Supply-Side Structural Reform, Viewed From the Provinces

“Supply-side structural reform,” a new concept first introduced into Chinese policy-making in late 2015, has become a key pillar of the government’s strategy for addressing structural imbalances, as shown by its prominence in Premier Li Keqiang’s address to the National People’s Congress earlier this month. On the surface, supply-side reform is intended to unleash more productive drivers of economic growth and reinvigorate reform momentum. Two critical tasks were identified by Premier Li as central to the supply-side reform agenda: tackling overcapacity and restructuring debt.

Initiatives announced under the banner of supply-side reforms now seek to shift channels of financing to the real economy to better support structural economic adjustments. China’s top economic authorities have recently proposed debt and equity markets as financing alternatives to bank loans, especially for firms in China’s overcapacity-wrought northeastern provinces. Yet an updated look at PBOC data breaking down credit growth by province suggests that, while non-loan channels are being increasingly utilized by firms in more economically vibrant provinces, corporates in provinces most hurt by inefficient capital allocation have not yet made the transition to lower-risk borrowing channels.

Posted August 1, 2017
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