Better emasures to 'rebalance' China’s economic structure

Comments on Yiping Huang and Bijun Wang “Rebalancing China’s economic structure”, 3/09/2010, http://www.eastasiaforum.org/2010/09/03/rebalancing-chinas-economic-structure/
Leaving the causes of the current economic issues/problems in China aside, some measures could significantly if not greatly diminish the problems.

For example, allowing the private sector and corporate sector in china to hold and buy and sell foreign currencies will reduce the pressure for the authority to buy them and invest them in low return foreign government bonds.

Whatever the private and corporate sectors do is likely to increase the returns. Further, it is likely to reduce current account surplus and hence the pressure for currency appreciation.

Another issue relates to the profits and taxes of the SOEs. Rather than tax them more heavily that would distort the market, government should set mechanism for returns of profits, either linked to what the private sector average, or a fixed percentage, then if needed to make some general adjustments to mimic the private sector.

The private sector and the SOEs should compete on an equal footing in terms of price and taxes. Of course, entry can be a big issue that should be addressed clearly in terms of development strategies.

If monopoly is an issue, then anti-monopoly policies should be applied irrespective the targets are private sector or SOEs. SOEs must face effective competition to be efficient enterprises.

For environmental issues caused by externalities and mispricing, the most efficient and effective way is to use taxes to correct them as opposed to direct administrative measures. The later can be effective but are unlikely to be efficient.