Reform of administration

History shows that short-term boosts can effectively bail out the economy when it is battered by a crisis. During the 2008 global financial crisis, the Chinese government launched a 4-trillion-yuan ($645 billion) stimulus package, which successfully helped it bottom out from the crisis.

In the wake of the 1997-98 Asian Financial Crisis, China's proactive monetary and fiscal policies also worked in helping it resume stable growth.

However, after 30 years of fast growth driven by investment and exports and some rounds of stimulus measures, the Chinese economy now has less room for similar measures to be effective when the economy becomes slack.

A side effect of the stimulus package launched at the end of 2008 was the increased liquidity in the market, which is believed to have fueled rising prices, such as housing prices.

Although inflation remains low, 2.4 percent in April, far lower than the yearly target of 3.5 percent for this year, there is a lot of liquidity, which risks unexpectedly pushing up consumer inflation and exacerbating the already high house prices.

Therefore, policymakers should carefully weigh the pros and cons of any new stimulus measures.

Economic challenges aside, the convenience of a new stimulus package could prevent policymakers from seeking long-term and systematic solutions.

Admittedly, the government has played an important role in China's economic miracle over the past three decades. As the country's market economy develops, however, the philosophy of a small government and a bigger market should be adopted. The government should better play the role of a service provider and the market should be allowed to allocate resources.

In this sense, the recent moves by the central government to abolish or transfer to local governments administrative approval items are further progress not only in institutional reform but also in the country's overall market economy reform.

As the market economy develops, it will provide a more sustainable source of growth in the long run.

While it is an economic necessity, decentralizing approval power will also enable the government to concentrate its resources on the provision of social services, an increasingly daunting task for the government. For example, China's ongoing urbanization and the rapid ageing of society have required the government to provide more and better social services. By 2012, the proportion of people aged 60 or above to China's total population was about 14 percent and the proportion continues to rise. Meanwhile, the country's official urbanization rate was 51 percent in 2010 from slightly more than 30 percent in 1998.

These trends have forced the government to spend more on public services, such as healthcare.

The author is a senior writer with China Daily. E-mail: xinzhiming@chinadaily.com.cn

(China Daily 05/14/2013 page8)