China Looks to 1998 on Reform; Overcapacity Has Been Faced 3 or 4 Times Already

The Economic Observer has two articles looking back to 1998 on economic reform.

EO: 98企改亲历者:供给侧改革如何减少阵痛

First is an interview with Zhou Fangsheng.
From 1991 to 1997, Mr. Zhou served as deputy division director and division director in State-owned Assets Administration Bureau, and deputy director in Stated-owned Assets Administration Research Institute. From 1997 to 2001, Mr. Zhou worked as deputy director in difficulty relief working office for state-owned enterprises of State Economic and Trade Commission.
He was in charge of SOE reform at that office. He is now retired, but he has been studying the local economies of Northeast China. Quick summary: China has faced overcapacity before and it was met with reform such as 1998 with Zhu Rongji, but in 2008 pain was avoided and the overcapacity problem became much worse. Overcapacity is probably close to 50%.

Economic Observer: You served in 1998, deputy director of the State Economic and Trade Commission office SOEs turnaround from these "real" experience to analyze the supply side of the reform is now the central authorities, and the previous state enterprise reform, the most fundamental change in where?

Zhou: Since late last year, I was doing some research in North Eastern Province, Shenyang, Harbin and other places. Now I'm retired, so to run the business is also convenient than the original, but can see, we learned a lot more genuine contradictions and problems.

Through the investigation I found that the current difficulties in the Northeast state-owned enterprises has been very severe.

The supply side of the reform of the central government, supply and demand are two sides of a problem, according to my understanding, the supply side of the reform is not a fine-tuning, but 180 degrees out of the head, from the demand side to solve the economic problems, the conversion to the From the supply side to solve the economic problems. Economic policy when we lost such a big head? No! 1998 is the direction, but did not like the mention of so clear. My understanding is this.

From the 1980s, national overcapacity has occurred at least 3,4 times, overcapacity each time more serious than the last, especially in 2008 and now this. 1998, Zhu Rongji also start from the supply side reform, such as the textile spindles, but by administrative means pressure capacity measures 2008 overcapacity is taken to stimulate demand, the result of overcapacity problem worse. You think, already overcapacity, and also stimulate the market from the demand side. Originally the market demand is not so big, is to stimulate out by administrative means, gave the market an amplified erroneous supply side signal. Resulting in excess capacity today to be more severe than in 2008, figures in several industries statistics down, overcapacity is probably closer to 50%. I think that this supply-side reform is the right choice, the whole direction, the direction of the original solution to the problem in question.
He goes on:
The Economic Observer: 1998 loss-making state-owned enterprises was 39.7 percent, and now it seems the entire state-owned loss is more serious. Recently we have seen a profile of Shanxi, said Shanxi is the most difficult since the reform and opening period, until November 2015, Shanxi 119 counties (cities, districts) have revenues 87 counties negative growth.

Zhou release: From my research in the Northeast, the Northeast now face a loss of more than 60% state-owned enterprises in fact, the situation may be more severe in Shanxi. Now the country is the number of loss-making state-owned enterprises that do not know, because we have not seen published figures in this regard.

The Economic Observer: Do you think, now what SOE reform is the most critical issue is?

Zhou released: first to admit that the whole state-owned enterprises has been very difficult, partly state-owned heavy losses of reality, if you do not recognize the reality that what is to solve the problem?

If you said the situation is excellent, everyone would think there is no need for the reform. Zhu period in 1998, the first is to recognize the reality, it is difficult to recognize state-owned enterprises, state-owned enterprises to achieve three central determined turnaround. Turning around the premise that the presence of recognition problem. Acknowledged difficulties, you can face it and face reality, you can take action.

Recently the central government reform is mainly supply-side capacity to do a good job, go inventory, deleveraging, lower costs, make short board "five key tasks," which, at least the first three, all acknowledge the existence of state-owned enterprises reflects the problems. There is an old saying, that acknowledged the problem, the problem is half solved.

Another is to deepen understanding, determined to promote supply-side structural reforms, there is a clear idea, there are clear thinking, as well as specific tasks. "To head-to stay here, to dry firmly, boldly dry, solid ground dry, dry accurately, and never looked back to dry."

The second article also looks back at 1998 reforms.
中国经济 温故1998
From 1993 he began as the National Bureau of Statistics chief economist, and later went to assistant governor of Anhui Province, sending experience, let him understand the profound to the Chinese economy heavily ill and micro sores.

He found that in a survey of the year, the country has about 96% of industrial consumer goods in oversupply or supply and demand balance; Liucheng enterprise reflect an oversupply of production; processing industry capacity utilization less than 50% of enterprises in the three more than one-half. 380,000 independent accounting industrial enterprises of finished products amount of funds used more than 600 billion, of which non-normal occupancy of nearly 200 billion.
The article also discussed an event that crystallized the reforms, the literal scrapping of a textile factory, following all the way to a furnace at Shanghai Iron & Steel.

Massive NPLs and a banking system bailout marked the end of the 1998 reforms, in the early 2000s.

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