Market rules to eliminate nonperforming SOEs
China's plan to address industrial overcapacity will "be a painful process," but it won't result in large-scale layoffs and unemployment, a senior official with the central government said Saturday.
Supply-side structural reforms, especially resolving overcapacity, will certainly hurt some areas; therefore, social policies must be put in place, said Yang Weimin, deputy director of the Office of the Central Leading Group for Finance and Economic Affairs, financial news portal wallstreetcn.com reported Saturday.
However, the current employment situation, fiscal flexibility and the social security system are much better than during the 1990s and there won't be a problem of large-scale layoffs and employment, Yang told an economic forum in Beijing, according to the report.
Yang was referring to a period in the late 1990s, when a round of reforms resulted in the closure of more than 60,000 State-owned enterprises (SOEs) and layoffs of some 30 million employees, according to wallstreetcn.com.
Amid persistent overcapacity in the country's industrial sectors, tackling the supply issue has become a top priority for the government.
During the Central Economic Work Conference in Beijing last week, top economic policymakers put addressing the industrial overcapacity issue high on the government's agenda for next year.
As part of the effort to resolve overcapacity, the government will shut obsolete production facilities by encouraging industrial companies to merge or restructure and creating conditions for bankruptcy procedures based on market rules to eliminate nonperforming SOEs, according to a statement following last week's meeting.
The meeting made it very clear that "ineffective supply" will be cut, "effective supply" will be expanded, and the supply structure will be improved, Yang noted Saturday, adding the ultimate goal is to improve efficiency in the allocation of resources.
Yang said the downward pressure in the Chinese economy is not a cyclical factor anymore and it's not an issue of domestic demand either. It's an issue that originated on the supply side; therefore, tackling the issue from that perspective is a top priority for next year.
However, being focused on overcapacity does not mean efforts to stimulate domestic demand will be ignored, Yang noted on Saturday.
