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Experts: China's six major economic imbalances still exist (2) |
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16:41, August 02, 2007 |
Financial structural reform is core issue
According to Lin, the above six economic imbalances actually indicate some structural and mechanistic problems that have emerged in the past and will still exist in the next five to ten years. Behind these problems, insufficient reform in financial structure is the most crucial and substantial problem of all.
Lin explained that the big bank-dominated financial structure almost denied SMEs, especially small enterprises, for loans. In the absence of financial services, labor-intensive SMEs developed insufficiently. The most obvious example is that the proportion of the GDP of service industry, which is mostly composed by labor-intensive SMEs, in the country's total GDP level dropped from 40% in 2005 to 39.5% in 2006. The average rate for other countries with similar level of development in the world is 53%. China is 13.5 percentage points lower.
Insufficient development of labor-intensive SME also reduced a lot of employment opportunities. As a result, a large number of rural surplus labors can not be transferred to non-agricultural sectors. This has not only made it more difficult to change the dual urban-rural economic structure, but also created a huge unemployed population, resulting in the widening urban-rural gap and uneven income distribution problem.
Furthermore, China's current interest rate spread exceeded 3%, which means that savers are actually subsidizing borrowers and banks in a low interest rate. This led to a series of negative consequences. Enterprises that can get money from banks will pay lower price for funding, which will increase the degree of capital intensity and reduce employment opportunities for unit capital. Enterprises that can borrow money from big banks are relatively richer because they get subsidy. These subsidies come from relatively poor savers, therefore making the gap between urban and rural income more prominent.
In accordance with the guidelines proposed in the financial work meeting this year, China should pay more attention to the development of local small and medium-sized financial services, including local small and medium-sized banks, rural banks, micro-finance, SMEs security, etc, Lin said. Efforts should be made to help labor-intensive SMEs and farmers create more employment opportunities, so as to promote the transfer of rural labor and the development of modern agriculture and, narrow the gap between urban and rural areas.
Moreover, China should liberalize interest rate and free loans and savings interest rates to the desired level in an effort to stop the subsidies from savers to large rich enterprises and to narrow the income gap. Once savers can get reasonable return from savings, more of them will stay away from the stock market.
By People''s Daily Online
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