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Tuesday, April 5, 2016, 12:43

Structural reform, 'zombie' hunt urged

By Emma Dai

HONG KONG - Structural reform is the need of the hour to resolve China’s economic problems, according to the advisor to the country’s central bank.

The Chinese economy faces two major challenges, structural reform and the complex global political environment, said Huang Yiping, advisor to the Monetary Policy Committee at the People’s Bank of China.

GDP (gross domestic product) growth forecasts for 2016 were recently cut from 7 percent to a 6.5-7 percent range, representing the official outlook on the country’s economy.

Huang told a forum in Hong Kong on Tuesday morning that governments around the globe have been stimulating their economies with fiscal and monetary policies since the 2008 financial crisis, but many countries lack structural reforms that could really drive growth.

Meanwhile, the world has entered an era of free capital flow and floating exchange rates, which many countries have yet to get ready to deal with. For China, the international environment is also unique, with the US pressing for no further depreciation of the renminbi.

The real economy is not well-supported in China, Huang said, because the central government had assigned a lot of resources to “zombie corporates” instead of entities actually generating growth.

As a result, the government has to push forward structural reforms to weed out outdated capacities.

However, Huang said the risks for the Chinese economy are not too high this year despite high leverage rates. He said although M2 money supply, which includes cash, checking deposits and savings deposits, is a considerable share of the national GDP and the country’s leverage rate is building up, Chinese corporate debt level has been declining since 2008. Restructuring is the way forward to solve the problem of high leverage rates.

Huang added that the government debt ratio is lower than 20 percent, which enables it to conduct restructuring to eliminate zombie companies and improve productivity.

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