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Five most pressing questions on the Chinese economy — Exclusive Interview with an ‘Authoritative Insider’ (3)

(People's Daily Online)    14:02, May 27, 2015
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The old approach of large-scale strong stimulus may create new problems

The fourth question was about risk prevention and controls on the economy. According to the insider, current economic risks are largely under control, but we should maintain a high level of vigilance over risks related to high leverage and asset bubbles.

The insider offered the view that China’s highly leveraged companies are mainly in overcapacity industries, real estate and some state-owned enterprises. A high degree of attention should be paid to the debt growth in these industries and in local governments. If the economy in some regions faces continued decline, it may have a greater impact on employment.

The insider asserted that the central government has already made overall arrangements to resolve the overcapacity problem and the property market is facing a painful destocking. To effectively digest inventory in the real estate market is a real problem, which is related to demand stimulation and risk diffusion. We should seize the favorable opportunity provided by the property market adjustment, adapt to the new urbanization trend, and establish a long-term mechanism for the healthy development of the real estate market. From the microeconomic perspective, the timely release of local risks and breaking bail out expectation are conducive to reducing long-term and overall risk.

The fifth question was about the focus of macroeconomic policy. The insider observed that macroeconomic policy this year mainly focuses on two points: first, how strong the policy should be, and second, what kind of effective measures to take. Macroeconomic policy should have a certain force to achieve steady growth and ensure the economy grows within a reasonable range.

However, the old approach of large-scale strong stimulation and investment may lead to new problems and cause more difficulties for structural adjustment. “This is not to say that we don’t want GDP (gross domestic product) - what we need is effective GDP backed by quality.” The inherent requirement of strategic thinking is that “development is of overriding importance”. 

This article is edited and translated from 《五问中国经济(权威访谈)》,source: People's Daily


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(For the latest China news, Please follow People's Daily on Twitter and Facebook)(Editor:Yao Xinyu,Huang Jin)

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