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China 2017 OECD Economic Survey More resilient and inclusive growth

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The Chinese economy will remain the major driver of global growth for the foreseeable future.

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China 2017 OECD Economic Survey More resilient and inclusive growth

  1. 1. www.oecd.org/eco/surveys/economic-survey-china.htm OECD OECD Economics 2017 OECD ECONOMIC SURVEY OF CHINA More resilient and inclusive growth Beijing, 21 March 2017
  2. 2. • Growth has slowed somewhat but remains strong. • China will remain the major driver of global growth. • Financial risks from high corporate debt are rising and need to be addressed urgently. • Innovation and entrepreneurship should contribute more to productivity growth. • Streamlining the social assistance system and the distribution of resources in education and health would enhance inclusiveness. 2 Main messages
  3. 3. 3Source: OECD Economic Outlook Database. Real GDP growth China remains the major driver of global growth
  4. 4. Investment is slowing 4 Source: National Bureau of Statistics.
  5. 5. Rebalancing from industry to services is underway 5Source: National Bureau of Statistics. Share of industry and services in GDP
  6. 6. The saving rate is still very high 6 Source: National Bureau of Statistics. Saving rate of households and non-financial enterprises, % of GNI
  7. 7. The poverty rate has declined dramatically 7 Source: National Bureau of Statistics. Rural poverty rate
  8. 8. Income inequality has declined due to strong income growth in the middle of the distribution 8 Source: National Bureau of Statistics. Gini coefficient
  9. 9. The poorest are falling further behind in rural areas 9 Source: National Bureau of Statistics. Disposable income of the top 20% over that of the bottom 20% of the income distribution
  10. 10. Boosting firm dynamism 10
  11. 11. Barriers to entrepreneurship have fallen 11 Note: The value of the indicator ranges from 0 to 6, with 6 being the most restrictive. Source: OECD Product Market Regulation database and authors’ calculation. Barriers to entrepreneurship, PMR indicator, 2013 and 2016
  12. 12. Bankruptcies are very rare 12 Source: State Administration of Industry and Commerce. The share of firms exiting through bankruptcy in total exits • Accelerate the bankruptcy process to reduce uncertainty and compensate the laid-off in accordance with relevant laws.
  13. 13. 13 Insolvency procedures can be improved Source: World Bank Doing Business 2017 database.
  14. 14. R&D spending is high 14 Note: Latest year available. Source: OECD MSTI database. R&D spending as a share of GDP
  15. 15. Public funds for innovation are concentrated 15 Source: National Bureau of Statistics. Share of government support for innovation in the total, 2015 • Spread government support for innovation across more sectors.
  16. 16. Patent use varies across provinces 16 Share of effective patents used in production and put on the market and number of patents, 2014 Source: State Intellectual Property Office.
  17. 17. The number of listed firms is on the rise 17 Source: CSRC.
  18. 18. Corporate governance needs to be improved 18 Source: China Stock Market & Accounting Research database. Percentage of firms with more independent directors than required by law • Strengthen the independence and decision-making role of the board by hiring truly independent directors.
  19. 19. Ownership concentration declined somewhat 19 Source: CSRC.
  20. 20. Most enterprise debt is from SOEs 20 Source: Bank of International Settlements and Ministry of Finance. Enterprise debt over GDP • Gradually remove implicit guarantees to SOEs and other public entities.
  21. 21. Key recommendations to increase the quality and resilience of growth 21 • Require the regular publication of company accounts and enhance disclosure standards for all firms. Raise penalties for individuals committing fraud. • Spread government support for innovation across more sectors. • Strengthen intellectual property right protection by more systematically prosecuting violators and raising fines. • Gradually remove implicit guarantees to SOEs and other public entities. • Professionalise the management of SOEs to make a clear division between business and politics. • Strengthen the independence and decision-making role of the board by hiring truly independent directors. • Accelerate the bankruptcy process to reduce uncertainty and compensate the laid-off in accordance with relevant laws.
  22. 22. Addressing financial risks 22
  23. 23. Mortgage lending soared 23 Source: People’s Bank of China. Growth of the stock of mortgage loans outstanding, y-o-y • Enhance prudential regulation by requiring lenders to take into account borrowers’ repayment ability when extending loans.
  24. 24. Housing prices have surged 24 Source: National Bureau of Statistics. Growth of housing prices by city tier, y-o-y
  25. 25. Enterprises are heavily indebted 25 Source: Bank of International Settlements. Enterprise debt as a share of GDP
  26. 26. NPLs are rising 26 Source: China Banking Regulatory Commission. Share of problem loans in total
  27. 27. Key recommendations to address financial risks 27 • Conduct a prudent fiscal policy. Channel funds to where returns are high such as education, health and social security and avoid misallocation of capital by allowing banks to better price risks. • Improve the quality, coverage and timeliness of fiscal reporting. • Enhance prudential regulation by requiring lenders to take into account borrowers’ repayment ability when extending loans. • Restrict leveraged investment in asset markets.
  28. 28. Providing opportunities to all 28
  29. 29. The tax and transfer system does little for redistribution 29 Reduction in market income inequality due to taxes and transfers Source: Standardised World Income Inequality Database (SWIID) Version 5.1. • Broaden the personal income tax base and increase tax progressivity.
  30. 30. Sub-national governments have too little own revenue 30 Source: Ministry of Finance. Shares of revenues and spending in total by government level, 2015 • Increase central and provincial government social assistance transfers to poorer areas.
  31. 31. Student performance is highly influenced by socioeconomic factors 31 Impact on PISA score of a one unit increase in economic, social and cultural status, 2015 Note: This is based on the PISA index of economic, social and cultural status. Source: OECD. • Increase public funding for childcare and introduce incentives to encourage the participation of migrant children and those in rural areas in early childhood education.
  32. 32. Healthcare is less available in rural areas 32 Ratio of health professionals per resident between urban and rural areas, 2015 Source: National Bureau of Statistics. • Raise doctor salaries by allowing doctors to provide fee-based medical services in public hospitals outside of their standard work.
  33. 33. The Meals in Schools Programme 33 Digitalisation of the Meals in Schools Programme Source: China Development Research Foundation, National Bureau of Statistics. Note: The government plan to provide free school meals for students in poverty-stricken areas has been enhanced in some locations by a China Development Research Foundation initiative using mobile phone technology to share and monitor the programme.
  34. 34. The retirement age is low 34 Source: OECD (2016), Pensions at a Glance. Normal pension age, 2015 • Gradually increase and unify the pension age to 65 and then index it to life expectancy.
  35. 35. Key recommendations for sharing the benefits of growth by providing opportunities to all 35 • Gradually increase and unify the pension age to 65 and then index it to life expectancy. • Improve administrative procedures to make it easier to draw a pension in a different location from where it is earned. • Increase public funding for childcare and introduce incentives to encourage the participation of migrant children and those in rural areas in early childhood education. • Raise doctor salaries by allowing doctors to provide fee-based medical services in public hospitals outside of their standard work. • Base social security contributions on actual income earned. • Increase central and provincial government social assistance transfers to poorer areas. • Broaden the personal income tax base and increase tax progressivity. • Implement a broad-based nationwide recurrent property tax and consider an inheritance tax that would include some basic inheritance allowance.
  36. 36. Environmental taxation is low 36 Environmental taxes as a percentage of GDP, 2014 Source: OECD Environmental Policy database. • Effectively implement the December 2016 Environmental Protection Tax Law, stepping up enforcement efforts and raising environmental taxes.
  37. 37. Key recommendations to make growth greener 37 • Effectively implement the December 2016 Environmental Protection Tax Law, stepping up enforcement efforts and raising environmental taxes. • Allow independent renewable generators to sell surplus energy and link renewable capacity expansion with the extension of the local power grid.
  38. 38. More information… www.oecd.org/eco/surveys/economic-survey-china.htm OECD OECD Economics Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. 38 Visit the OECD Economics Department website to download this presentation: Follow us on Twitter: Check the Economic Department blog for new ideas: https://oecdecoscope.wordpress.com

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