Slowdown can be tolerated(2)

In this year's Government Work Report, Premier Li Keqiang said that China will eliminate the production capacity of 27 million tons of steel, 42 million tons of cement, and 35 million standard cases of flat glass in 2014. Listing such specific targets for a given year indicates the government's greater determination to eliminate backward overcapacity sectors. The elimination of such sectors will inevitably lead to the shutdown of a number of small- and medium-sized enterprises and the decline in the Purchasing Managers' Index and power consumption seems to indicate the start of the campaign; one that is expected to have unfavorable effects on this year's economic growth. To impose a strict control on the growth of local debts will also undoubtedly produce some negative influences on the country's short-term economic growth.

Given the importance of a series of measures adopted to push forward reforms and address some accumulated problems, all of which will unavoidably be a drag on the country's economic growth, there is an extensive consensus that the government is unlikely to launch a new round of stimulus packages to boost economic growth.

Despite a 7.5 percent GDP growth target set for this year and efforts for its realization, the Chinese government may have a higher tolerance toward a moderate economic slowdown. Currently, China does face huge pressures from its economic slowdown, but there is no need to introduce some stimulus measures. It is estimated that 7.2 percent may be the lowest growth the government will accept and growth below this rate will probably cause the government to give a helping hand.

A series of side effects stemming from large-scale stimulus packages indicates that the adoption of blind market-rescue policies is not viable. To curb its economic downturn, the country needs to promote further reforms to release the potential for further economic growth.

The reforms China will push forward in administrative, taxation and financial areas are expected to offer a new forcible driving force for its economic growth.

An accelerating drive for urbanization, in which millions of rural residents will move to urban areas and many shabby urban homes will be renovated, will bring about a colossal fixed asset investment to drive national economic growth. At the same time, the expanded opening-up mapped out by the central government, including the building of the Silk Road Economic Belt with Central Asian nations and beyond, a Maritime Silk Road with Southeast Asian nations, an economic corridor with some South Asian nations, as well as its efforts to expand the space for international economic and technological cooperation and accelerate building free trade areas, will also create new areas for the country's economic growth. Besides, increased efforts for building government-subsidized housing, developing the smart grid, and putting in operation some wind, solar, hydropower and nuclear power projects are also expected to play a positive role in boosting the national economy.

The author, Zhao Xiao, is a professor with the school of economics and management, Beijing University of Science and Technology.