Balancing accommodation and reforms

In May, some authoritative policymakers stated that excessive leverage would have dire consequences over time. They advocate reforms sooner rather than later.

In practice, the timing and phasing of reforms has been complicated by the most challenging international environment since the 1930s. Recently, the International Monetary Fund (IMF), once again, cut global growth forecast to 3.4 percent, due to the Brexit-induced increase in economic, political and institutional uncertainty.

Last week, Chinese President Xi Jinping said that economic policies should be accommodative to ensure growth will stay on track. He also emphasized the need to push ahead with supply-side reforms as the top leaders discussed economic policies for the second half of the year.

In its statement, it noted that the key to retiring redundant capacity and deleveraging involved deepening reforms of state-owned enterprises and financial institutions and reducing oversupply in the property sector.

Understandably, none of these reforms can happen overnight. But many of them must occur in the medium-term. The second half of the year will provide a better idea of the policymakers’ preferred balancing act between policy accommodation and reform timetable. And that, in turn, will determine the pace of growth deceleration in the coming years.

Dan Steinbock is the founder of Difference Group and has served as research director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Centre (Singapore).

The opinions expressed here are those of the writer and don't represent views of China Daily website.