By Liu Ge Source: China.org.cn Published: 2016-5-6
Even if some internet enterprises are quite alluring, their popularity is different from the technology breakthroughs and innovations that China badly needs. Although the Chinese enterprises have increased their input in research and development, the slow growth of innovation-based yields cannot make up the fast losses caused by the wave of enterprise bankruptcies.
The economic system reform remains arduous. The government has done something to raise its efficiency, and cut enterprise tax. But a number of tough issues, particularly in the field of interest distribution, have not yet been touched.
The overdue tax reform is still a patchwork of the old framework, instead of a thorough restructuring of the tax system. Taxation has actually failed to adjust national wealth distribution, or bridge the income gap in society.
In the capital market, registration system reform has gradually disappeared from official discourse. The stock market has been kept as a special market with a high threshold and a thick atmosphere of rent seeking. It remains difficult for enterprises to obtain funding, and is an ideal site for speculators. Household registration reform still lacks sincerity, as migrant workers are still distinguished from the urban residents by a scoring system or residential permit.
Whenever the government decides to solve these tough issues, the economy always faces serious difficulties. Since local governments` old economic growth model failed, which had been going for more than 20 years, they have not yet established a new sustainable model. How to define the borders of government power in stimulating the economy is a key issue of reform as well.
Last but not least, the Chinese economy`s external environment remains complicated. Before China`s economy enters a relaxed "new normal," it is unrealistic to rely on the recovery of the world economy to boost the Chinese economy. As the internationalization of the renminbi deepens, China will face greater risks from international financial fluctuations. China`s financial, administrative and supervisory departments are not yet strong enough to respond to the external challenges. Their failure directly causes systematic risks. The Chinese enterprises and investment`s "going-out policies" will result in deeper international influences on the Chinese economy, but not the other way around.
Real confidence comes from the most comprehensive preparation for difficulties, not a number of indicators` temporary changes.
Liu Ge is a senior fellow with the Chongyang Institute for Financial Studies at Renmin University of China in Beijing.