Premier says mass layoffs will be avoided in excess capacity cuts

2016-03-17 01:12:15 GMT2016-03-17 09:12:15(Beijing Time)  Global Times
Chinese Premier Li Keqiang arrives for a press conference after the closing session of the National People's Congress in the Great Hall of the People in Beijing on Wednesday. Photo: AFPChinese Premier Li Keqiang arrives for a press conference after the closing session of the National People's Congress in the Great Hall of the People in Beijing on Wednesday. Photo: AFP

China is sure to meet its major economic targets, as the government has "reserved policies" to safeguard the country against increasing unstable elements, Chinese Premier Li Keqiang said at a press conference on Wednesday.

He made the remarks in response to a question on whether the world's second-largest economy will keep slowing down and even break the promised 6.5 percent growth target in the coming five years.

Li also stressed that the government has taken measures to cut excess capacity in certain sectors, but will avoid a large-scale wave of layoffs.

At the press conference ending the country's two weeks of annual legislature and political advisory sessions, the premier admitted that the country is burdened with increasing downward pressure amid a weak world economic recovery.

China's GDP slowed to a 25-year low of 6.9 percent in 2015, arousing concerns as to whether the country is able to meet its growth target.

"We believe that as long as we continue to reform and open up, China's economy will not suffer a hard landing," Li said.

He said the government will push on with reforms to stimulate the market, including cutting back unnecessary government interference and creating a more level playing field for businesses to neutralize the downward pressure on the Chinese economy.

Liu Xuezhi, an analyst at the Bank of Communications, said that the Chinese economy can grow by at least 6.5 percent in the next few years.

"China has the ability to maintain mid-to-high growth in the next few years, given the rapid growth of the tertiary sector, consumption, as well as positive changes in the industrial structure," he told the Global Times on Wednesday.

Re-employment fund

According to Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, the key to whether China is able to achieve its growth target hinges on the success of structural reforms in the country.

"Reforms are already proceeding in certain sectors, like the government's plan to cut excess capacity in the coal and steel industries. This shows that the Chinese economy is already changing from a pattern that only pursues fast growth to a model that pays attention to the quality of the domestic economy," Dong told the Global Times Wednesday.

The Chinese government has released plans to cut 500 million tons of coal in about three to five years starting from 2016, according to the National Development and Reform Commission (NDRC) on Monday.

Li said up to 1 million steel industry workers will be affected.

There have been concerns as to whether the reforms on solving excess capacity would lead to mass layoffs, but Li stressed that the government has taken measures to prevent that from happening, such as setting up a 100 billion-yuan ($15.34 billion ) fund for relocating staff.

Liu said that as the country's tertiary sector further grows, it could serve to absorb a great part of the labor force from sectors that are suffering a supply glut.

Li also stressed that the government has reserved policies for emergency cases. That is, when the domestic economy veers off a reasonable range, the government would launch innovative macro-control measures to stabilize the Chinese economy.

"The reserved policies should be mainly made up of fiscal policies, such as tax reforms and reinforcing financial investments to invigorate private capital," Dong noted.

He said that in the future, the government is likely to reduce corporate taxes while increasing individual tax categories to balance off wealth.

The policies might also include monetary ones, such as more aggressive interest rates cuts or even quantitative easing, Dong said. But he noted that since liquidity in domestic markets suffices, fiscal policies are more likely to be used to boost the domestic economy.

Financial stability

Li also stressed that the domestic financial sector's primary mission is to support the real economy, and a weak real economy is the "biggest risk" to the financial sector.

"Li's words are directed at the phenomenon that all of China, whether individuals or State-owned companies, have participated in financial activities such as stock trading or peer-to-peer transactions in recent years. This has caused a lot of capital to be extracted from the real industry sector, and also created a speculative environment in society," Dong said.

Dong added that the obsession with financial speculation would also diffuse risks, such as the volatility of the Chinese mainland stock markets in 2015 as a result of the overuse of the stock leverage.

But Li said the Chinese government is able to withstand domestic financial risks, as domestic banks still have adequate capital reserves.

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