China Headlines: Supply-side reform to keep Chinese economy fit

One change will certainly be deeply felt in China's economy in 2016 and more time come: supply-side structural reform.

"Supply-side structural reform is an urgent task that cannot afford any delay, otherwise the 'sickness' will become graver," an authoritative figure told the People's Daily in an exclusive interview, published on its front page and the whole second page on Monday.

The People's Daily, the flagship newspaper of the ruling Communist Party of China, didn't disclose the name of the figure, but the term "authoritative figure" is usually used for high-level officials.

Supply-side reform is the latest buzzword used by Chinese leaders and economists as the country moves to address outstanding issues like excess capacity, housing overhang, and "zombie" state-owned enterprises (SOEs) with poor profitability.

"There is now a window for us to roll out supply-side structural reform, but the opportunity won't stay there forever," the unnamed figure said.

LESS IS MORE

China enjoyed fast economic growth for around three decades, fueled by capital investment, exports and consumption, which are usually regarded as being on the demand side. But these growth drivers have been losing steam as local government debts mount to high levels and global demand weakens.

Increasing attention has been turned to stimulating business through tax cuts, entrepreneurship and innovation while phasing out excess capacity. Such measures are expected to increase the supply of high-quality goods and services, lower prices and boost consumption.

According to this authoritative figure, the supply-side structural reform is the remedy for economy ills chosen by the central leadership after analyzing the conomic situation.

"It's a pass that we must go through," said the figure, adding it is also a fundamental approach to address medium and long-term economic issues.

The figure urged quickening implementation of the supply-side structural reform.

The reform has drawn keen attention from big businesses around the world. Many have noticed the development in this field.

In a broad sense, "fiscal and tax reform that realigns incentives in the economy, SOE reforms, hukou and labor market reforms, [and] interest rate liberalization to help the market allocate resources more efficiently -- these are all in some sense supply-side reforms," said the UBS in a research note.

"Under the current situation, it is impossible to expect a V-shaped economic recovery through short-term stimulation," said the authoritative figure, adding the national economy is likely to experience an L-shaped growth period.

"Keynesianism won't help much in addressing medium-and-long-term economic ills. The cure lies in structural reform," the authority said.

The unnamed authority urged burying the "zombies" and "let them rest in peace" to free up resources.

On the risks in cutting overcapacity and eliminating zombie enterprises, the authoritative figure proposed relying more on mergers and revamping instead of bankruptcy liquidation. Meanwhile, the figure urged caring for laid-off workers.

Labor-intensive iron and steel, cement, electrolytic aluminum and flat glass production are regarded to be among industries with excess capacity.

Reform to boost economy

Chinese economists are optimistic that supply-side structural reform will give the economy a boost.

According to the authoritative figure, the five major tasks surrounding the reform, namely reducing overcapacity, destocking, deleveraging, reducing costs and shoring up weak growth areas, will all boost China's development in the long term. Endi