Economist: Goal of growth achieveable

2024-06-17 Editor : Li Yan ECNS App Download

Economy: Increasing government spending needed to drive demand

The annual growth target of around 5 percent is a feasible goal, as China has the potential to take on more debt to boost economic growth while not inflicting inflation, a senior economist told China Daily in an exclusive interview.

Yao Yang, director of the China Center for Economic Research at Peking University, said his calculations show that China's potential economic growth rate is currently about 5 percent to 5.5 percent.

Potential economic growth refers to the maximum rate at which the economy can expand without causing inflationary pressures, assuming full employment of resources.

With the actual growth rate not currently exceeding the potential growth rate, China therefore can boost the growth rate through taking on more debt, without worrying about inflation, Yao said.

His comments came as China is to release key economic data.

Data from the National Bureau of Statistics showed on Wednesday that the country's consumer price index, a main gauge of inflation, rose 0.3 percent year-on-year in May, a rise on par with that in April.

The producer price index, which gauges factory-gate prices, dropped 1.4 percent year-on-year in May, narrowing from a 2.5 percent decline in April.

"The Chinese government probably needs to take a bigger step to boost demand," he said, adding that the current bottlenecks to economic growth are mainly on the demand side, not the supply side.

In order to boost demand, consumption, which depends on people's expectations for future income, is just one aspect. The country needs to drive demand through increasing government spending, said Yao, who is also executive dean of the Institute of South-South Cooperation and Development at Peking University.

The Chinese government has done a lot to boost government spending, particularly government investment, and more work can be done, he said.

China has announced plans to issue ultralong-term special treasury bonds for several consecutive years starting this year.

The issuance of 1 trillion yuan ($138 billion) in ultralong-term special sovereign bonds for this year began last month and will run until mid-November.

In addition, the issuance of 1 trillion yuan of special treasury bonds was completed during the fourth quarter of last year.

Apart from such special sovereign bonds, Yao suggested that the country explore ways for local governments to raise debt in a regulated way, therefore expanding government investment and boosting demand.

He said it is good that the country has stepped up efforts to curb the implicit commercial debt of local governments, which is borrowed through local government financing platforms on financial markets and has problems such as lack of transparency and effective supervision and monitoring.

He also highlighted the need to foster new quality productive forces, saying the country is placing significant importance on innovation, new technologies and emerging sectors that are key for China's high-quality growth.

Citing the successful experience of developed countries such as the United States, he said that more efforts should be made to build the rule of law to protect innovation and intellectual property rights, develop a vibrant financial market and open up further to the outside world.

When it comes to the country's recently announced easing policy package for housing, Yao said that China is heading in the right direction with regard to ending property woes.

He said that the 300 billion yuan relending quota may still fall short of the amount needed to lower the scale of housing inventories to a desirable level, but it is sending a key signal to stabilize the crisis-hit property sector.

The senior economist also said it is advisable to issue 2 trillion yuan in local government special-purpose bonds to buy housing inventories.

On May 17, while easing mortgage rules, the People's Bank of China, the country's central bank, announced that it would establish a 300 billion yuan relending facility to provide funding for State-owned enterprises to buy completed commercial properties for repurposed affordable housing.

The PBOC held a meeting on Wednesday calling for efforts to ensure effective implementation of the affordable housing relending facility and accelerate the destocking of housing inventories.

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