China is trying to reorient its economic model towards the consumer sector, reducing the role of debt and investment / Ng Han Guan / AP

Chinese authorities have approved a 2016 economic development plan, which they discussed at the annual Central Economic Work Conference in Beijing. It is aimed at tackling long-standing problems in the Chinese economy - mounting debt, excess capacity and oversupply in the real estate market, according to a communique published by the Xinhua news agency. The plan itself has not been made public.

Unlike the previous strategy, the budget deficit is expected to increase due to tax cuts rather than increased government spending. Monetary policy will become more flexible. China is trying to reorient its economic model toward the consumer sector, reducing the role of debt and investment. The government has realized that the old model will no longer be able to stimulate the economy, a senior official familiar with the plan said. According to him, the meeting discussed the possibility that the period of weak economic growth will drag on. But the official ruled out that the government will go for aggressive stimulation, as during the crisis in 2008. Some senior officials at the conference also noted the growth of consumer demand for better goods and services, including food and health care. “We are not facing a shortage of demand. We need reforms on the supply side,” the official said.

Beijing has set a GDP growth target for 2016, but the figure will not be announced until March, an official said. Economists expect it to be lower than the current 7% target. They doubt that growth will reach 7% this year, which is expected to be the slowest in 25 years. Chinese President Xi Jinping has previously said that annual growth over the next five years must be at least 6.5% to double per capita GDP and income levels by 2020 from 2010 levels.

Over the past year, China has tried to stimulate the economy by cutting interest rates and increasing government spending. But the measures have had little effect, and many economists believe they have only increased risks as corporate and local government debt has grown. Corporate debt has risen to 160% of GDP from 98% in 2008, according to S&P. By comparison, it is now 70% of GDP in the United States.

WSJ, 21.12.2015, Alexey Nevelsky

China to get rid of excess