The central government started to stress "supply-side reform" several weeks ago, a turning point in macro-policy. It has been repeatedly mentioned by President Xi Jinping and Premier Li Keqiang.
This also comes as China steers toward a growth model based on domestic demand, innovation and the private sector instead of trade and credit expansion.
Supply-side reform will be a stepping stone for China to achieve its structural reforms during the 13th Five-year Plan period (2016-2020), said Wang Xiaoguang of the China Academy of Governance.
However, Zhao Yang of Nomura, thinks supply-side reform, which will increase long-term growth potential, is unlikely to offset strong headwinds in the short term.
WHAT TO DO
China has vowed to "add new supply, create new consumption and form new growth momentum" through new ideas in institutions, technology and products.
The centerpiece of supply-side reform will be to remove regulatory barriers and give the market a bigger say in resources allocation, Wang Xiaoguang said.
According to a statement released Monday after the four-day meeting, supply-side reform will include more tax cuts, lowering corporate borrowing costs, incentives for specific industries, tackling factory overcapacity and property inventories and easing administrative restrictions.
To be more specific, the current proactive fiscal policy needs to be more forceful by cutting taxes and raising the fiscal deficit ratio gradually. Prudent monetary policy needs to be more flexible to create the monetary conditions for structural reform and lower costs, it said.
Nomura expects two 25-basis-point interest cuts in 2016 and projects that China's fiscal deficit will widen to 3 percent of GDP from an estimated 2.8 percent this year.
The government will offer more support for companies to upgrade technology and equipment and reduce debt, and will foster emerging sectors and encourage innovation in technology, products and business models.
In eliminating overcapacity, China will create conditions for bankruptcy procedures based on market rules, and speed up liquidation cases.
The country also vowed to make it easier for migrant workers to settle in cities and encourage them to buy or rent property where they work.
