New | Likonomics returns as premier faces slowdown challenges
Premier Li's economic policy makes return to boost infrastructure investment and restore steady growth without stimulus measures
Likonomics is back. But unlike 2013, when the term was first coined by independent observers assessing the policy style of new premier Li Keqiang, what has been dubbed Likonomics 2.0 was first trumpeted in Chinese media reports of Li's appearance at last month's World Economic Forum in Davos.
The return of the term appears aimed at reinforcing the image of Li as a leader highly knowledgeable about economics and dedicated to overhauling the country's growth pattern.
Observers said Li's administration was also seeking to emphasise its commitment to targeted policy without resorting to massive stimulus, after China's gross domestic product expanded 7.4 per cent last year, the slowest pace in 24 years.
Despite challenges from overcapacity and a real estate slowdown, China should have ample room to spur infrastructure investment and ensure GDP growth of about 7 per cent this year, analysts said.
Yao Jingyuan, an adviser to the State Council and former National Bureau of Statistics chief economist, said "range-based adjustment and control" was key to understanding Li's economic thinking.
"I believe we should keep 7 per cent steady growth for the economy so as to safeguard jobs," Yao said. "Some said 2015 economic growth might fall off a cliff. They simply didn't understand China's economic fundamentals.
"[Communist Party] general secretary Xi Jinping and Premier Li, the two navigators of the Chinese economy, would never let the speed slow abruptly to tier one from tier five."
Asked about the core of Likonomics, Yao said the concept was well illustrated by phrases often mentioned by Li, such as "drip irrigation" rather than "flood irrigation", "targeted control", and "persistence" in keeping policy stable.
"These theories have their intrinsic logical connections," he said.
In 2013, Peking University professor Huang Yiping, who was then an economist at Barclays Capital, said Likonomics had three pillars: no major stimulus, deleveraging and structural reforms.
State media mostly ignored Likonomics last year after Xi became the head of a new panel overseeing overall reforms, giving him the final say on major economic and political policies.
But last month, many state media, as well as the government's own website, ran an article discussing "Likonomics 2.0" at length and linking it to what Li said were the "twin engines" of the economy - with emphasis on the roles of the government and the market.
Seeking to shore up confidence in China's economic outlook, Li ruled out a hard landing at Davos. He assured an international audience of medium to high growth in the long run, pledging to spur innovation while also ensuring the supply of infrastructure and public services.
"The initial version of Likonomics was mainly against repeating the four trillion yuan stimulus programme" introduced during the global financial crisis, Mizuho Securities' chief economist for greater China, Shen Jianguang, said. "The 2.0 version appears to place more emphasis on targeted adjustment and control. It aims to tell that Beijing favours smart growth."
Li's targeted policies aroused some doubts among researchers last year, with some saying his steps failed to curb soaring financing costs. Suspicion peaked when the People's Bank of China cut interest rates for the first time in two years in November, widely seen as starting broad-based monetary easing.
But the rate cut has yet to push down borrowing costs in the real economy, and instead sparked rife stock market speculation.
Shen said China should not simply rely on monetary easing to spur growth but should overhaul the fiscal system, because soft budget constraints had been the root cause of high financing costs.
"Solving this problem will be the top priority of reform this year," he said.
