Source: Internet

Sign One: China’s Economy will Sustain Steady Growth in a Reasonable Section

In terms of how to describe the economic situation, there are many capital letters, for example, the L-model, U-model, V-model, and W-model.

According to Cai Zhizhou, researcher of the Research Centre for the National Economic Accounting of Peking University, the U-model refers to the strong rebound after a period of bottoming out due to the sharp fall in economic growth, the V-model refers to a rapid and strong rebound after a sharp fall, the W-model refers to the situation that occurs repeating V-models, while the L-model refers to the stable and smooth running after a sharp fall in the economic growth.

 “The L-model shows a general steady situation of China’s future economy, that is to say, the economy would neither significantly rebound nor apparently slowdown,” analyzed Wang Jun, deputy Minister of China Center for International Economic Exchanges. At present, China’s economy is mainly facing the structural problems rather than periodic problems. The domestic and abroad environment of China’s economy is changing; therefore, in a long run, it is necessary and normal to conduct speed adjustment. For one thing, China’s economy is facing various difficulty and deep-seated problems; for another, it enjoys great potential with strong tenacity.

In the Q1 of 2016, China’s economy has operated steadily with the year-on-year growth of 6.7%. the expected goal of China’s economic growth in 2016 was 6.5% to 7%, while the economic growth target of the 13^th Five Year Plan was more than 6.5% per year.

“The judgment of the L-model accorded with the situation of enterprises’ operation,” said Zhang Lianqi, 0managing partner of Ruihua Accounting Firm who has recently conducted researches on numerous enterprises. At present, with the recoveries on domestic infrastructure investment and international staple commodities prices, the production and operation of some enterprises has improved, while the pressures from the increased cost and reduced price has not changed yet.

The L-model does not mean that the future economic growth will all the way in a line. In general, China’s future economy will step into a reasonable phase of steady growth, although some short-term economic fluctuation is inevitable.

Sign Two: Stable Macro Policies

In order to keep smooth operation on economy, the macro policies should avoid big swings or fluctuations.

“We should not let down guard or be panic because of the temporary changes on economic statistics,” said Zhang Liquan, researcher of the Development Research Center of the State Council.

According to the executive report of central bank monetary policy that released a few days ago, the next step is to continually implement prudent monetary policy and improve pertinence and efficiency, at the same time, it is also necessary to conduct aggregate demand management that adjusted with structural reform of supply front.

“We need moderate demand management to stop economic slowdown, but the new stimulus is unnecessary, or it will cause structure adjustment time and again. We have to release clear sign about the stable and sustainable macro policies to avoid misinterpretation,” said Zeng Gang, chairman of Bank Research Department of Chinese Academy of Social Science.

The risks in China’s economy accumulated for a long time begin to break out, therefore the implement of the macroeconomic policy should be extremely prudent. According to Cai Zhizhou, at present, many enterprises and some local government have born with heavy burden, and thus the stability should be the first principle of the macro policies. What’s more, it is also necessary to avoid systematic risks and dissolve deep-seated problems by the means of reform.

Sign Three: Focus on Advancing the Reform of Supply Front

The anticipation of the L-model actually warned us that the future of China’s economy is to unswervingly promote structural reform of supply front.

Recently, with the recovery of steel price, came with the resurgence of some outdated steel capacity. The steel industry is facing the ordeal of de-capacity.

“Although the steel price has increased at present, the prices of the raw material and fuel have risen even faster than that of the steel, therefore the situation of the steel industry has still been in the difficulty. The anticipation of the L-model actually warned the steel industry to unswervingly reduce production capacity and production cost thus to adapt to new normal and improve efficiency,” said Gan Guiping, general manager of Liuzhou Steel Group of Guangxi Province.

As the biggest integrated iron and steel enterprise in southeast China, Liuzhou Steel persisted in adjusting structure and reducing production cost. The group, which is the one of few enterprises that has profited, has earned more than RMB80 million in the Q1 of 2016.

According to Zhang Liqun, the L-model has actually created pressure on the reform of supply front. For one thing, structure adjustment is painful, therefore if the enterprise is still in high growth, there would no impetus for structure adjustment; for another, if the enterprise has been knocked down by the difficulties, the goal of structure adjustment would also hard to achieve.

In terms of the L-model tendency, on one side it keeps the necessary economic growth that gives the enterprise with financial support on structure adjustment, on the other side it exerts some pressure on the enterprise and forces it to improve its operating ability.

Each of the task, including de-capacity, de-inventory, de-leverage, cost reduction, and bolstering weak spots, is extremely difficult. To fulfill those tasks, we should make full use of the decisive role of market resource allocation and implement the sensible competitive system to achieve the survival of the fittest. At the same time, the governments at all levels should give full play to take the guideline and support those promising enterprises that have been in difficulty.

*This article is an edited and translated version by CCM. The original article comes from Jiemian.com.

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