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The Central Economic Meeting was held on December 12, 2011, the latest one in the last ten years. The late arrival of the meeting is said to be caused by the complex domestic and international economic situation.
It is hard to tell the real reason. But the severity in the international economic situation and the complicated challenges in front of China’s domestic economy indeed exist. The two difficulties are most frequently referred to by Chinese premier Wen Jiabao. The year of 2012 is the fourth year after the financial crisis in 2008 and China is going to have a more profound understanding of the “two difficulties”.
If the loose monetary and financial policies are to be continued, the financial situation in China might collapse one day. The rising local debts and the stop of construction of high-speed railway show that the investment increase, which double every three years, should not be sustained. Meanwhile, the drastic inflation brought by loose monetary policies has shown its power. The ordinary consumers could not afford the increasing CPI; the Chinese commodities will loose their competitive power since their advantages of low cost go away. These will deteriorate the economic and employment situation and could easily lead to the venomous circulation, which dangers the social stability.
Then what if tight financial and monetary polices are taken? The government made an attempt in 2011 and then numerous small- and medium-sized enterprises (SMEs) collapsed, forcing the government to reset keeping economic growth rate as the goal of macro economy.
The predicament in the macro economic adjustment and control in the past three years has left quite a little space for the new macro economic policies.
The dilemma of China’s economy is that the entity economy and residential consumption are hard to be boosted no matter what polices are taken. The root for this situation is that the Chinese economy is divided into two parts. The economic stimulus package only works with banks, real estate and so on but has nothing to do with SMEs. Along with it, the capital for entity economy is driven to the capital market for speculation. Without the support of capital, the entity economy and SMEs could not survive. Without the entity economy and SMEs, it impossible to solve the problems of employment and income increase and thus the domestic demand cannot be increased as well. When the stimulus measures are taken, the entity economy is squeezed by assets bubble; when the tight policies are implemented, the entity economy becomes the first target.
In 2012, China should not adopt the infrastructure investment guided by government budget or support the economic growth with loose monetary policies and high fluidity of currencies. The fast expansion of fundamental production will exaggerate the economic unbalance without the corresponding consumption power. Changing the structure is the only choice, which has been highlighted for four straight years.
The core of economic structure change and transformation is to shift the original export-oriented and investment-driven growth to domestic-demand-oriented and consumption-driven growth along with the improved growth quality and decreased energy and resource consumption.
China needs some substantial measures to realize the aforementioned goal. In the most recent Central Economic Meeting, the key to increase domestic demand lies in maintaining and improving people’s livelihood, accelerating the development of services and increasing the proportion of middle-income earners.
It is hard to tell the real reason. But the severity in the international economic situation and the complicated challenges in front of China’s domestic economy indeed exist. The two difficulties are most frequently referred to by Chinese premier Wen Jiabao. The year of 2012 is the fourth year after the financial crisis in 2008 and China is going to have a more profound understanding of the “two difficulties”.
If the loose monetary and financial policies are to be continued, the financial situation in China might collapse one day. The rising local debts and the stop of construction of high-speed railway show that the investment increase, which double every three years, should not be sustained. Meanwhile, the drastic inflation brought by loose monetary policies has shown its power. The ordinary consumers could not afford the increasing CPI; the Chinese commodities will loose their competitive power since their advantages of low cost go away. These will deteriorate the economic and employment situation and could easily lead to the venomous circulation, which dangers the social stability.
Then what if tight financial and monetary polices are taken? The government made an attempt in 2011 and then numerous small- and medium-sized enterprises (SMEs) collapsed, forcing the government to reset keeping economic growth rate as the goal of macro economy.
The predicament in the macro economic adjustment and control in the past three years has left quite a little space for the new macro economic policies.
The dilemma of China’s economy is that the entity economy and residential consumption are hard to be boosted no matter what polices are taken. The root for this situation is that the Chinese economy is divided into two parts. The economic stimulus package only works with banks, real estate and so on but has nothing to do with SMEs. Along with it, the capital for entity economy is driven to the capital market for speculation. Without the support of capital, the entity economy and SMEs could not survive. Without the entity economy and SMEs, it impossible to solve the problems of employment and income increase and thus the domestic demand cannot be increased as well. When the stimulus measures are taken, the entity economy is squeezed by assets bubble; when the tight policies are implemented, the entity economy becomes the first target.
In 2012, China should not adopt the infrastructure investment guided by government budget or support the economic growth with loose monetary policies and high fluidity of currencies. The fast expansion of fundamental production will exaggerate the economic unbalance without the corresponding consumption power. Changing the structure is the only choice, which has been highlighted for four straight years.
The core of economic structure change and transformation is to shift the original export-oriented and investment-driven growth to domestic-demand-oriented and consumption-driven growth along with the improved growth quality and decreased energy and resource consumption.
China needs some substantial measures to realize the aforementioned goal. In the most recent Central Economic Meeting, the key to increase domestic demand lies in maintaining and improving people’s livelihood, accelerating the development of services and increasing the proportion of middle-income earners.