasts, while high levels of corporate and government debt raise concerns — all factors prompting reform proposals.
The government proposals mentioned in the article include expanding a tax on natural resources, taking gradual steps to allow market forces to determine bank interest rates, and promoting effective entry of private capital into areas such as finance, energy, railways and telecommunications.
If implemented, reforms could increase competition and private-sector opportunities in sectors opened to private capital, potentially creating new investment prospects. However, the article cautions the outcome is unclear because China’s economy is still heavily dependent on state credit and directives, and high debt levels pose risks.
The article says the government plans gradual steps to let market forces help determine bank interest rates. For savers, that could eventually mean deposit rates that better reflect market conditions; for borrowers, loan costs could change as banks price credit more competitively. The timeline and scale of change are not specified.
Key risks highlighted in the article include China’s heavy reliance on state credit and government direction, the uncertainty over whether restructuring can succeed, and elevated corporate and government debt built up over recent years. Slowing growth and weak manufacturing activity are also cited as immediate concerns.
Analysts see the proposals as one of the strongest signs yet that top policymakers are serious about changing the growth model. The article quotes Standard Chartered economist Stephen Green calling the proposals “radical stuff,” suggesting the announcements represent a clear reform agenda from the top.
The government directive cited in the article specifically names finance, energy, railways and telecommunications as sectors where policies will be developed to promote the effective entry of private capital.
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