Pointing the way forward(2)

A combination of proactive fiscal policy and prudent monetary policy has been in place in China since 2010.

"In 2015, the tone won't be changed, but the monetary policy will be fine-tuned toward being looser. There will be at least one interest rate cut and one reduction of RRR," said Li Huiyong, chief analyst with Shenyin and Wanguo Securities Co. Ltd.

A record-low inflation level also raises the probability of more easing measures by the central bank as it offers more room for monetary loosening.

China's consumer price index (CPI), the main gauge of inflation, rose by 1.4 percent year on year in November, the slowest increase since November 2009, said the National Bureau of Statistics (NBS) on December 10. The producer price index (PPI), which measures inflation at wholesale level, dropped 2.7 percent year on year in November, its largest fall in 18 months.

Wang Jun, a senior economist with the China Center for International Economic Exchanges, said China is now facing mounting deflationary pressure.

"This tendency will continue into 2015 and it requires immediate responses from the Central Government in monetary policy. Combating deflation means China's prudent monetary policy should be fine-tuned to 'prudent' and yet lean toward 'loose'," Wang suggested.

"Cutting rates and lowering RRR should be alternately used next year to lift market sentiment," Wang suggested.

A recent report from Goldman Sachs also said although the basic tone for 2015 is still proactive fiscal policy and prudent monetary policy, the government stance won't be confined by those expressions, as evidenced by the recent interest rate cut in November.

Quicker pace of reform

One of the most fruitful developments of last year's Central Economic Work Conference was the decision to establish a central leading team for "comprehensively deepening reform" to spearhead reforms across all areas of society.

The team convened seven times in 2014, resulting in concrete progress in the areas of fiscal policy, the hukou (household registration) system, rural land transfers, the Shanghai free trade zone, anti-corruption efforts and judicial reform.

According to a statement released after this year's conference, China will accelerate reform in nine areas next year including the capital market and market access for private banks.

Reform will ideally speed up through administrative approval, investment, pricing, monopolies, franchising, government-purchased services and outbound investment. This takes into consideration both next year's needs and long-term interests.

More efforts will be made to transform the reform into growth. The evaluation system for reform and general public access to the reform work will also be improved.

"The fact that China has entered an economic new normal indicates the country should boldly roll out reforms in key areas so as to release the dividend of reforms and to unleash market vitality to shore up growth," said Liu Yuanchun, Vice Dean of the School of Economics at the Beijing-based Renmin University of China.

On November 30, China started soliciting public opinion on a draft regulation regarding the establishment of a deposit insurance program, which will be in full operation in six months or a year. The deposit insurance program is one important component of a safety net that protects financial stability. China has extensively discussed the setting up of such a program for years.