Policy Implications and Suggestions

Abstract

That the private investment growth dropped dramatically is one of most significant macroeconomic events in 2016. As we know, private economy has grown up to be the main body of China’s economy. Today’s private enterprises contribute over 60% of GDP, over 80% of employment, and over half of tax revenues. Private investment accounts for over 60% of total FAI, and over 85% of manufacturing investment. The efficiency of private investment is always higher than that of state capital investment as well. Policy simulation in this report shows that if the ROI would be increased to about 8%, which maintained in 2013, then the share of private investment would be raise significantly, and that would make China maintain its growth rate at about 7–8%. Conversely, if there would be a sharp fall of ROI, then the private investment would correspondingly drop dramatically, which would make China’s economic growth rate drop below its present level. Thus, the results of policy simulation verify that China’s economy cannot suffer a sharp fall in private investment growth, whatever in the near term or in the long term.