OECD Economic Surveys China

1 OECD Economic Surveys China March 2017 OVERVIEW This Overview is extracted from the 2017 Economic survey of China . The survey is published on the responsibility of the Secretary-General of the OECD. 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 OECD Economic Surveys : China OECD 2017 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgment of OECD as source and copyright owner is given.

2 All requests for public or commercial use and translation rights should be submitted to Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC) at or the Centre fran ais d exploitation du droit de copie (CFC) at OECD Economic Surveys : China OECD 20179 Executive summary Managing the gradual slowdown Boosting corporate dynamism and performance Ensuring inclusive growth by enhancing opportunities1 EXECUTIVE SUMMARYOECD Economic Surveys : China OECD 201710 Managing the gradual slowdownGrowth is still high, but is graduallyand appropriately moderatingSource:OECD Economic Projections 100 2 remains high but is graduallymoderating as the population ages and theeconomy rebalances from investment toconsumption, from external to internal demandand from manufacturing to services.

3 Orderlyrebalancing requires addressing corporate over-leveraging, overcapacity in real estate and heavyindustries, and debt-financed over-investment inasset markets. Fostering innovation and movingto more efficient and less energy-intensiveproduction is key to raising productivity as well asto improving the quality of growth and making itmore sustainable. At the same time, growth needsto become more inclusive. To measure progresson those fronts, better and more timely dataprovision is corporate dynamism and performanceR&D spending is higher than in a numberof OECD countries2014 or latestSource:OECD MSTI 2 on research and development is farabove countries with similar GDP per head,though it remains behind the United States andJapan.

4 Patent numbers are soaring on the back ofgenerous subsidies but the share of inventionpatents is small. Business creation has been madeeasier through the removal and unification oflicenses, but too many firms are governance is being strengthened,including for state-owned enterprises, throughenhanced external monitoring and internalcontrol, though on-the-ground progress needs toaccelerate. Stepped-up efforts to curb corruptionwill improve the quality and resilience of inclusive growth by enhancing opportunitiesDisposable income of the top 20% over thatof the bottom 20% of the income distribution2016 or latest availableSource: China National Bureau of Statistics, OECDI ncomeDistribution 2 inequality has declined and povertyeven more so.

5 Nevertheless, the income gapbetween the richest and poorest remains reforms can greatly enhance theredistributive impact of the tax-and-transfersystem, strengthen education and skills andimprove the labour market opportunities ofmarginalised groups. Improving the adequacyand accessibility of healthcare and pensionswould reduce the high household saving rate andbenefit both individual well-being and 2002 2004 2006 2008 2010 2012 2014 2016%012345 CHLMEXTURITACANGBRCHNEU15 AUSFRAUSADEUJPNKOR% of GDP024681012 FINNLDHUNKORAUSUSAMEXCHNR atio2 EXECUTIVE SUMMARYOECD Economic Surveys .

6 China OECD 201711 MAIN FINDINGSKEY RECOMMENDATIONSM onetary policy and prudential regulationThe stance of monetary policy is broadly appropriate,but the use of targeted policy instruments is less on targeted monetary policy finance is expanding prudential regulation by requiring lenders to take intoaccount borrowers repayment ability when extending growth makes investment more risky and isdriving funds to real estate and securities leveraged investment in asset spending and fiscal dataFiscal stimulus, including through policy banklending, raises short-term growth but may lead topoor a prudent fiscal policy.

7 Increase public spendingefficiency by channelling funds to where returns are high such aseducation, health and social security and avoid misallocation ofcapital by allowing banks to better price or tardy general government datahamper fiscal policy the quality, coverage and timeliness of fiscal growthEnvironmental standards are not enforced effectivelyenough and green taxes make up a very small shareof tax implement the December 2016 EnvironmentalProtection Tax Law, stepping up enforcement efforts and raisingenvironmental accounts for 27% of world carbon emissionsand has committed to curb them.

8 However,increased renewable capacity does not alwaystranslate into greater independent renewable generators to sell surplus energyand link renewable capacity expansion with the extension of thelocal power innovationInnovation is flourishing though only strategicallyimportant projects and new- and high-techindustries benefit from the number of sectors benefiting from governmentsupport for property right violations deterregistration of intellectual property right protection by moresystematically prosecuting violators and raising corporate governance and pushing ahead

9 With SOE reformSOE managers are often civil servants. The boardoften has a limited role in appointing and evaluatingmanagement and independent directors are nottruly independent. SOEs are often burdened withsocial the management of SOEs to make a clear divisionbetween business and politics. Hire truly independent directorsand give the board authority to appoint and evaluate managementas well as to decide management salaries and promotion. Wherepossible carry out SOEs social functions separately fromcommercial operations to boost the efficiency of the shareholders often expropriateminority shareholders through the regular publication of company accounts andenhance disclosure standards for all executives have been found to embezzle penalties for individuals committing and other public entities enjoy implicitguarantees that inflate corporate remove implicit guarantees to SOEs and other publicentities to reduce contingent have large market shares in many state ownership in commercially

10 Oriented, non-strategicsectors. Let unviable SOEs go bankrupt, notably in sectorssuffering from social inclusivenessThe gap between the richest and poorest is and transfers have little redistributiveimpact. The system of social security contributionsis social security contributions on actual income earned. Increasecentral and provincial government social assistance transfers topoorer areas. Broaden the personal income tax base and increase taxprogressivity. Implement a broad-based nationwide recurrent tax onimmovable property and consider an inheritance tax that wouldinclude some basic inheritance retirement age is low, especially for increase and unify the pension age to 65 and then indexit to life benefits cannot be readily transferredbetween locations.