China is currently facing a complex situation. As the U.S.'s trade friction with China evolves into a full-scale economic and political suppression, the external pressure facing China has significantly been amplified. China's ongoing economic restructuring is also stifled by worsening internal and external economic conditions. What should China do? While the official stance is well-reasoned and remains leaning towards pro-growth, there is little consensus on how to develop an effective executable strategy.
With regards to internal challenges, I will freely express some viewpoint. While coming off as diverging issues, these issues can be solved systematically.
1. The bond market should be continuously developed. Aside from solving the nation's domestic debt level, the bond market is also the foundation of the nation's economy. Policies that solely clear and rectify with little regard to further development from the foundations are faulty. It is of importance that there should be the hands-on development of the bond market. We should not wait for the situation to be rosy for this development to take place.
2. Liquidity should be released for investments to take place. In fact, ample liquidity should be released. It is pointless to debate on this method. While the theoretical explanation of the negative effect of releasing liquidity is well understood, the economy needs to be revived. At least once the economy is revived, there is hope to resolve the problem. There is no hope in a pool of stagnant water. Hence, this is an issue of policy determination, not economics. Additionally, if the phrase huge release of liquidity is not appealing, the phrase "massive stimulus policy" could be used.
3. What could urbanization lead to? The key importance is the maintenance of business and street prosperity. E-commerce should be let go when necessary. Secondly, construction and measures to address shortages of hospitals as well as projects for the welfare protection of elderly should be stepped up. Once again, to drive cities towards consumption, money should be allocated to the urban forest.
4. Poverty alleviation is a long-term initiative that takes place in phases. It must be understood that poverty alleviation is a policy matter and developmental process. We are currently in the first phase, in which the priority is cash handouts. The next phase would be to integrate urban and rural development. Should a city fails to revive, it will eventually fall into grave difficulties.
5. Dilemma on how to reform. Is there a need for reformation? Should we push forward with the reformation? This debate has little meaning to China at this point of time. The crucial important is development. What should be the direction for development? It is of importance that development should be well-distributed. Any focused development on specific aspects or field will not be effective and a balanced approach towards development should be adopted.
6. On international trade, there should be a long-term strategy. China is currently facing trade pressure from the United States. Such a situation is uncommon and dealing with this pressure would require firm resistance. Even so, China would still need a long-term strategy on international trade. It would be recommended for the State Council to set up an office for foreign economic and trade relations. Alternatively, the State Council or the Office of the Financial and Economic Committee should manage China's long-term strategy concerns. We should develop a rule-based order in dealing with international trade disputes.
7. It is crucial for the good work to be delivered on the "One Belt One Road" initiative and it should receive due recognition. There is significant international pressure on the "One Belt, One Road" initiative. United States' "debt trap" has been recognized by many nations, leading to China losing out on many good opportunities while many of China's good projects have been tainted. However, there is still a chance to make crucial adjustments. The "One Belt, One Road" initiative should not solely depend on state-owned enterprises' infrastructure construction nor should we solely rely on excessive production. I once mentioned that excessive production is, in fact, a form of "war on production limit". It would not merely affect global market relations but also the competitive relations between respective nations within the global market. No matter how we see it, excessive production is not the right path.
8. Moving on, how should we address international affairs? The trade tension, investments restrictions and economic pressure from the United States have brought upon tremendous pressure on China. It could ignite rising uncertainties of certain parties towards international affairs and globalization, leading to rising protectionism. However, based on historical precedence and looking at it in the long-term, China would need to be involved in international affairs in order to create opportunities for the future. At the very least, China's basis of its dealing with international affairs should be premised on the fact that it is still a developing and expanding market.
9. Changes are taking place in the global cultural scene, yet China's cultural industry still has a long way to go and this is not as simple as the movies. There are many related industries and the path to transforming the cultural industry would be first to discuss about intellectual property rights.
10. With regards to many developmental issues, China must shift from policies and documentations to collective financing. It requires market-oriented financing, utilizing both "government and social monies" to attend to matters that would lead to more effective results. With this thought process in place, it would not only leave matters unattended but also bring upon global recognition.
11. Recently, there have been many disputes within China on its private economy. Realistically, let's leave aside the question on whether we should or should not encourage the private economy. At the very least, encouraging the "cooperative economy" (also known as emerging industry cooperative) is something that can be done (refer to Anbound Consulting's research brief). That would provide the private economy with a direction towards an association that would provide support and protection and eventually stimulates and pushes forward the development of the private economy.
12. The social concern on cost and tax reduction issues would definitely be addressed if possible. However, given the current economic and financial situation, there is limited space to do so. Of utmost importance at this point of time is the reduction of total social cost. Aside from the taxation, this includes real estate, institutional barriers, and governmental administration among others. Only with the stability of these areas we can stabilize the rate of increase in labor costs and align it with the rate of increase in consumption.
Final analysis conclusion:
China's economy is facing a myriad of internal and external challenges, leading to a complex situation of entangled contradictions. Under such a situation, we should not be anxious, panic and more importantly we should not be impulsive. We should stabilize our footing, face each of these issues, diffuse the systematic issues, solve each systematic issue individually and gradually make big steps forward. China is already the world's second largest economy with a large domestic market. Its strength in the global scene is far bigger than it was in 1949. So long as the economy and domestic affairs are stabilized, this large ship of China is in a good footing.
