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Overhaul for growth transition

By Jia Kang (China Daily)
Updated: 2009-09-03 17:07

In the light of the key areas and issues that deserve pivotal emphasis in China's current economic thrust, I propose the following.

First, concentrate more on changing the growth pattern and lose no time in promoting economic restructuring.

Fueled by the 4-trillion-yuan ($586 billion) stimulus package, a better-than-expected overall performance has taken place in China's economy. The investment-driven force is essential at present, but there will be hidden risks in the medium and long term if no other supporting measures and reform moves are adopted in time. In the coming decades, the key to China's modernization drive would lie in grasping opportunities offered by the new economies in the information age, effectively responding to resource and environment constraints and achieving a transition from an extensive growth mode to an intensive one.

In the face of the positive changes in the national economy, the Chinese government should endeavor to accelerate the transition of the country's growth pattern, structural readjustment and deepen reforms, so as to achieve a better combination of short-term macro-control policies and the medium- and long-term goals.

The second priority is to deepen innovation and supporting reforms in the consumption sphere, and let economic stimulus policies and measures have full play.

In the investment sphere, continue to carry out the 4-trillion-yuan fiscal stimulus package and a number of industrial revitalization programs, highlighting the rational selection of appropriate projects. After conducting careful project selection through feasibility demonstrations, it is of vital importance to stress on project supervision, avoiding quality problems, in order to make the full effect of fund input and construction projects come into full play.

In the consumption sphere, a series of effective measures and new working mechanisms have been adopted, such as promoting medical reform, implementing free compulsory education, housing projects for low-income urban residents, improving urban subsistence allowance standard and introducing a new type of rural cooperative medical system and rural basic pension plan. All these will definitely reduce people's insecurity and increase their consumption. However, the government should pay more attention to the principle of fairness in reforming the income distribution system and strengthen its function in regulating income redistribution to narrow the widening gap between the rich and the poor.

The third issue is paying close attention to the "capital asset price bubble" problem and the stable and healthy development of the real estate market.

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The current overall price level in China indicates there is no obvious inflationary pressure, nor is risk of deflation imminent. Yet, we should give necessary attention to the rapid rise of asset price in the real estate market, as some people have raised questions about the re-emergence of asset bubbles. Recent months have seen a slight growth in China's stock, auto and real estate markets, which was a general reflection of national economic performance. Although China's stock market is yet to be further standardized, we cannot deny its effect as a "barometer".

More efforts should be made in building low-rent housing, which is conducive to solving the urgent problem of accommodating a large number of medium- and low-income urban residents. It is time to develop more inexpensive commercial houses and maintain a fair competition in the real estate market.

The fourth point is to promote taxation reform in accordance with overall needs with an emphasis on the function of taxation regulation.

The good momentum seen in national economic recovery gave us a good opportunity to consider an upward adjustment of resources tax right now. In order to accelerate the growth mode transition, the relative price of resources should be raised, so as to drive the whole society to better treasure energy resources and economize on primary products, and to activate all individuals, enterprises and institutions to develop energy conservation products, equipment and technologies.

Property tax reform should be put on the agenda as soon as possible, as this will be conducive to the functional transition of the local government, implementation of tax-sharing system under provincial level and the healthy development of the real estate market. We cannot expect overnight success in property tax reform but can focus on an operational reform scheme.

The personal income tax "threshold" should be further adjusted by raising the benchmark point of the tax and lowering tax rate on medium- and low-income people in tandem with the national economic growth and residents' increasing income.

Right now, the personal income tax rate in China is divided into nine categories ranging between 5 percent and 45 percent. In order to lower the tax rate for low-income residents, the categories of tax rate could be reduced to five, and the disparity of different tax rates be enlarged. And the lowest tax rate can be cut from 5 percent to 1 percent.

Through such reforms, the government can substantially reduce the tax burden on medium- and low-income groups and increase the levy on high-income groups, thus bringing into full play the regulatory role of income tax.

The author is director of the Institute for Fiscal Science Research under Ministry of Finance.