Market Watch No.25，2014

　　OPINION

　　Mini-Stimulus to Fuel Reforms

　　At the present time， China is in need of economic stimulus， a fact testified to by the struggling branches of some banks and the sluggish manufacturing industry. The country should no longer base its optimistic mood solely on the explosive growth of the information technology (IT) and e-commerce industries. Without the upgrading of its manufacturing sector， China’s economy will lose the foundation required to sustain its growth.

　　Since April， Premier Li Keqiang has held eight executive meetings of the State Council， with a focus on stabilizing the economy. To achieve this goal， the government should resort to mini-stimulus measures to shore up the ongoing economic reform.

　　Stimulus doesn’t equate to denying the role of market， but instead provides more opportunities for reform. In the latest State Council executive meeting， government officials decided to go further in streamlining administrative procedures， such as eliminating or transferring 52 items of administrative examination and approvals and lowering the admittance threshold for the recruitment of some industries. Premier Li was of the opinion that the measures will exert a direct influence on microeconomic behavior， further vitalize the market and propel the reforms.

　　The reforms are aimed at injecting vigor into the market and pushing forward the country’s economic transformation. Since the new government took office， the most significant reform initiated concerns registration capital， which has remarkably reduced the requirements for establishing a company and encouraged innovation. Since March 1， the amended Company Law and the newly approved Plan for Reforming the Registration Capital System have come into effect， which has allowed stakeholders to decide the amount of registration capital themselves， repealed the lowest limit of registration capital for limited liability companies， one-person limited liability companies and joint stock companies. The proportion of capital every stockholder first pays can also be decided by themselves. The paid-up capital of joint stock companies no longer needs to be recorded.

　　In addition， innovative enterprises are held accountable for their own profit models and loan repayment ability. When these enterprises seek finance， lenders can decide the amount and interest rate by referring to the stakeholders’ ability to pay off loans and make money. From this perspective， the reform of the registration capital system is of great significance.

　　Over the course of the reform， the government should be careful when releasing some mini-stimulus measures， such as the recent “targeted reduction” of the reserve requirement ratio.

　　“Targeted reduction，” originally designed to alleviate the financing difficulties confronted by weak sectors， was expanded from county-level rural commercial lenders and rural credit cooperatives to banks that have lent “a certain portion” of their total loans to agriculture-related firms， small and micro-sized enterprises and other companies that cater to demands related to economic restructuring. As Ji Zhihong， Director of the Financial Market Department of the People’s Bank of China， said， “targeted reduction” is a kind of positive stimulus to boost the real economy， and will shepherd more financial resources to agriculture-related firms and small and micro-sized enterprises.

　　However， in most cases， only policy banks， community banks and venture capital investors are willing to invest in agriculture and small and micro-sized enterprises. So if the banks and financial institutions suffer losses from investing in these weak links of the national economy， who would emerge to cover them？ Since profit is the exclusive goal that financial institutions pursue， who can ensure they will voluntarily shore up agriculture or small and micro-sized enterprises with the money released by the ratio cut？ Why is it so difficult to lower financing costs for these enterprises？ If preferential policies are released before in-depth analysis， it will merely aggravate the situation.

　　All in all， mini-stimulus measures are inevitable in speeding up the reforms， energizing the economy and putting the market in order.

　　This is an edited excerpt of an article by Ye Tan， a financial commentator， published in the Shanghai-based National Business Daily

　　NUMBERS

　　1.98 mln units

　　China’s autoproduction in May，down 4.4 percent from April

　　6 mln

　　Number of highemission vehicles that China plans to remove from roads in 2014 to reduce pollution

　　3.85 mln tons

　　Amount of carbon emission quotas that Chinese enterprises traded as of May 23， making China the world’s second largest carbon trading market following the EU

　　24，000

　　Number of certificates that China had issued for eco-friendly energy products and solutions by March 2014

　　22.4%

　　Percentage of urban homes lying vacant in China in 2013 Amount of carbon emission quotas

　　7.2%

　　Fiscal revenue increasein May

　　24.6%

　　Fiscal spending increase in May

　　QUOTE

　　“We have not changed our attitude to enhancing cross-Straits economic cooperation and pushing forward on follow-up agreements to the Economic Cooperation Framework Agreement. The mainland would like to share the opportunities of economic development with our Taiwan compatriots， which is a consistent policy.”

　　Fan Liqing， spokeswoman for the Taiwan Affairs Office of the State Council， speaking at a regular news conference in response to a media report that the mainland had suspended dialogue with Taiwan on trade agreements