The macroeconomic data issued in May created further concern about China’s economy. The slowing tendency of April continued in May with investment and consumption both declining. The central bank’s sudden cut in interest rates on June 8 confirmed the pessimistic view of the current economic situation.
Meanwhile, China’s excess production capacity has become more noticeable against the backdrop of the sluggish world economy.
The gloomy prognosis for China’s economy provides the opportunity for decision makers to face up to its problems and decide to what extent a reduction in the growth rate can be afforded.
Even if there was no global crisis, it is time for China to transform its industrial structure and growth model because its fast development over the past 30 years cannot be sustained, given its huge social and environmental costs.
In fact, China’s economic development strategy today is closely related to its future transformation and will determine if it can successfully dodge the middle-income trap. So the strategy should be farsighted and sustainable, conducive to stimulating China’s internal dynamism for future growth.
The real economy is always a reliable source of internal dynamism. The vitality of China’s real economy, especially the private sector, can be effectively liberated if they can get more market-oriented financial support. Only after the government-led financial system is successfully transformed into a market-oriented one will China break the bottleneck in the development of its real economy.
Cutting tax in a stagnant economy will effectively relieve the pressure on enterprises and the public. Such cuts will reduce the government’s financial revenue, but if the Chinese government can cut its high administrative expenses, the tax cuts may not dent the government’s financial capacities.
Consumption based on a fair distribution of national wealth is another inexhaustible source of internal dynamism. But only when the majority of consumers at the base of the social pyramid are fairly paid for their labor can China really stimulate its domestic consumption.