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Ex-Finance Minister Says Government Not Pushing Economic Overhaul Hard Enough

By Pan Che and Fan Ruohong

(Beijing) — Stimulus policies that followed the financial crisis of 2007-08 have created an illusion of economic stability in China, making the government reluctant to promote painful reforms, a former finance minister said.

Lou Jiwei made the remarks at the China Development Forum, held over the weekend in Beijing.

Lou’s opinion was echoed by other experts who remain skeptical about the strength of China’s economic recovery, which started in the last quarter of 2016, and through the first two months of 2017.

Some analysts argue that the approach employed to bring about a nascent recovery in China’s economy did not deviate sufficiently from previous strategies that relied on real estate and infrastructure investment, which have both led to a rapid growth in personal and local-government debt.

Lou suggested this was an opportune moment for China to push forward financial management and supply-side structural reforms to shore up social productivity, as the government promised to slow new credit loans and contain financial risks in 2017.

“The pain will be worse and consensus harder to reach if we have to carry out reforms under tightening policies, causing potential risks to lean toward far-right or far-left populism,” Lou said.

Lou also said that balancing supply and demand was a key factor in the medium term for boosting growth.

“Supply-side structural reforms,” a term first used by President Xi Jinping in a speech on economic affairs in 2016, emphasized that the appropriate demand in expansion should be complemented by trimming overcapacity, inventory destocking and deleveraging, cost reduction and improving weak links in the economy.

Lou, considered one of the most outspoken reformists in the Chinese government, was reappointed head of the National Council for Social Security Fund after being unexpectedly removed from the key post of finance minister in November.

Contact reporter Pan Che (chepan@caixin.com)

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