A year ago, when China’s leaders and top government officials convened the annual economic meeting, they brought up some new leading concepts about economic growth: quality, efficiency, equality and sustainability. This year, they made clear that our economy had entered the stage of “high-quality development”.

These principle changes indicating the fade-out of GDP-based governance deserve sincere applause. It’s really time for China not only to look at the growth rate but also to consider marginal costs and structural imbalances, such as environmental problems and real estate issues.

The official definition of “high quality” and the related evaluation system are yet to be worked out. To me, “quality time” should include adequate growth of households’ income and wealth, equal and balanced regional development, control of risks, and a sustainable growth model.

We already have seen some encouraging effects thanks to quality-oriented policy adjustments. Although overall economic growth has slowed down from 7 percent in 2015 to 6.8 percent this year, urban households’ income has maintained growth of over 8 percent; and the Engel’s coefficient (showing expenditure on food) has dropped from 34.8 percent to 29.3 percent, meaning households’ wealth has been increasing. 

Industrial companies are doing relatively better. Their accumulated profits are growing by 23.3 percent, while their debt ratio has dropped from 58 percent to 56 percent. The number of companies losing money accounts for 13.2 percent of the total, down by 7 and 5 percentage points from the level in 2015 and 2016 respectively; and the loss has been cut by 197 billion yuan during the past two years.  

More importantly, the economy is relying less on fixed investment – which is hardly sustainable after almost four decades rapid expansion – and more on consumption. Since 2015, consumption and fixed investment have increased by 16 percent and 22 percent respectively. The ratio between the two sectors has increased from 0.55 to 0.58, showing that consumption is catching up. 

China’s achievements are remarkable, and the problems or difficulties are equally noticeable. Despite a drop by more than 2 percentage points in 10 years, the Chinese Gini index is still 46.5, well above the 40 level in Asia, meaning our income distribution is rather unequal.

And a gap between rich and poor exists also in regional development. About one third of provinces have a per capita income that is 20-35 percent lower than the national average. Without fiscal subsidy, 20 provinces’ pension funds couldn’t make ends meet, while certain provinces’ surplus could cover as much as 50 months payment, almost three times the 17-month national average.

Besides the long-term issues mentioned above, there are also hard nuts to be cracked in the coming year: “Zombie companies” are top of the list. According to government officials, companies which have been in the red for more than three years, whose cash flows are unable to cover interest payments, and the industries they belong to are to be downsized or restricted (think about the steel, coal, cement and glass industries), could be “Zombies” and need to be restructured or liquidated.

Currently there are about 190,000 such de-facto insolvent companies, which account for 7.5 percent of the total. Their debts are thought to amount to 4.5 to 6.2 trillion yuan, which happens to be very close to the scale of non-performing loans of the banking system. Up to 2.2 million jobs could be endangered. 

Obviously, the party leaders and top government officials are aware of these threats, and have drawn up a road map accordingly. The first move will still be intensive fiscal support. The deficit this year could be 2.9 trillion yuan, and reach 3.1 trillion yuan next year. More transfer payment from central government could be made to the less developed provinces and major restructuring projects.

Secondly, monetary policy will remain on the track of gradual normalization, but the process could be careful and “gentle”; a hike of two or three times to the repo and/or MLF rate by 5-10 BP could be expected. For small and medium-sized enterprises, monetary policy will be still accommodative. 

Although a major tax cut like that initiated by the Trump administration is hardly imaginable here in the near future, some preferential arrangements could be made for private investments, which should be viewed as one of the weaker links in the economy.

Furthermore, Chinese manufacturers can also expect some operational cost reduction next year. Our government could work harder to push systematic reforms in the power, petroleum and natural gas and railway transportation industries, so that they could offer better service at lower price; thus, manufacturers can improve their profit margin thanks to thinner energy and logistic bills. 

Hopefully, everyone can enjoy sufficient quality time both in business and family next year.

(The author is deputy general manager of the R&D department at Capital Securities. The article reflects the author's opinion, and not necessarily the views of CGTN.)