[時事討論] Why now is the time for China’s leaders to bite the bullet on economic reform

本帖最後由 felicity2010 於 2016-4-7 11:53 AM 編輯
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Why now is the time for China’s leaders to bite the bullet on economic reform公仔箱論壇% F0 U  y! _% e% G; f2 l8 m5 [% l& c
China Briefing by Wang Xiangwei SCMP

Back in the late 1990s, former premier Zhu Rongji launched a tenacious three-year plan to turn around the fortunes of ailing state-owned enterprises which seriously threatened to wear down the mainland’s fragile banking system and derail the Chinese economy. The critical situation was worsened by the outbreak of the Asian financial crisis in 1997,which created unprecedented economic uncertainties for the region’s economies.tvb now,tvbnow,bttvb, O7 _6 X9 g- G* M, I" X2 W
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But with sheer determination and through forceful measures, Zhu largely kept his promise, earning him the nickname“China’s economic tsar”. By the year 2000, tens of thousands of small and medium-sized SOEs were privatised, merged, or liquidated, resulting in more than 20 million employees laid off. Meanwhile, most of the remaining bigger firms began to turn a profit, with many of them listed on stock markets at home and abroad.TVBNOW 含有熱門話題，最新最快電視，軟體，遊戲，電影，動漫及日常生活及興趣交流等資訊。: o" V  ]  g9 V  v# N
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Zhu’s economic reforms, of which restructuring state enterprises was a key part, helped pave the way for China’s economy to take off in the first decade of the 21st century, particularly after the former premier presided over the nation’s accession to the World Trade Organisation in 2001.1 R$ L. \( N! D8 \
At the same time, unfortunately, the drive for SOE reform largely stalled and even went backwards in many areas. As the economy boomed with double-digit growth rates, SOEs expanded aggressively and reported faster revenue and profit growth, giving them little incentive to improve productivity and efficiency. Just a few years ago, some cocky official sat certain state banks even boasted to reporters that they felt “somewhat embarrassed” to announce their profitability as it was so good.
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Now their smug smiles have long gone. As the Chinese economy is slowing down to single-digit growth amid global economicuncertainties, the SOE sector is again at a critical juncture with many of the major firms in the traditional industries and the energy sector facing a bleakfuture scenario of life or death.TVBNOW 含有熱門話題，最新最快電視，軟體，遊戲，電影，動漫及日常生活及興趣交流等資訊。9 e1 v4 V0 K# e& A" C. o2 T
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SOEs reported a 6.7 per cent decline in profits last year amid rising debt levels and excess capacity. As China’s construction boom has eased, the eight industries of steel and iron, coal,cement, glass, oil, petrochemicals, iron ore, and non-ferrous metals were particularly hard hit. All eight industries combined reportedly contribute between 70 and 80 per cent of the fall in industrial output and over 80 percent of them are losing money.  Without financial support from local authorities, many are on the brink of collapse if they did not get financial support from local authorities – they are commonly known as zombie enterprises.

Premier Li Keqiang said in his work report last month that the government would accelerate SOE reforms this year and next with the aim of building up new firms through innovation, restructuring underperforming companies and winding down obsolete ones. He said the government had chosen the two industries of steel and iron, and coal as the pilot schemes for restructuring and reducing excess capacity, for which the central government has set aside 100 billion yuan (HK$120 billion) to help resettle laid-off workers.公仔箱論壇/ b/ r- v* e" z

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But scepticism remains over whether the current leadership will have the political stamina and determination to push through these painful reforms, as Zhu did 18 years ago, even though the scale of the changes today is much less severe than before. In fact, since then,further SOEs reforms have remained very much like slogans on paper without much meaningful implementation. The monopolies of the state sector have hardened and the separation of government from business has made little progress because of rising nationalistic sentiment over fears about selling state assets on the cheap. Some major state-owned enterprises like Shougang Corp, one of the mainland’s largest steel producers, even started to rescind share options and other incentives awarded to employees.. ~9 [: a3 P& l" S+ G5 H/ G; x

The latest state media reports suggest that the plan to allow certain zombie enterprises to go bankrupt has met with strongresistance from local authorities for fear of rising unemployment and social instability.

Why China’s rich should do more to help the poor
China Youth Daily reported last week that a conglomerate directly controlled by the central government had to seek direct intervention from the provincial governor in order to allow one of its subsidiaries to go bankrupt in an unnamed province because the local courts refused to hear the case at the request of the local authorities.TVBNOW 含有熱門話題，最新最快電視，軟體，遊戲，電影，動漫及日常生活及興趣交流等資訊。9 T! x6 e3 ?# {6 B
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The history of the past 30-odd years has shown that every major breakthrough in China’s reforms happened at a time when the Chinese economy was in a bind without little room for manoeuvre, which forced officials to overcome vested interest groups to push through painful change.
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China is now at that point again. But China’s13th five-year plan contains many good measures including those to reform SOEs,which could help move the economy higher up the value chain. All it needs is strong leadership to see the measures fully implemented.

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felicity2010

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發表於 2016-4-7 11:54 AM | 只看該作者

本帖最後由 felicity2010 於 2016-4-7 11:59 AM 編輯

Chinese debt growing faster than the economy* d- ~: o  R' ~' a" H/ I0 o
Senior analyst said he is “deeply worried”5.39.217.76% Z; L! ~+ ~  v, E! {+ T
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Across The Border by Xie Yu SCMPTVBNOW 含有熱門話題，最新最快電視，軟體，遊戲，電影，動漫及日常生活及興趣交流等資訊。5 M) o+ t6 e% m

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China’s economy returned to an old growth pattern — credit-driven, investment-intensive — in the last few months.tvb now,tvbnow,bttvb* X0 W4 n& t2 S& a4 g% r7 e

Analysts now ask if the authorities have been clear enough about their reform policies, given the risks to the Chinese economy that grew 6.9 per cent in 2015, the slowest pace in 25 years.5 L8 Q& A, ~# T- {
“I am deeply worried about the Chinese economy in the medium- and long-run and do not see a way out,” Vincent Chan,head of China research at Credit Suisse, said. That’s despite recent stimuli tothe property market, he said.公仔箱論壇5 ^* v% c9 e% s) S2 x: r

He is “most bearish” on China’s outlook forgetting out of debt.5.39.217.76! o1 `' N. g* z8 ^: u- X
“We have to watch this leadership — inventing so many economic reform terms, from “Likonomics” and “supply side reform,” Chansaid. “The effect is limited in addressing the problems of overcapacity and ratcheting up debt.”

Imminent risks for China are manageable,because the economy is now “financially solid”, but weaknesses may build, Chan said.tvb now,tvbnow,bttvb3 R6 g0 V$ G% F7 T# m3 N* f5 F

Chinese authorities have eased credit regulations, lowered down payment requirements and cut taxes. Two-thirds of the70 major Chinese cities said new home-price rose in February. While the floor space of houses newly started is still below the amount sold, indicating developers are becoming more prudent in their market outlook.

Chinese manufacturing expanded for the first time in nine months in March. The official manufacturing purchasing managers’ index rose to 50.2 last month from 49 in February. A figure over 50 shows growth, below that level, contraction.
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The Shanghai Composite Index, the mainland stock benchmark surpassed its crucial 3,000-point level as investor sentiment warmed. It traded at 3,056.77 on Wednesday morning, almost 15 per cent up from a recent low in late February of 2,673.11.+ R+ u5 K0 w7 w) G) D
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Chan said the A-share-market rebound mightlast another one or two months, as global equity markets pick up and the appetite for risk rises. The fundamental change in the macro-economic outlook could prove a stumbling block, he said.5.39.217.761 X4 U1 U) f! \7 P9 ]

Also on the downside, rating agencies Moody’s and Standard & Poors (S&P) revised the Chinese government’s credit rating to “negative” from “stable” last month.2 o6 E6 Y& m& a1 d% h6 T; b
“The government is making significant reforms,” S&P analysts said in a note. Still, a “negative outlook is partly motivated by our opinion that the pace and depth of the state-owned enterprise(SOE) reform may be insufficient to attenuate the risks of credit-fueled growth.”2 i2 A2 @4 l- W5 Z0 c- K

Fitch Ratings kept China’s sovereign rating “stable.
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It did express concern for the county’s growing debt ratio and drew scepticism over its reforms in a note sent on Tuesday.
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“Elements of a policy on addressing over-capacity in certain sectors have been articulated — particularly coal and steel — but they do not add up to a convincing strategy, given the scale of the issue,” Fitch analysts said in the note. “Financial reforms, such as deposit interest-rate liberalisation in November 2015, have been undercut by monetary easing that has kept the system flooded with credit.”tvb now,tvbnow,bttvb9 l* D# y$ Q# [' e
“The authorities’ 2016 policy targets imply that the economy will grow more leveraged, with a 13 per cent aggregate financing growth against an implied nominal GDP growth target in the singledigits. Much of the detail remains to be filled in, even three years into the current top leadership’s term of office,” Fitch analysts said in the note.

Increasing debt has overrun and will outpace China’s economic growth. Unless those in power push large-scale debt restructuring, that trend will continue, Chan said.$ O. Z* J+ l, x" s0 N& E

“Total borrowing will rise to 300 per cent of the GDP before 2020, from the current 250 per cent level,” Chan said.“Historically speaking, economic growth halts when the debt ratio climbs that high.”tvb now,tvbnow,bttvb5 S* R; x( V/ r3 s( n* U
Goldman Sachs economists shared that view.They said in a recent research note that near-term credit risks in China were manageable. Medium-term challenges remain, they said.

“The government for the first time set a total social financing target of 13 per cent for 2016, meaning that credit growth will likely continue at a pace above nominal GDP growth,” the report said. “Our China banks team recently revised their estimate on potential non-performing loans in the banking sector to 8-9 per cent, compared to our previous estimate of 4-6 per cent and 1.7 per cent reported NPLs at the end of 2015.”

Credit Suisse’s Chan said the most straight-forward solution for China was to accept economic growth will slow to2 or 3 per cent compared with the double-digit expansion of previous years and that it must adopt drastic restructuring. Politically that is impossible, he said.
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“Hopefully the new-economy segment, which is thriving in cities like Shenzhen and Beijing, could offset the weakening in the traditional economic sectors,” Chan said. “Sadly this sector remains sounder represented in the A and H share markets.”

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