Solutions must be found soon. Of the numerous solutions proposed, the most viable approach would be for the government to boost domestic demand. National tax subsidy which is known as tax expenditure, combined with encouraging public and private investment would make an indelible contribution to economic and social sustainability for China. Reducing China’s economic dependence on outside and expanding domestic demand would be directed to the reduction of the adverse effects on export enterprises (Lou et al. , 2014).
Tax expenditures would provide financial support for those export companies to develop high-tech and high-value rodents and gradually alter the original low labor cost access to international market. Only in this way, not only could the Chinese export enterprises avoid frequent anti-dumping investigations or safeguard measures from foreign countries to put pressure on ARM appreciation (Lou et al. , 2014), but also the Chinese authorities could readjust and optimize industrial structure, product structure and the structure of import and export merchandise.
In addition, the program of tax expenditure would be conducive to attracting foreign investment, introducing advanced technology and creating jobs. Although the tax expenditures may reduce the government’s current tax revenue, this “loss” could be exchanged for foreign capital, advanced technology and management experience. So that the Chinese authorities could take full advantage of foreign resources to develop the international market, foster the development of other sectors and create employment which would be of enormous benefits economically and socially.
Another advantage of boost domestic demand is that it could be beneficial to the country short-term stability and long-term prospects. China has the shiest savings rate in the world which has exceeded 43 trillion Yuan in 2013, accounting for approximately 50% of GAP (NBS, 2013), so China has a strong consumption potential. Encouraging public investment in affordable housing, education, health care and old-age support could largely reduce the uncertainty Of residents’ expenditure. Therefore, this program could promote the domestic consumption of residents as well as cut trade surplus and control the pace of ARM appreciation.
Furthermore, some preferential policies to spur private investment in infrastructure, like sewage and garbage espousal project, would be considered to be an effective way to solve unemployment and industrial overcapacity, which would be of considerable benefit economically, socially and environmentally. It is true that there are limitations to these programs as the rapid expansion of investment could easily lead to non-performing loans (Tune, 2007), however this problem could be solved by improving business operation in commercial banks to improve asset quality (Han, 2005).