How does supply-side structural reform get implemented? Local officials weigh in

Xu Shousheng, Secretary of the CPC Hunan Provincial Committee:

Supply-side reform requires doing a good job of “addition, subtraction, multiplication and division”

In 2016 we must place supply-side structural reform in a more prominent position, and focus on doing a good job of “subtraction” and “division” as well as “addition” and “multiplication.” Doing a good job of “subtraction” and “division” means reducing administrative interference in normal economic activity and lightening the burden on enterprises. No reform in any area can be separated from the development of the real economy. Lightening the burden on enterprises is far from enough; we must make all-round efforts and adopt multiple measures, devote ourselves wholeheartedly to service and give real support to the real economy, and consolidate the foundation of economic development. Doing a good job of “addition” and “multiplication” means, in the direction of high-end, intelligent, green and service-oriented development, accelerating the optimization and upgrading of the industrial structure, vigorously promoting mass entrepreneurship and mass innovation, and raising total factor productivity of labor, land, capital and technology.

It must be emphasized that supply-side structural reform is a “traditional Chinese medicine prescription,” a fundamental cure. It addresses deep-seated problems in the economic structure and involves many medium- and long-term strategic arrangements; it can neither be slow nor rushed. 2016 is a year of leadership changes, and leading officials at all levels must not entertain the idea of applying strong medicine and making a dash for it, dressing up the economic data to look good, or even using that as capital to obtain a certain position, only to leave behind a mess.

Chen Xingchao, Secretary of the CPC Yingtan Municipal Committee, Jiangxi Province:

Advance supply-side structural reform by closely following the 4 main lines of “labor, capital, innovation and government”

Advancing supply-side structural reform is a major innovation for adapting to and leading the new normal of economic development, and an inevitable requirement for adapting to our country's new normal of economic development. In light of the reality of our city's economic development, I feel that to understand supply-side structural reform, on the basis of fully grasping the “five major policy pillars” of macro policy, industrial policy, micro policy, reform policy and social policy and the “five major tasks” of cutting overcapacity, reducing inventory, deleveraging, lowering costs and shoring up weak spots, we must focus on activating the “four major factors” on the supply side, and advance supply-side structural reform by closely following the 4 main lines of labor, capital, innovation and government.

First, we must focus on optimizing the allocation of labor. Based on Yingtan's industrial characteristics and advantages, we must focus on accelerating the development of modern service industries with tourism and logistics as the focus, and guide more labor to flow toward tourism, logistics, modern agriculture and other directions. We must actively seize the opportunity of the national comprehensive pilot program for new urbanization, advance the building of “all-area Yingtan,” deepen reform of the household registration system, guide the orderly transfer of surplus rural labor to cities, strengthen vocational education and training, and improve the quality of workers.

Second, we must optimize the allocation of land and capital. We must consolidate the results of rural land ownership confirmation and registration, further improve the city-county-township three-level shared land contracting information management platform, and advance rural land circulation. We must strengthen infrastructure investment, advance the opening of some urban construction projects and public services to social capital, and raise the efficiency of capital use. We must increase investment in people, especially investment in poor areas and poor populations, and comprehensively raise the people's sense of happiness.

Third, we must raise total factor productivity. We must implement our city's “40 measures for steady growth” and “36 measures for entrepreneurship and innovation,” and advance mass entrepreneurship and mass innovation. We must strengthen the integration of industry, universities and research, enhance the innovation capacity of the copper industry, accelerate the elimination of backward production capacity in copper enterprises, and resolve overcapacity in the copper industry. We must regulate all kinds of financing behavior, carry out special rectification of financial risks, and effectively defuse government debt risks.

Fourth, the government itself must implement supply-side reform. We must focus on transforming government functions, regulate the operation of the “intermediary supermarket,” clean up all kinds of unreasonable charges, and help enterprises lower operating costs. We must advance reform of the comprehensive administrative law enforcement system, reform to expand powers and strengthen towns, and so on, to loosen the bonds and give impetus to economic development. We must further create a stable and consistent policy environment, a high-quality and efficient government affairs environment, and a relaxed and harmonious social environment.

Zhang Hongxing, Mayor of Fuzhou City, Jiangxi Province:

In resolving overcapacity, attention should be paid to four major risks

To make the five major tasks of “cutting overcapacity, reducing inventory, deleveraging, lowering costs and shoring up weak spots” take effect, the central government has already pointed out the direction and proposed five major policy pillars: macro policy must be stable, industrial policy must be accurate, micro policy must be flexible, reform policy must be solid, and social policy must provide a safety net.

By comparison, the hardest of these five major tasks is cutting overcapacity. Overcapacity restricts healthy and sustainable economic development. At present, many industries across the country have serious overcapacity, including steel, cement, flat glass, electrolytic aluminum and other industries. Fuzhou City also has the problem of excess low-end capacity in nonferrous metal rough processing, traditional textile and garment, and chemical building materials industries.

To resolve overcapacity, attention should be paid to four major risks. First, debt risk. Enterprises have both liabilities to banks and accounts payable between upstream and downstream enterprises, as well as guarantees between enterprises, and so on. These intricate “triangular debts” bring great difficulty to enterprise mergers and reorganizations and bankruptcy liquidation, and if handled poorly can also cause chain reactions. Second, stability risk. Overcapacity industries are mostly labor-intensive industries with large numbers of employed people. Eliminating backward production capacity and eliminating zombie enterprises both involve the problem of transferring and resettling large numbers of workers, and if handled poorly can easily create unstable factors within enterprises and in society. Third, fiscal risk. In the short term, cutting overcapacity will bring difficulties to local economic growth and fiscal revenue. Fourth, development risk. If the hand of macro-control intervenes improperly, it can also “wrongly kill” good enterprises. For example, our city's nonferrous metal processing industry belongs to structural overcapacity, that is, “overcapacity at the low end, insufficient at the high end.” In this type of overcapacity industry there are also good enterprises whose products are in strong market demand. If a one-size-fits-all approach of “restricting loans” and “cutting off food” is used to push forward the resolution of overcapacity, it will instead affect industrial transformation and upgrading. Although resolving overcapacity is not easy, we believe that as long as we have patience and determination, we can certainly accelerate the process of cutting overcapacity.

Guo Jian, Director of the Chongqing Municipal Commission of Economy and Information Technology:

The government and the market, the “two hands,” must both clarify boundaries and coordinate and cooperate

In the supply-side structural reform of Chongqing's industry, the focus must be on the changes in the total volume and structure of market demand, handling well the relationship between Chongqing and the whole country, the relationship between the present and the long term, and the relationship between traditional industries and emerging industries, and making overall coordinated efforts in “addition, subtraction, multiplication and division,” so as to effectively improve the quality and efficiency of the industrial supply side -- addition means adjusting the structure through incremental growth and cultivating new drivers of growth; subtraction means removing excess capacity and ineffective capacity to achieve industrial “slimming and quality improvement”; multiplication means giving play to the multiplier effect of innovation-led development; division means breaking down institutional obstacles, raising the degree of marketization, and further optimizing the development environment. Overall, supply-side reform is a systematic project that requires mixed and coordinated “addition, subtraction, multiplication and division.” The government and the market, the “two hands,” must both clarify boundaries and coordinate and cooperate, highlight the decisive role of the market in resource allocation, and continuously improve the quality and efficiency of economic development.

In recent years, Chongqing's industry has maintained a relatively fast growth momentum, thanks to efforts made in supply-side management such as transforming and upgrading traditional industries and cultivating and developing emerging industries. The fourth plenary session of the fourth municipal party committee proposed “vigorously advancing supply-side structural reform,” which will bring a fundamental transformation and adjustment to the government, industries and enterprises. For the government, it is the driving force for transforming functions, prompting governments at all levels to strictly follow market laws in planning and doing things, further streamline administration and delegate power to release market vitality, reduce institutional transaction costs, and improve supply efficiency; for industries, it is the accelerating force to reverse the decline, promoting traditional industries, through model reconstruction and path optimization, to shift from capacity expansion to connotative extension, and emerging industries, through continued growth and development, to form new driving forces for economic growth and increase effective supply; for enterprises, it is the incubating force for nirvana and rebirth, prompting enterprises to practice their internal skills and transform to escape difficulties, and to achieve market-based exit through mergers and reorganizations, debt restructuring and bankruptcy liquidation, so that zombie enterprises and shell companies can be properly handled and ineffective supply removed.