China as we discussed, needs to reform, needs to adopt new and better policies and needs to do this fast if it wants to continue being the global power force. With ever-rising debts, housing market bubbles, stock market crashes and collapsing industries, these reforms have to be good and benefit China in the long term. So here are a few reforms I feel the Chinese government can take-
Stock market growth- When planning to reform any economy, one must try to reform the weakest sectors in that economy. In China, it is the stock market. The second-largest stock exchange after the NYSE but the most volatile as well, On one day in June, more than $700 billion was wiped off the value of Chinese stocks. The major reason being, a) Inexperienced traders profiles- Most traders (80%- 90%)are inexperienced and new thus having no recall of even the 2007-08 financial crisis and thus downgrading the Chinese stock market with reckless selling an buying, and b) Margin accounts- which is like a common practice in China to borrow stocks on margin to trade mostly shorting and this causes problems as the inexperience leads to a loss for both. So what China needs to do is introduce reforms in its stock market. A few reforms that I planned were- First, separation of trading floors, i.e. introducing two different stock exchanges with different entry prices, higher fees for better international companies, restrictions and limited to experienced and serious traders to prevent market volatility. Secondly, a new exchange commission and replacing or restructuring the China Securities Regulatory Commission (CSRC), so as to ensure better functioning of these stock exchanges. Thirdly, restriction on shorting like many public market shave like mutual funds, ETFs etc. as shorting and margin accounts have really disturbed the trading practices with large scale borrowing and hence trading on heavy leverages. Lastly, better hedging options need to be introduced, shorting is there in the market but is misused and limited instead allowing shorting to the right people and introducing Call and Put Options, Index Futures, Forex hedging etc.
The dollar Squeeze- China is in dire need for dollars, to repay debts and loans and to continue trades. So for increasing its dollar supply without affecting a lot of UN, ITO or IMF regulations it can come up with the policies like- First, No dollarisation like practised by Russia. But with a slight tweak where in city trade and use od dollars as a substitute to Yuan will not be allowed, and all these dollars will be deposited in Chinese Banks, still, for international trades, USD will be used if the counterparty says no to yuan. Secondly, China has a bad name for its debt-trap diplomacy but what China can do is make it a source for loan repayments and clear its name at the same time. By making it compulsory for the Loaning countries to repay the loan and interest in an equivalent amount of dollars and to promote dollar repayments allowing interest concession up to 15% if payments are made in dollars. Thirdly, easing its FDI policy to allow more Foreign Direct Investment from the USA. Lastly, the most debatable option which might be problematic that is why leaving this as optional. Is to sell off a 100 Billion Dollar worth of treasury bonds for equivalent Dollars, this might he give the PBOC the cash boost it needs but can hinder the trade and Yuan valuation so can be problematic.
Banks and Funding- The Chinesbanks needs to undergo reforms as still, it is the largest banking system but the most state influenced ones as well, some reforms it needs to undertake are-
Privatisation of Banking sector- It has 9 major banks which are state-owned, interfering with private organisations and just missing out on the capitalistic and driving nature of Private banks. So if China decides to privatise at least 4 out of these 9 banks things may begin to change with lesser loans to state-owned enterprises and focussed growth strategies rather than reckless state spending,
Strict loaning and BRI- China needs to strictly monitor the loans it gives as the rate of growth of bankruptcy in China is more than any other country with over 153 Billion$ bankruptcy cases in 2019. So with the bankruptcy goes down the government loans, with China extending 1.3 Trillion Yuan(212 Billion USD) as loans their repayment is in questioning as the NPAs increased to a 2.04% this year in April. Indeed China has a strict loaning policy but is somewhere lenient towards SOEs which can be changed. It's Belt road Initiative allows it to loan recklessly and upon failure of takes that part of the Asset. Seling off these Assets primarily to the UK and USA fro dollars and pounds inflow may be a matter of concern but Chinese control is equally Concerning so selling might not be a great deal for these countries but for China FDI and trade development can be beneficial. This will lead to higher inflows of currencies and better business opportunities for China. Even selling off 50% or engaging in a joint venture will expose China to much better Foreign trades and relations.
Investment in Sectoral Growth and labour growth- Either a country can reduce its debt or increase its GDP as the USA did in the 1900s. So, what china can do for better jobs and Increased GDP is tapping its poorly growing sector of Real Estate, there is a GDP bubble in states of Shanghai and Beijing where people can not afford Real estate due to it's Soaring prices where someplace due to increased supply of real estate buildings are literally vacant with a zero market value. Firstly, the government should reduce its spending on the real estate and low-cost housing sectors as the more it spends the more it is seen as a source of investment thus increasing prices. Secondly, increasing deposits rate more than the inflation rate will allow more investments in banks and lesser towards the Real Estate. Thirdly, more jobs. This can be done by coming up with a fixed employment scheme, where each company with a given turnover will be required to hire a fixed number of people. Lastly, an underdeveloped service sector in China has been a problem, more focus on developing the service sector can also surge the GDP growth as it did for India.
Again these are my strategies for introducing reforms in China and to allow the growth of this economy and out of this troubling condition. One more important way of Quantitative easing as seen in the United States and even India can be adopted. Keeping in mind to undertake this QE techniques over the course of 3 years to ensure the country has enough funds to back the newly printed money otherwise it will simply lead to hyperinflation. If china deals with its stock market and real estate problems, development of its poorly performing sectors, new sectoral investments, lesser reliance on its exports and manufacturing sector which is just creating a scene for competition and downfall of companies and improved banking and dollar supply, China without a doubt will continue to rule the markets for another 10 years else it might not be able to stay at the top even for next 5 years.