Mini-Stimulus to Fuel Reforms

At the present time， China is in need of economic stimulus， a fact testified to by the struggling branches of some banks and the sluggish manufacturing industry. The country should no longer base its optimistic mood solely on the explosive growth of the information technology （IT） and e-commerce industries. Without the upgrading of its manufacturing sector， Chinas economy will lose the foundation required to sustain its growth.

Since April， Premier Li Keqiang has held eight executive meetings of the State Council， with a focus on stabilizing the economy. To achieve this goal， the government should resort to mini-stimulus measures to shore up the ongoing economic reform.

Stimulus doesnt equate to denying the role of market， but instead provides more opportunities for reform. In the latest State Council executive meeting， government officials decided to go further in streamlining administrative procedures， such as eliminating or transferring 52 items of administrative examination and approvals and lowering the admittance threshold for the recruitment of some industries. Premier Li was of the opinion that the measures will exert a direct influence on microeconomic behavior， further vitalize the market and propel the reforms.

The reforms are aimed at injecting vigor into the market and pushing forward the countrys economic transformation. Since the new government took office， the most significant reform initiated concerns registra- tion capital， which has remarkably reduced the requirements for establishing a company and encouraged innovation. Since March 1， the amended Company Law and the newly approved Plan for Reforming the Registration Capital System have come into effect， which has allowed stakeholders to decide the amount of registration capital themselves， repealed the lowest limit of registration capital for limited liability companies， one-person limited liability companies and joint stock companies. The proportion of capital every stockholder first pays can also be decided by themselves. The paid-up capital of joint stock companies no longer needs to be recorded.

In addition， innovative enterprises are held accountable for their own profit models and loan repayment ability. When these enterprises seek finance， lenders can decide the amount and interest rate by referring to the stakeholders ability to pay off loans and make money. From this perspective， the reform of the registration capital system is of great significance.endprint

Over the course of the reform， the government should be careful when releasing some mini-stimulus measures， such as the recent “targeted reduction” of the reserve requirement ratio.

“Targeted reduction，” originally designed to alleviate the financing difficulties confronted by weak sectors， was expanded from county-level rural commercial lenders and rural credit cooperatives to banks that have lent “a certain portion” of their total loans to agriculture-related firms， small and micro- sized enterprises and other companies that cater to demands related to economic restructuring. As Ji Zhihong， Director of the Financial Market Department of the Peoples Bank of China， said， “targeted reduction” is a kind of positive stimulus to boost the real economy， and will shepherd more financial resources to agriculture-related firms and small and micro-sized enterprises.

However， in most cases， only policy banks， community banks and venture capital investors are willing to invest in agriculture and small and micro-sized enterprises. So if the banks and financial institutions suffer losses from investing in these weak links of the national economy， who would emerge to cover them？ Since profit is the exclusive goal that financial institutions pursue， who can ensure they will voluntarily shore up agriculture or small and micro-sized enterprises with the money released by the ratio cut？ Why is it so difficult to lower financing costs for these enterprises？ If preferential policies are released before in-depth analysis， it will merely aggravate the situation.

All in all， mini-stimulus measures are inevitable in speeding up the reforms， energizing the economy and putting the market in order.endprint