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Supply side reform: 2016 overcapacity reduction goals


12-15-2016 01:03 BJT

Full coverage: 2016 Central Economic Work Conference

Supply side reform is China's latest tool being employed to achieve sustainable growth. It's been one year since supply side reform was first mentioned at China's top government economic meeting in 2015.

What has been done in the past year and what are the most urgent tasks to work on in 2017? Michelle Van den Bergh will give us a wrap.

The goal of the reform is to rebalance the Chinese economy from being investment export driven to a more balanced and long-term growth model. That's so that growth could be more sustainable, healthy and environmentally friendly.

Analysts say that significant progress has been made in various aspects in the past year. One of five major tasks is reducing overcapacity. China has vowed to cut steel capacity by 100 to 150 million tons by 2020.

That includes 45 million tons in 2016. China also aims to reduce coal production by 250 million tons.

The State Council says China has basically achieved this year's steel and coal capacity reduction goals. In addition to reducing overcapacity, a great effort was made to reduce bureaucracy and administrative obstacles.

The number of items subject to price controls has been reduced by 80 percent since the revised central government pricing catalogue took effect in January.

That allows the market rather than the government to play a greater role in the country's economy.

Now lets take a look what economists think were the biggest accomplishments this year, and more importantly, what needs to be done in 2017.

CKGSB economics professor Li Wei says that when looking at the progress of China's supply side reforms, tax reform is an important step in this year's changes.

Li says that in terms of deleveraging, China has made progress in changing the debt structure from short term to long term and from high interest to low interest. Li also said that most importantly, change has been from dollar debt to RMB debt. Still, analysts all agree that deleveraging should continue to be the main focus in 2017.

Li says that to make overcapacity reduction more sustainable, such policies as property tax reforms should be implemented. Li says that would change local government incentives from wanting business investment to attracting more residents.

So as we heard, more efforts to control leveraging and change the debt structure are among the top priorities. Introducing measures to change how local governments make their revenue would greatly help the underlining cause of overcapacity.

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