Based on the world’s largest domestic market, China is transforming its economic paradigm from investment to consumption. During an interview with Fortune Korea, Liu Jing, CKGSB Professor of Finance shared his views on “Liconomics”: China’s economic reformation plans, named after the Premier of the People’s Republic of China, Li Keqiang. Professor Liu claimed that the reformation of state-owned enterprises (SOEs) and the financial systems are vital to lead successful Liconomics—as well as the abolishment of the Hukou (family register) system—in order to boost local demand.
Professor Liu said that Liconomics is China’s new paradigm of economic revolution and there should be an increase of investment over private enterprises, as the power of the economic reformation should stem from the market and the public, not from the government. In addition, China’s economic growth rate, which has been maintaining over 10% for the last 30 years, must be slowed down. He explained that the economic reformation will improve the efficiency of the economic system and encourage the competition that will transition the SOEs’ market power to private companies, bringing a redistribution of wealth and vitalizing the public sector.
With regards to the correlation between China’s urbanization plan and the increased local tax burden, the unfair distribution of tax revenue between the central and local governments is the major factor for the increased liabilities. However, Professor Liu believes that local government liabilities are still manageable and unlikely to rise in the future. Rather, he focuses on the relative deprivation of local peasants. Because of low productivity and work efficiency, peasants are relatively disadvantaged to accumulate wealth. So, Prof. Liu claims that urbanization must be accompanied with redistribution of wealth.
Predicting the future of Liconomics in 2014, Professor Liu maintains positive predictions, yet explains that it is difficult to lead tangible results in the short term. He suggested that the service sector will achieve significant growth through public competition. Above all, Professor Liu summarized what counts as the most to the successful factor to Liconomics—a “will to reform”.