Gripped by the cold snap, China bode farewell to 2018 and welcomed 2019. The past year was an eventful year and the Chinese economy has experienced cold snap as well. Although the macroeconomic statistics appear to be well, and China can reach 6.5% economic growth, with the GDP scale possibly exceeding RMB 90 trillion yuan, the actual micro-economy is rather different; the confidence of enterprises and markets is far from "well".
How will the economic situation in China be in 2019? How will the development environment both in China and globally change? What adjustments will be made to the Chinese policy? The local government, enterprises and market people contacted by Anbound have all expressed that 2019 will be a year of anxiety, yet it will also be a year of expectations; the anxiety comes from the difficult market situation in 2018, and the expectations come from the surviving hope. Everyone still holds the mentality of "changing destiny" and "seeking breakthrough", hoping to achieve some success in the economy.
How can China make a breakthrough in 2019? Concerning China's actual situation, most of the resources for economic development, namely its financial, policy, and land resources are controlled by the government and state-owned enterprises. Therefore, if China wants to make a breakthrough, it will still have to be promoted by the government. Specifically, this can be summarized into three points: relaxing the control, adjusting the speed, and liberating the market.
"Relaxation of control" means that the government relaxes the control of policies and various resources, and gives more market development space for various market entities. In the 40 years of China's reform and opening up, it is reasonable to say that the development of the market economy is proven by the development achievements of the Chinese economy, and it should be deeply rooted in the hearts of the people; from the central to the local governments, no one has refused to engage in reform and opening up. However, from the perspective of development in recent years, the government still maintains strong control over the market. For example, in industrial policies, where the government determines the areas to invest, often get more resources; in areas other than government investment hotspots, it is much more difficult to allocate resources. Another example is the financial market, when the government relaxes financial regulation, the market would be very active; once it grows excessively, the government would tighten up and immediately form a one-size-fits-all approach in the market.
From the perspective of think tanks, in the socialist market economy of China, the government maintains control over the economy. This is a reality to be acknowledged. However, if the government has too much control, everything will have to wait for the government's permission. It should be pointed out that unlike the direct control of production factors at the beginning of reform and opening up, the factor market has now been greatly liberalized, but the government still maintains a fairly extensive macro, meso and even micro-control in the institutional market. This is manifested in many aspects, from macroeconomic regulation to fiscal and monetary policy, from development planning to resource allocation, from industrial policy to project approval, from urban demolition to billboard specifications. We believe that a market excessively controlled by the market is actually a deformed market that is dysfunctional; in such a market, the government's controlling power would be too strong and the market's too weak.
Adjusting the speed refers to the speed of economic operation under the influence of government regulation and the market, which can be reflected in economic and industrial growth. Anbound's scholars might be the most persistent advocates of steady economic growth in China, and we have been emphasizing that the Chinese economy should remain stable for more than a decade. During the period of rapid economic growth, Anbound's appeal was one of the minority voices in China. Anbound's chief researcher Chan Kung has repeatedly pointed out that the core of all key issues in China is speed; controlling the speed itself is a reform. Chan Kung also said that the reason for emphasizing stability is that after more than 10 years of rapid economic growth, China has become very different from the past years of enthusiasm, and the social interest sector has taken shape; such interest pattern is also part of the past development and it is an integral part of China's total GDP. We support reform, but we do not support radical reform. If radical reforms and development are made, it would be a reorganization of the past assets. Even if China's economic growth rate has dropped to 6.5%, emphasis on steadiness is still important. This means that growth speed should not be too high, nor can it be too low. Steadiness also means that in the face of complex economic relations, the government departments must learn to regulate the growth speed.
"Liberating the market" is the result of market-oriented reforms and the government's relaxed control. The basic attribute of a socialist market economy is the market economy, which should mainly rely on the market to function. The Third Plenary Session of the 18th Communist Party of China Central Committee has made it very clear that the market should play a decisive role in resource allocation. The Central Economic Work Conference at the end of 2018 re-emphasized that it is necessary to effectively transform government functions, substantially reduce the government's direct allocation of resources, and strengthen post-event supervision. "Wherever the market can adjust itself, the market will adjust, and let the enterprises do what they can do". For many government departments currently suffering from development problems, it should be profoundly recognized that if there is no strong market support, they will often encounter the current difficulties in structural transformation. The past way of relying on government control and government-driven means to engage in economic development without strong market support will be difficult to sustain.
Final analysis conclusion:
There is no panacea for China's economic development in 2019. China must recognize the reality, push forward the reform, and persist in relaxation of control, adjusting the speed, and liberating the market so that it can pass through the difficulties in the transformation of current structural adjustment.
