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Experts unveil 'reform package'

By Fu Jing and Wang Bo (China Daily)
Updated: 2009-03-18 07:52

A panel of economists unveiled a "reform package" yesterday, saying these measures need to be urgently implemented to ensure that China's stimulus programs would work effectively.

In order of priority, price deregulation of resource products and reducing industry monopoly topped the 14-point reform package prepared by five renowned economists.

"We urge the government to implement them as soon as possible. If it is done, the confidence of the public can be greatly boosted at a time when the nation is fighting the financial crisis," Chi Fulin, president of the China (Hainan) Reform and Development Research Institute told China Daily yesterday.

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Chi's research findings on the urgency of China's reform in the financial crisis era, titled the International Financial Crisis Challenges Reform in China, were made public yesterday.

"We have met the external crisis but we are also troubled by long-lasting domestic structural problems," said Chi. "Only by rooting out the causes of the structural problems can we stimulate our economy more quickly and effectively," said Chi.

"We should act right now. Some aggressive actions, such as pricing deregulation, should be announced in the first half this year," he said.

The 14-point reform package also covers domestic investment mechanisms, fiscal structure, public service and foreign trade and investment.

Chang Xiuze, a senior economist of the Economic Research Center under the National Development and Reform Commission, expressed concern over investment from China's 4-trillion-yuan stimulus package currently being dominated by investors from the State sector.

"If we don't deepen our reform on investment regulations, I am afraid China's private sector cannot benefit from the economic stimulus package and employment will worsen," said Chang. "That's a scenario our policy makers are not willing to see."

When implementing China's stimulus programs, Chang said local governments have shown a tendency to go on a spending spree. In some regions, State-owned companies have already muscled in on those sectors usually dominated by the private sector.

"This is retrogressive," said Chang. "Why should State-owned companies compete with private investors in ordinary sectors?"

To rectify the situation, China should lower the threshold of investment in infrastructure construction and effectively usher in private investment in monopolistic sectors such as railways, aviation and energy.

China has planned multi-trillion yuan investments into railway construction in recent years to speed up the country's rail network, but the investment mechanism is rigid.

Chang complained that the railway sector is being highly controlled by the government. "This is the only sector where the government is both the investor and manager," said Chang.

This has caused much inefficiency, he said. "Railway companies and local governments should take the lead in railway construction, which is now firmly controlled by the Ministry of Railways," said Chang.

Pricing deregulation

These economists unanimously agreed that the reform on the pricing mechanism for resource products should be top of the agenda.

"The time is ripe for conducting such reform, and we expect it will be initiated in the first half of this year," Chi said.

The record low oil prices, dipping to less than $50 a barrel, and the steep decline in consumer price index (CPI), have offered a rare opportunity for China to push ahead with reforms on the pricing mechanism for energy and resources products. China's CPI fell 1.6 percent year-on-year in February, the largest monthly decline since 1999.

It is essential to establish a market-based price formation mechanism for resource products as soon as possible as such a mechanism can better reflect market demand and supply as well as the scarcity of the resources, the report said.

"The reform can start from revising the resource taxation system, which may include a gradual shift to taxation by price instead of by volume, and an expansion of the category of taxable resources," Chi said.

Initiated in 1994, the current resource tax is only imposed on mining products and salt. The report suggested bringing other natural resources, such as forest, land and water into the taxable category.

The nation should also authorize its provinces to impose resource tax and remove extra fees on using resources to ease the burden on enterprises, the report said.