December 22, 2024

News Analysis: Beijing Signals a Shift on Economic Policy

SHANGHAI — After years of relying on government spending to supercharge growth, China is planning to shift gears so that the private sector and market forces play a larger role in its economy, the world’s second-largest after that of the United States.

On Friday, the Chinese government issued a set of policy proposals that reflected the leadership’s vows to give market competition and private businesses a bigger role in investment and setting prices.

The proposals, developed by the National Development and Reform Commission, an agency that steers many areas of economic and industrial policy, include expanding a tax on resources, taking gradual steps to liberalize bank interest rates and developing policies to “promote the effective entry of private capital into finance, energy, railways, telecommunications and other spheres,” according to a directive issued on the government’s Web site.

Foreign investors will also be given more opportunities to invest in finance, logistics, health care and other sectors. “All of society is ardently awaiting new breakthroughs in reform,” the directive said.

For years, Western governments, banks and companies have complained that China has impeded foreign investment in banking and other service industries, despite promising to open up. The latest directive did not give details about what changes policy makers in Beijing might have in mind.

In a bold speech to party cadres, the country’s new prime minister, Li Keqiang, said this month that the central government would reduce the state’s role in economic matters in the hope of unleashing the creative energies of the nation.

Beijing’s leaders are also promising to speed up efforts to liberalize interest rates and loosen foreign exchange controls, moves that are likely to reduce price distortions in the economy and allow the market to determine the value of the Chinese currency, the renminbi.

The announcements appear to be part of a broader push to reduce government intervention in the marketplace and rebalance an economy that is heavily dependent on exports and investment.

Whether Beijing can restructure an economy that is thoroughly addicted to state credit and government directives is unclear. But analysts see the strongest signs yet that top policy makers plan to revamp the nation’s growth model.

“This is radical stuff, really,” said Stephen Green, an economist at the 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.”

The push does not signal the end of big government in China, experts say. The Communist Party is unlikely to abandon the state capitalist model by breaking up huge, state-run oligopolies or privatizing major sectors of the economy that the party considers strategic, like banking, energy and telecommunications.

But analysts say a more market-oriented economy where government has a smaller role in business outcomes could have far-reaching consequences for the global economy and bolster the prospects of foreign investors, multinational corporations operating in China and Chinese entrepreneurs.

The overhauls could also make China an even stronger competitor on the global stage by encouraging innovation and expanding the middle class, and could help put the country’s growth on a more sustainable track.

Beijing seems to be pressing ahead because it has few alternatives. The economy has slowed this year because of weakening exports and slower investment growth. Rising labor costs and a strengthening currency have also reduced manufacturing competitiveness.

China’s leaders seem to believe that more government spending could worsen economic conditions and that the private sector needs to step in.

“There are quite a number of messages coming from these new leaders that they realize that if we continue to delay reforms, the economy could be in deep trouble,” said Huang Yiping, chief economist for emerging Asia at the British bank Barclays.

Article source: http://www.nytimes.com/2013/05/25/business/global/beijing-signals-a-shift-on-economic-policy.html?partner=rss&emc=rss

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