Economy >Domestic Economy
Three Reductions, One Lowering and One Compensation
The "Three Reductions, One Lowering and One Compensation", i.e. overcapacity reduction, inventory reduction, leverage reduction, cost lowering and weak link strengthening, have been included in the government work report made by Premier Li Keqiang as the five major tasks for the period starting from 2016. The fundamental purpose is to improve the quality of supply to meet the requirements and to enable the supply capacity to better satisfy the people’s ever-increasing material and cultural needs. It involves deepening reform, carrying forward state-owned enterprise reform, speeding up the transformation of government functions and deepening the basic reforms in price, financial tax, finance, social security, and other areas of basic reform.
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NDRC: Overcapacity top reform priority for 2017

China's top economic planner said on Saturday that cutting excess production capacity will be a priority for its work next year. The National Development and Reform Commission will continue to push supply-side reform, including cutting overcapacity, destocking, deleveraging, reducing corporate costs and shoring up weak links in the economy, according to a statement after its annual work conference. "Substantial headway must be made in carrying out these tasks," the statement said, adding that breakthroughs should be made in crucial fields, while multiple policies will be implemented to boost demand and ensure healthy economic development. The commission will use market and legal tools to balance overcapacity reduction with stable supply, and structural optimization with industrial upgrades, Xu Shaoshi, head of the commission, was quoted as saying. The NDRC said it will also control the leverage ratio of the nonfinancial corporate sector, and further cut taxation and fees for corporations.

State to accelerate structural reform

The State Council, China's Cabinet, vowed to deepen systematic reforms to encourage social investment and strengthen the "weak links" of the national economy, such as health, education, water conservancy projects and infrastructure. Analysts said the move will not only serve the short-term purpose of boosting growth, but contribute to middle- and long-term development. At an executive meeting on Sept 5, the State Council decided that the country will implement systematic reforms to "shore up the weak spots" of the economy, a task that is part of the country's structural reform agenda. In December 2015, the Central Economic Work Conference listed five major tasks facing the country, including cutting overcapacity, destocking, deleveraging, reducing corporate costs and shoring up the weak spots. Premier Li Keqiang presided over the meeting and said that major investment projects and systematic reforms must be carried out promptly. "We should continually deepen reform, bring out systematic dividends, and release the potential of 'shoring up the weak spots' and expanding effective investment." The weak spots mainly refer to fields where China lags behind other major economies, such as access to public goods in per capita terms, the rural-urban development gap, education, health and care for the elderly. "Through systematic reforms (in such fields), the government can drive up investment and we should make more efforts to promote our work in that respect," Li said. "Shoring up the weak spots is one of the five major tasks of China's structural reform and progress is relatively slow in that aspect," said Li Zuojun, an economist at the State Council's Development Research Center. "Therefore, the State Council has put a major emphasis on it." Zhong Ying, a researcher at the Chinese Academy of Social Sciences (CASS), pointed to eight major fields where China should improve: sustainable economic growth; infrastructure; people's livelihood; coordinated rural-urban development; environmental protection; technological innovation; training of professionals and prevention of financial risks.

Reforming the Chinese banking system

The banking sector needs to fully recognise the historic opportunities brought about by the leadership's five development concepts of innovation, coordination, greenness, openness and sharing, while also being aware of possible 'growing pains' as China transforms its model. While the implementation of a stable macro policy, well-targeted industrial policy, flexible micro policy, practical reform policy and responsible social policy will greatly support sustainable development, the banking sector should also be fully aware of the impact that the implementation of these policies might have at an operational level. Cutting overcapacity, destocking, deleveraging, reducing costs, shoring up weak spots and advancing supply-side reform will bring long-term benefits as well as short-term risks. In particular, banks need to deal with the closure of 'zombie companies', which will test their risk management, operating, profitability and capital replenishment capabilities.

Knowledge Graph
Examples

1 The word we talk about today is “cutting overcapacity, destocking, deleveraging, reducing corporate costs and shoring up weak spots”.

2 In December 2015, the Central Economic Working Conference was held in Beijing. The five major tasks of cutting overcapacity, destocking, deleveraging, reducing corporate costs and shoring up weak spots were listed for next year’s economic and social development.

3 According to a statement issued after a meeting of the Political Bureau of the CPC Central Committee on April 29th, President Xi said that China has had a good start to the year 2016 so far following efforts in supply-side structural reform and cutting overcapacity, destocking, deleveraging, reducing corporate costs and shoring up weak spots should be implemented.