克強經濟學 (ke qiang jing ji xue): Likonomics

Likonomics, a term coined by Barclays Capital economists on June 27 to describe Premier Li Keqiang's economic policy, comprises three pillars: no stimulus, deleveraging and structural reform.

The response of China's central bank to last month's alarming cash crunch and soaring inter-bank borrowing rates shows the determination of the government to deal with any eventuality.

Li has said the economy cannot rely on stimulus or government-led investment for growth. Instead, it has to count on market mechanisms, and banks must make better use of existing credit and take sound measures to curb financial risks. In fact, that's what the first two pillars of Likonomics are all about: no economic stimulus, and deleveraging in the financial sector.

"Reform is the biggest dividend for China", Li has said. Li and his cabinet are expected to use economic reforms to lead China toward new growth. Structural reform, the third pillar of Likonomics, in areas such as the financial and fiscal systems, income distribution, land use and the hukou (house registration) system are have been widely discussed.

A clearer framework for economic reforms will probably be laid out at the Third Plenum of the 18th Communist Party of China Central Committee in the fall. And although Barclays Capital has forecast that Likonomics will cause a temporary "hard landing" with growth in some quarters slowing down to as low as 3 percent in the next three years, the slowdown will be followed by rapid rebound in the long term.

In the final analysis, Barclays says, Likonomics will lead the Chinese economy to a path of sustainable growth of 6-8 percent a year for the next 10 years.

(China Daily 07/12/2013 page9)