Point One Keep CPI Growth with 4% and Prices Mild and Controllable
[T e Government Work Report: T e main goal for this year’s national economy and social development is: to make GDP grow by about 8%, to further optimize the economic structure, and to keep the increase of CPI within around 4%.]
Compared with the regulating aim of 3% last year, this year’s aim is 4%, one percentage point more than that of last year. Experts point out that this year, prices will be high fi rst and then become low later, so it is a little diffi cult to reach the goal of confining the inflation rate to 4%; however, with the state government attaching great importance to the regulation of prices and the relevant measures, there should not be risks of vicious infl ation.
He Keng, Deputy Director of NPC (National People’s Congress) Financial and Economic Committee, says that the infl ation this year will be more serious than that of last year. Under the effect of tail-raising factor, the CPI in the fi rst half of this year is likely to be relatively high, with an annual average of 5%. Li Yining, member of NCPPCC(National Committee of the People’s Political Consultative Conference) and reputed economist, believes that rising oil prices in the international market is one of the uncontrollable factors in our price rising. And Jia Kang, director of the Research Institute for Fiscal Science, Ministry of Finance, also worries about the imported inflation, but he admits that for the time being, the curb on infl ation has been relatively eff ective.
Point Two Currency policy: Make Broad Money Grow by 16%
[T e Government Work Report: A prudent monetary policy will be implemented. Keep social fi nancing at a reasonable level and increase broad money by 16%.]
Having taken much into consideration, the prudent monetary policy is to be implemented and the growth goal of 16% for broad money (M2) is set.
T is year is the very start of the twelfth fi ve-year plan, it is particularly crucial to skillfully handle the relationship between maintaining steady and rapid economic development, restructuring the economy and managing infl ation expectations,

and the report on the government work also pointed out we should pay more attention to keep the overall level of prices stable. T us, the implementation of a prudent monetary policy is a must to cope with the pressure on prices.
As to why the growth rate for M2 has been set at 16%, Liu Yuhui, Director of Chinese Economy Appraisal and Rating Center, Institute of Finance and Banking, Chinese Academy of Social Sciences, tells the reporter that the growth rate for M2 in the year of 2009 and 2010 accumulatively exceeded the nominal growth rate of GDP by 30 percentage points, so that a large reserve of currency has been held. T e goal for broad money to grow at 16% is a manifestation of the monetary environment returning to a normal state, and this goal is also in conformity with the demand of the future economic growth.
Zhao Qingming, senior researcher of China Construction Bank, believes that if the credit can be under effective control this year, the growth goal of 16% for M2 should not be hard to realize. However, funds outstanding for foreign exchange also influences the growth rate of M2, therefore, the main diffi culty in realizing the growth rate of M2 lies in the control over funds outstanding for foreign exchange. He suggests relying more heavily on quantity instruments rather than non-price instruments to control funds outstanding for foreign exchange.
Point Three Fiscal Policy: Lower the Defi cit Rate by around 2%
[The Government Work Report: Continue to employ positive fiscal policies, maintain an adequate fiscal deficit and a proper level of treasury bonds. T is year, the fi scal defi cit is set to be 900 billion yuan, 150 billion yuan less than that in the budget last year, with the defi cit rate falling to about 2%.]
Although this year’s monetary policy has defi nitely shifted from being moderately easy to being prudent, positive fiscal policies will be continued. Fiscal policies are still positive, but the total input has decreased to some extent. According to experts, factors behind this year’s positive fi scal policies are quite diff erent.
Yuan Gangming, professor from the Center for China in the World Economy of Qinghua University, tells the reporter that the implementation of positive fiscal policies from 2009 to 2010 was aimed at coping with the financial crisis and stimulating the economy. But this year, positive fiscal policies are more targeted for strengthening the input into the improvement of the people’s livelihood.
Point Four Expand the Domestic Demand: Elevate the Consumer Market into the Rapid Track
[The Government Work Report: To expand our domestic demand is the longterm strategy and fundamental standing point in our economic development, and also the ultimate path and internal demand in promoting balanced economic development.]
Our country has been facing the imbalance between investment, export and consumption since long ago: we are too heavily depending on investment and export to stimulating the economy, with our endogenous growth incentives inadequate. The work report clearly pointed out that we should further expand our domestic demand, especially the consumption demand of residents. Experts say there is great room for the growth of Chinese consumption market and the future consumption market is likely to enter a rapid track.
At present, investment is till one of the driving forces for our economic growth. The consumption rate of our residents is not only lower than that of developed countries and also that of India and some other developing countries.
Considering the growth rate, the yearly growth of our consumption market is twice rapider than that of the American consumption market, so the potentiality of our market is enormous. Whereas as to how to raise our consumption growth during the twelfth fi ve-year plan, the essential way to increase our domestic demand and transform our developmental means is to straighten out the income distribution relations, with main eff orts directing at the rural areas, says Li Deishui, member of NCPPCC.
Point Five Emerging Industries: There are likely to be dark horses among small and medium-sized enterprises.
[The Government Work Report: To speed up the cultivation and development of strategic emerging industries, we have to give full play to SMEs, promote the healthy development of strategic emerging industries, and fasten the fostering of productivity and core competitiveness by working out a set of standards, improving relevant policies, and promoting the ability of innovation.]
In the fi rst year of the twelfth fi veyear plan, the creativity of small and medium-sized enterprises will be vigorous beyond the investors’ imagination. According to the investigation of Jiu San (September 3) Central Committee, for the time being, the private hi-tech enterprises are especially vigorous and they have constituted the main force in the development of strategic emerging industries.
T e proposal of Jiu San (September 3) Central Committee pointed out, whether the strategic emerging industries can prosper will not only depend on the development of technology and the transformation of technological achievements, but also depend on the growth of innovative emerging enterprises. For the government, the gist of policies directed at those emerging enterprises lies in the encouragement of technological innovation in small and medium-sized enterprises, and the creation of a good environment for their growth and development.
To encourage technological innovation in small and medium-sized enterprises, the leaders in charge of the Small and Medium-sized Enterprises Department under Ministry of Industry and Information Technology have clearly shown their resolution to provide more support for the innovation in SMEs, to strengthen the protection for the intellectual property, and at the same time, to give full support to SMEs in terms of capital, tax, fi nancing and service.
Point Six Income Distribution: Enhance Regulating Eff orts to Prevent the Income Gap from Increasing
[T e Government Work Report: T is year, we have to adjust the income distribution relations properly, with key measures: first, strive to increase the basic income of low-income people in both urban and rural areas; second, enhance the eff orts in regulating income distribution; and third, vigorously modulate and standardize the order in the income distribution.]
The imbalance in the national income distribution has been more and more obvious, and the work report of the government proposed three measures to reform the income distribution system which is directly linked to the people’s livelihood.
Zhang Ping, director of National Development and Reform Commission, believes that we need to work out a plan on the income distribution reform, to modulate the distribution layout of national income and narrow the income gap. We should establish a sound system for the normal growth in the income of employees, gradually raise the minimum income through consultation and prohibit the practice of defaulting on employees’ income, especially that of migrant workers.
In addition, the report also mentions the deduction bottom line for individual income tax will be raised. Zhang Ping suggests that we can reform the system of individual income tax, properly raise the deduction bottom line, and reduce the taxes for low and medium-income individuals, carrying out a dual regulating policy on the total sum of the individual’s income and the income level in highincome industries.
The reform proposals on the income distribution have been worked out successively, and maybe they will bring along some investment opportunities for those related industries. According to some fund companies, the reform will aim at making a big cake on consumption, thus benefiting the people’s livelihood and the sector of consumption have been one of the key directions of assortment since last year.
Point Seven Real Estate Regulation: Firm Determination to Curb the Rapid Growth of Housing Prices through Regulation
[The Government Work Report: Build more indemnifi catory housing; further implement and improve the regulating policies on real estate market to check the growing momentum of housing prices in some cities; set up a sound mechanism for assessment and accountability.]
We will continue our strict regulation on real estate, construct more indemnifi catory housing, and establish a system of accountability…The three measures stated in the work report once again lay the fi rm foundation for the government to pull the real estate market back into the normal situation. Wang Juelin deputy director of Policy Research Center under the Ministry of Housing and Urban-Rural Development, tells the reporter that the central government will not change its strict regulation over the real estate market, so this year, the eff ect of the regulation will be more obvious.
The reporter notes that the work report of the government pointed out that to do well in regulating the real estate, the first two methods should be further carried out on their original basis. First is to build more indemnifi -catory housing and the second is to further put related policies to practice, and to curb the growing house prices.
The indemnificatory housing is a very important measure to guarantee the steady and healthy development of our real estate market. What catches the reporter’s attention is that last year, the State Council decided to construct 5.80 million apartments, more than ever, by building indemnifi catory housing and rebuilding shanty areas.
Besides, the work report also says this year, we will further implement and improve the regulating policies on the real estate market, and curb the rapidly growing house prices, which will be conducive to encouraging the consumers to buy houses.
What is worth some mention is that the report also proposes “a sound mechanism of accountability”. It is known that the Ministry of Housing and Urban-Rural Development has criticized explicitly the fourteen cities which were not active in the implementation of the new policies restricting the house purchase.
Point Eight Medical Care: Increase Input in the Medical Insurance and Subsidies, and Have a Prime Time for Medical Instrument
[The Government Work Report: We will promote the reform and development of the pharmaceutical and healthcare fi elds. T is year we will raise government subsidies on the medical insurance for the new type of rural cooperatives and urban residents to 200 yuan, and the allowance per capita for basic public medical service is increased to 25 yuan.]
“With the reform on the medical care deepened, the governmental and social medical output has increased from 40% in 2001 to 61.8% of the total medical expenses. It is certain that the expenses for medicine and treatment will be dropping. The falling medicine prices which curb the pharmaceutical market greatly are the evidence that the government is striving to fulfill this goal.” Analysts from Citic Securities point out that, to reduce the treatment expenses, the treatment instrument and consumer goods will be inevitably manufactured domestically.
According to their further analysis, the turnover of medical instrument has been growing in recent years, which reached 14.5 billion yuan in 2000, and already more than 80 billion in 2009. T e compound growth rate during the past ten years is 21%, and we can not rule out the possibility of an explosive growth in the future.
Point Nine Culture Industry: Enter a Rapid Track and Promulgate More Supporting Policies
[T e Government Work Report: We should develop the culture industry vigorously and cultivate new forms of culture, so that the culture industry will become a pillar in the national economy.]
Against this background of restructuring, that the culture industry is for the fi rst time proposed as the potential pillar industry denotes that, in the future, the proportion of the income from the culture industry in our GDP will be greatly increased.
Documents show that an industry can not be counted as a pillar industry until the proportion of its income in the GDP at least reaches 5%. At present, the fi gure for our culture industry is about 2.5%. As a result, in order to realize the goal of turning it into a pillar industry in the national economy, the culture industry has to be growing rather rapidly in the next fi ve years. In accordance to analysts from Everbright Securities (601788), provided that our GDP grows by 5% in the year of 2015, the compound growth rate is expected to be 37% in the next fi ve years, 15 percentage points above the present growth rate.
Recently, Liu Yuzhu, director of the Department of Cultural Industries, Ministry of Culture, says that in the next fi ve to ten years, related measures for fully supporting the cultural industries fi nancially, and various policies conducive to the development of the cultural industries will be worked out.
Point Ten Cross-border Capital: Keep Close Surveillance over the Infl ow of Hot Money
[The Government Work Report: We will continue to improve the mechanism for setting the renminbi exchange rate; Keep a close eye on the fl ow of the cross-border capital and prevent the infl ow of hot money.
Exchange rate and the flow of hot money have always been the hot spots of the market. It has been pointed out in the report that while improving the mechanism for setting the renminbi exchange rate, we will have to keep a close eye on the flow of the cross-border capital and prevent the infl ow of hot money.
Zhao Qingming, senior researcher from China Construction Bank, says though there are problems arising from the outfl ow of hot money in some periods, in general, our country are facing more problems caused by the inflow of hot money; and this year, we should be more cautious about the infl ow of hot money.
There are a number of factors that attract hot money into our country, for example, the fact that the Chinese economy is quite heated, and that China is to enter into a round of interest rises. Meanwhile, Zhao Qingming thinks that this year renminbi will appreciate by more than 7%, which is rather attractive for hot money.
T e work report last year pointed out that we should continue to improve the mechanism of setting the renminbi exchange rate and keep renminbi exchange rate basically stable on a reasonable and equal level. While in this year’s work report, what is related to the renminbi exchange rate is reduced to one sentence---“to further improve the mechanism of setting the renminbi exchange rate”. T is merits our attention.
(Author: from Shanghai Securities News)