By Charles Hutzler at the Wall Street Journal
BEIJING—China’s government is promising its people that a major overhaul of the world’s second-largest economy will spur new growth while minimizing hardship on retirees and workers caught in the transition.
Throughout the legislature’s 12-day session, in policy papers and at numerous news conferences, leaders and senior officials laid out plans to nurture new sectors driven by innovation and the Internet, and to use technology to remodel the manufacturing industries that once fueled growth but that are now flagging.
“When we combine new growth drivers with upgraded traditional growth drivers, we can turn them into a hybrid driving force,” Premier Li Keqiang said after the annual National People’s Congress closed Wednesday.
In its public messaging, the government is playing down what economists say are the difficulties that have traditionally accompanied shifts from industries to services. Among the usual transition pains are bankruptcies, unemployment and debt write-offs as old businesses fall and capital is freed up to create new ones.
Asked if the downward pull of restructuring would affect the government’s growth target of 6.5% to 7%, Mr. Li said “it would be impossible for me” to say China would fall short.
Mr. Li reiterated that downsizing of the steel, coal and other industries beset by overcapacity would be accomplished without large-scale layoffs. Those displaced, he said, would be given new jobs or government assistance; a government fund of 100 billion yuan ($15.4 billion) could be augmented if needed.
The comparatively upbeat message underscores Beijing’s maneuvering to meet the expectations of a population grown used to rising living standards. The last time the government embarked on a full-throttle revamping of state-owned companies in the late 1990s, tens of millions lost their jobs and worker protests swelled.
Today’s leaders are more concerned with stability and their plans are less drastic.
China’s economy is also 10 times larger, the social safety net is wider and the government’s resources deeper—something Premier Li pledged to use to lessen the impact on ordinary Chinese.
“Our people expect more from government,” he said.
An affable technocrat trained in law who ran two major provinces before becoming premier three years ago, Mr. Li is less powerful than his predecessors, eclipsed by President Xi Jinping, who has concentrated decision-making in his own hands.
The premier fielded loosely screened questions from reporters for two hours in what is his only news conference of the year. Many from the Chinese media dealt with bread-and-butter issues of a more mature economy: pension obligations, health care and crop subsidies.
Mr. Li guaranteed that Beijing would make enough money available to local governments to meet all pension payments. He promised that the national health-insurance plan, which links coverage to a person’s registered residence, would be revised so that the elderly could seek care nationwide.
For farmers, however, Mr. Li delivered a modicum of bad news, saying the government price supports for rice, corn and wheat were higher than world market prices. A better solution, he said, would be for more farmers to leave rural areas and move to cities.
Still, prominent problems of debt and overcapacity were identified years ago and have since gotten worse.
A survey of 2,038 businesses released Wednesday by Gan Jie, a professor of finance with the Cheung Kong Graduate School of Business in Beijing, found that business conditions worsened throughout 2015; a large majority of firms cited lack of demand and excess capacity as their biggest challenges in the last three months of the year.
Moody’s Investors Service this month downgraded its outlook for China’s sovereign debt, along with that of 25 financial institutions and 38 state-owned companies.
Regarding rising corporate debt, Premier Li said that banks have sufficient capital, with bad loans covered by reserves. He said progress is being made in cutting businesses’ debt loads by having banks swap bad loans for equity stakes—a policy that banks fear could saddle them with dubious assets.
To help ease the transition, Mr. Li suggested reducing payroll taxes paid by both employers and employees to fund pension, health insurance and other benefit programs. “The purpose of our efforts is to lessen corporate burdens and to put more money in the pockets of our people,” said Mr. Li.
Absent from his remarks and those of senior officials throughout the congress was any suggestion of public sacrifice. When asking for support, Mr. Li appealed to people’s ingenuity and diligence.
“Through reform we can arouse the greater vitality of the market and the creativity of the people and expand space for everyone’s industriousness and wisdom,” Mr. Li said. “Then we can withstand the downward pressure on the economy.”
Source: Chinese Premier Paints Rosy Picture of Economy – the Wall Street Journal
