Looking at the bigger picture

Conscious of the negative effects of short-term stimulus policies, the government has so far refrained from introducing any new stimulus, and instead focused more on the reform of government functions, such as simplifying administrative procedures and delegating some power to local governments, to release more market vitality. The government is also striving to build a long-term mechanism for national economic development. In the short term such changes will inevitably bring China some woes as a result of slower economic growth.

Government won't resort to short-term stimulus

China's first quarter GDP grows 7.4%

The current economic downturn is testing the central government's tolerance over the extent to which it will allow the economy slow. China needs to keep a certain level of economic growth to ensure employment for its huge population and the growth of urban and rural residents incomes to facilitate its transformation into a consumption-driven economy. This is also the main reason why Premier Li has set a bottom line for growth to ensure steady expansion and employment and an upper ceiling to prevent inflation. Once economic growth risks falling below the bottom line, the government will surely intervene. The setting of a reasonable growth range for China's economy is a new regulation approach that will not only prevent the government from frequently taking short-term stimulus measures, but will also make it more focused on the reform of its functions and cultivating an internally driven economic growth mechanism. For the sake of achieving these goals, the government should tolerate an economic deceleration to a certain extent. De-pegging the GDP growth from the performance assessment of officials has also helped to create an environment conducive to the government exercising tolerance to the slower growth.

Despite refraining from short-term policy stimulation while economic growth remains above the government's bottom line, the government is still braced for some appropriate stimulus measures if the economy looks like crossing that line in order to prevent any social crises. As Li has said, "established measures and all policy reserves at our disposal are sufficient for us to deal with any possible risks and challenges."

For a country that is still struggling to subdue the negative effects produced by the last round of stimulus package, China should be well aware that any new round of stimulus measures should focus more on long-term effects, other than pursue a short-term economic rebound at the price of damaging the long-term market mechanism.

The author is a Shanghai-based economics commentator.