No. 26 | Kicking Off the 13th Five-Year Plan
The 26th quarterly forum of the Center for China in the World Economy (CCWE) was held in the International Auditorium of Weilun Builing in Tsinghua University on January 9th, 2016 with the theme of “Kicking Off the 13th Five-Year Plan”. CCWE Director David Daokui Li hosted the forum with Professor Gao Peiyong, President of National Academic Researches of Economic Strategy, CASS; Professor Li Qiang, Dean of the School of Social Sciences, Tsinghua University; Chai Qiang, Deputy Secretary General of China Institute of Real Estate Appraisers and Agents; Li Ling, Professor of the National School of Development, Director of Health Development Research Center, Peking University; Francis Lui, Director of the Department of Economics, Hong Kong University of Science and Technology; Liang Jianzhang, Demographer, Co-founder, board chairman and CEO of Ctrip.com all present.
Professor David Daokui Li released CCWE’s report on macroeconomic analysis and forecast for the first quarter of 2016, which is entitled “Take changes for a flying start amid tough situation” and elaborates on the overall situation of China’s economy at the beginning of the 13th Five-Year Plan Period together with possible countermoves and future prospects. In the face of a complex situation both at home and abroad, according to the report, the Chinese economy is facing three major risks, i.e., continuous shrink of real economy; ongoing financial risks and financial volatility on emerging markets. However, on the brighter side, improved macroeconomic structure; significant progress in financial reform; great role in global governance as well as potential new growth engines such as urbanization, big power economy and more effective labor supply are all seen as positive factors. The report points out that measures can be taken in the following six aspects to tackle the pressure from the economic downturn: to reduce overcapacity in industrial departments; to reduce real-estate property by adopting the “build, operate and rent” approach; to tightened the control of capital liquidity in order to keep RMB value steady against a basket of currencies; to establish a Commodity-price Fund for BRICS nations; to solve local financial problems so that investors’ confidence would be restored; and to make full use of the potential demand for consumption as a result of the two-child policy. According to the report, China’s economy grows at the rate of 6.9% through 2015 and 6.8% in 2016. Professor David Daokui Li said in one of his columns named “Secured Financial Market Key to Current Economic Restructuring” that the current restructuring process enjoys many favorable factors as compared to that of 1999’s and difficulties mainly exist in financial areas. Li believes that it is important to keep RMB value steady against a basket of currencies so that market expectation will be stabilized. With that in mind, we need impose strict control on capital accounts that are not fully opened yet.
During the discussion section, Professor Gao Peiyong said the distribution of government funds lays the foundation for policy implementations and all five principal development concepts, “innovation, coordination, green color, opening and sharing”, are seen in all financial policies of the government. He said that property tax will be introduced in China sooner or later and major efforts will be seen for introducing it shall be seen during the 13th Five-Year Plan Period. Generally the introduction of direct taxes, such as realty tax and inheritance tax, among others, and the reduction of indirect taxes, e.g., turnover tax, etc., are mutually supportive and inseparable. The introduction of comprehensive personal income taxation will definitely come to reality during the 13th Five-Year Plan Period despite the need for further discussion, said Professor Gao. He then emphasized that China’s overall financial status remains healthy as compared to other countries and much flexibility remained in government’s finance.
Professor Li Qiang provided an elaboration on the social impact of the stock market from the perspective of sociology. He pointed out that the composition of investors is extraordinarily complicated with people from all social classes participating and that the volatility of the market produces widespread influence hence related to people’s livelihood. According to Professor Li, general public’s will to get rich plays as a major driving force for China’s economic development and therefore should be taken good care of. He noted that the relief of poverty, a complex project as it is, cannot rely solely on government subsidies and that professional training must be provided for those who are capable of working. He also pointed out that internet has improved the efficiency of information transmission in big nations and it is merits and morality that dominate social discourses rather than hierarchy. Currently, governments respond to internet in an extremely swift manner and this is of great importance to China’s social development, said Professor Li.
Professor Li Ling pointed out that “Healthy China”, a concept put forward by the 13th Five-Year Plan, denotes a great national strategy. At present, national health issue has gone beyond the scope of doctors and medicines and involves all relevant aspects, ranging from ecology to environment. The development of China consists of the healthy development of both economy and society in which great attention should be attached to the integration of cultural heritage with new technologies. She said that making overall plans and taking all factors into consideration are vital for China’s healthcare reform. Current budget of the Ministry of Health accounts for no more than one tenth of the state’s annual input in healthcare section and this separated budget allocation is not working. As a result, the overall reform process of medication, healthcare and insurance remained slow thanks to this institutional problem. She suggests that a National Healthcare Committed should be established to directly lead all relevant departments so that responsibilities will be clarified.
Mr. Liang Jianzhang presented an interpretation of the two-child policy from a demographic perspective. He believes that it is still a good time to lift the birth control a bit for generations after 1980s or even 1970s do need a second child in their families. He noted whether two-child policy will meet its expectation is subject to people’s affordability due to the pressure in raising and educating a kid. Based on his own research, he had found that northern European countries have the highest level of birth allowance, accounting for approximately 4% of their GDP. He pointed out that birth rate also has cultural underpinnings and social attitude towards premarital pregnancy or surrogate births plays a vital part in demographic issues. He said that policy-“discriminations“ should be avoided when providing birth-related welfares in China.
Later, Professor Francis Lui added more to the two-child policy from his point of view. He said that the education and housing spending has greatly lowered desire for young people to raise a child. According to Francis, the average cost for raising a child in Hong Kong is as hight as some HKD 4,000,000. As far as exchange rate is concerned, Professor Lui said that it is especially important to keep RMB value steady in the context of an underdeveloped Chinese financial system. Hong Kong’s introduction of linked exchange rate system this year might provide mainland with some good experiences. In terms of the “Circuit Break” mechanism，given that China’s stock market is still relatively small in its size, policy makers need to rethink before finally introducing it. Once activated, “circuit Break” mechanism will prevent investors from operating which leads to further reduction in confidence.
Mr. Chai Qiang then offered an in-depth analysis of China’s real-estate issues, saying that development-orientation, investment-orientation and security orientation are the 3 stages for development of real-estates markets. Purchase of new houses is still driving China’s housing business but it is hard for this development mode to continue in the long run. In this regard, the decline of real-estate investment could be seen as a positive thing. Real-estate markets in Beijing, Shanghai and Shenzhen were quite good in 2015 and first-tier cities will take leading roles in 2016. In comparison, second-tier cities will recover with their counterparts in third and fourth-tier cities gradually move back on right track by the end of this year. Chai believes that the development of China’s real-estate market at county-level will be diversified and people are unlikely to rush for new houses again like that they did in the space of 2009-2013. He also said that the development of real-estate market could be driven by market force rather than administrative orders. It is all positive and necessary to encourage migrant workers to refurnish old housing, purchase new housing and develop rental market.
Before the forum draw to a close, guest speakers elaborated on the most talked-about issues, ranging from the stock market to the exchange rate of RMB, macro-economy and real estate market outlook.
