How to win the tough battle of the structural reform

The just-concluded Central Economic Work Conference has laid out an economic blueprint for 2016. The most notable point of the conference is that strengthening and pushing up the structural reform will be next year's focus, which shows a crucial turn in the macroeconomic policy.

Strengthening the development logic under the "new normal"

Recently, the new economics of supply has become a hot topic in the economic theory field after undergoing comprehensive analysis and interpretation. Such research is targeted given the current situation and produces many valuable observations. In fact, there's no absolute answer as to when to adopt more demand management or more supply management and how the government adjusts policies through balancing demand and supply under an economic cycle. It depends completely on the changes in the economic environment and on the needs of the production factor allocation.

In the past two or three decades, China's double-digit growth is because it unleashed huge development vitality by means of its second mover advantage in the catch-up and its comparative advantage in production factors. But now as China become the world's second largest economy and all kinds of production factors are deeply integrated with global economy, great changes have taken place in both national and international level. The era of "factor dividend" has come to an end when fast economic growth was driven by low labor cost, low land cost and low capital cost. It is necessary for today's China to stride over the middle income trap and overcome the growing pains amid economic slowdown. In order to meet the challenges in various profit games and prepare for the turning point of economic growth , we must accelerate the transformation of development mode, focus on the innovative drive, optimize configuration of resources, reshape the industrial structure and improve the total factor productivity to further release dividends of institutional reform to ensure a sustainable and healthy development of China's economy.

If we refer to China's development issue over the past three decades, as "for whom to produce". At present when China's economy is under the new normal, we must have a good planning on "what and how to produce ". This is the basic logic of today's China's economy. It focuses on enhancing the structural reform on the supply side while moderately expanding aggregate demand and revitalizes the extending capital through correcting the distortion of factor allocation. We should improve the quality and efficiency of the supply system through increasing the investment validity and expanding effective supply. We should speed up cultivating new growth engine, reform and improve the traditional comparative advantage, increase the total factor productivity and enhance the momentum for sustainable growth through improving the flexibility of the supply structure.

Therefore, the Central Economic Work Conference has stressed that, to promote the structural reform on supply side is a big innovation under the new normal, a proactive selection faced with competition on comprehensive national power after the international financial crisis and an inevitable requirement to conform to the new norm of China's economic development. It is a very crucial decision strategically made according with the times.

Realizing "five drops" and "five increases"

The year 2016 is the first year in the decisive stage to build a comprehensive well-off society. The Central Economic Work Conference has also stressed that next year will be crucial to promote structural reform. Centering on a series of important tasks of strengthening the structural reform, the conference has made it clear on the economic blueprint in 2016, which includes steady macro policies, targeted industrial policies, flexible micro policies, effective reform policies and supportive social policies. The combination is very crucial for the implementation of coordinated policies.

The Central Economic Working Conference has clearly put forward the five targets of the structural reform in the next year including de-capacity, de-stocking, de-leveraging, cost-reducing and pitch-up in weak growth areas. Considered from the actual economic pressure of the first year of the 13th Five-Year Plan, in my opinion, the first thing is to relieve the pressure in these five aspects. The five aims are in essence correlative and interrelated. It is not exaggerated to say that one slight move will affect the situation as a whole. De-capacity is a crucial task. The structure, economic cycle and institution should be blamed for over capacity. For instance, there is a shocking phenomenon that the profit of one ton of steel is less than 0.5 kilogram cabbage. This year, the price of coal has fallen to the lowest point in record and the plummeted international oil prices have dragged down the price of crude oil, etc.

On the back of localizing measures and differentiated solution, the macro policy and industrial policy should actively direct the overcapacity to transform into abundant capacity, relieving it through opening up the industrial developing channels in the Midwest and seeking international cooperation. It is necessary to connect de-stocking with lower corporate costs, actually relieve their burden through tax and pricing policy and accelerate the technological reform and equipment upgrade. We should connect de-stocking of real estate among second- and third-tier cities while promoting urbanization and expanding supply of public service. As for the prevention and mitigation of financial risks, we should guard against the bottom line while actively implementing targeted structural monetary easing policy and try to improve the construction of multi-leveled capital markets. Therefore, in order to solve the problem of "five drops", it is essential to replace the structural burden with structural reform and structural shortage-repairing.

In my opinion, we should also stress "five increases", or known as vitality increase, momentum increase, efficiency increase, equilibrium increase and confidence increase. We should push up innovation in institution and supply, further eradicate the interests of the barriers, streamline administration and delegate power to lower levels, give power to market and society in order to stimulate the vitality of enterprises, society and popular entrepreneurship. We should accelerate the development of new industries, new business models and new organizational systems and push up the new momentum for economic growth in order to generate new supply and demand. We should take effective policies to promote the balance of regional development, of urban and rural dual economy, of industrial development , of the development between resource and environment and of the development interests at all levels in the following five years.

At last, confidence increase is worthy of being stressed. Despite difficulties in China's growth, just as what President Xi Jinping has pointed out, there is no change in China's economic fundamentals or its long-term trajectory for the better; there is no change in its basic features of strong resilience, enormous potentials and ample room for growth; there is no change in the good base and conditions for the economic sustainable development; there is no change in the forward momentum of adjusting and optimizing economic structure. The whole party should insist on appealing to the initiatives of all groups and their enthusiasm and creativity. If all groups are united as one, there will be no difficulties that can never be overcome.

The 12th Five-Year Plan has made a great achievement and now we are on a new beginning again. With the new guideline of innovation, coordination, green, opening-up and sharing, the 13th Five-Year Plan is sure to turn on a new chapter.

The author is a PhD in Economics at the Chinese Academy of Governance. The story is first published on China Youth Daily.