On the morning of March 5, the premier Li Keqiang delivered the government work report which showcases the resolute mind of the Chinese government that puts into practice reform and opening-up policy in an all-round way. It can be reputed as an annual transcript of the government subject to social deliberation, as well as a holistic deployment of work for the new year to come. This year coincides with the 70th anniversary of the founding of new China, also marks the critical moment for the first centenary target of seizing a decisive victory in pursuing moderately prosperous society in all respects. Amid this background, it is of great significance to take an in-depth view of the work report. In this connection, experts and scholars at the Chongyang Institute for Financial Studies at Renmin university of China (RDCY), make a deep-seated analysis of key points mentioned by the report from the viewpoint of finance generally.
Liu Ying, who is a research fellow of the institute, holds a view that serious problems and severe difficulties feature prominently in the work report. According to its content, the effective solution lies in a proactive fiscal policy characterized by more vigorous efforts and effectiveness, as well as reduction of taxes and fees related to companies.
This report makes its purpose clear that the reduced taxes and fees will hit 2 trillion yuan in this year by means of expanding revenues and lowering taxes, simultaneously implementing inclusiveness and structural tax reduction, and highlighting pivotal points of relieving financial burdens of the manufacturing sector and small and micro-sized enterprises. It also guarantees that all sectors will witness ever-dropping taxes and companies can enjoy a decrease in social insurances. Furthermore, a balance should be achieved between relief on company’s payment fees and maintenance of employees’ insurance treatment. That requires a reasonable growth of pension and a timely and enough grant, with a view to pursuing sustainable social insurance fund and benefiting both firms and its workers.
According to the analysis of Dong Ximiao, the vice president of the institute, the government work report asks for reform and optimization of the financial system and encourages the development of non-government and community-based banks, which hinge on and serve the real economy. It is the first time for the report to mention the progress of two kinds of medium and small-sized banks. He thinks that these two kinds of banks contribute 95 percent of the share among 4588 banking and financial institutions. They differ from large-scale and joint-equity commercial banks in service model and customer positioning, which offsets shortcomings of bank system at present, improves the availability of financial service and plays an active role in making financing more effective and accessible to private enterprises.
Despite those positive aspects, China still lacks supportive efforts for the development of non-government and community-based banks and fails to remove all restrictions, making them less competitive in the market. Related organs need to further implement differentiated supervision and management, encourage medium and small-sized banks to leverage their merits of few administrative levels, flexible mechanism, market and customers-oriented pattern, support them to add capital through multiply channels, and lead them to carry out innovation targeting high-quality products and apply for qualifications of some services. Consequently, these banks can stay on a moderate development track and the private economy, especially small and micro-sized companies, areas concerning three rural issues can be accessible to more targeted and inclusive financial services.
Yang fanxin, who represents the associate research fellow, considers it that the report emphasizes on problems of financing and rolls out several specific measures including improvements in monetary credit mechanism, due utilization of means such as deposit reserve ratio, interest, number and price to guide financial institutions to expand credit and loan supply, lower loan cost and support real economy in a precise and effective manner. It also requires the government to strengthen efforts to make targeted reduction, provide all released fund for loans of private companies as well as small and micro-sized ones, allow big commercial banks to add capital through various channels to enhance capability of credit and loan supply, and encourage growing credit loans for the manufacturing sector in a medium and long-term.
The research fellow, Bian Yongzu, thinks that the work report underlines moderation in prudent monetary policy to meet the requirement that economy should operate within a proper range. In the process of performance, not only should the supply of currency be well under control, but also the economy-wide impact must be avoided. Therefore, the government needs to resort to several currency policies and tools in a flexible way, smooth the channel of currency policy transmission, keep liquidity reasonable and abundant to effectively ease the problem of financing for the real economy especially small and micro-sized companies, prevent and resolve financial risks. He also upholds the idea that the effective transmission mechanism hinges on fast and sound economic transformation and upgrading, as well as the strong underpinning of the real economy.
The research assistant, Zhan Teng, believes that this report unveils China’s determination in fighting against systematic financial risks, emphasizes the importance of intensified bottom-line mentality, insists on structural deleveraging, guards against abnormal fluctuations of the financial market, and calls for a reliable manner in dealing with debt risks of sub-national governments to manage transmission risks.
The associate director of the green finance department, Cao Mingdi, analyses and points to the fact that the report showcases fruitful outcomes delivered in ecological conservation in 2018 including intensified efforts of pollution governance, the ever-dropping intensity of PM2.5, the increasingly optimized economic structure of China, continuously elevating quality and benefit, and a decrease of 3.1 percent in energy consumption per unit of GDP. Such achievements testify to the fact that Chinese economy has embarked on a way of high-quality progress in the course of green transformation.
The research assistant, Chen Zhiheng, says that the report underlines the optimization of financing structure and stresses on risks control. It requires continued efforts to facilitate building of multi-level capital market and increase the proportion of direct financing, particularly equity financing. To effectively play the role of sub-national bonds, the report plans to issue special local government bonds of 2.15 trillion yuan, 800 billion yuan up than the previous year. From that we can see, the construction of capital market will gain strong momentum and the model of direct financing will serve as a significant tool.
This article is originally published on RDCY wechat account, translated by Kuang Chuang, a trainee at the Chongyang Institute for Financial Studies at Renmin University of China.