Eliminating industrial overcapacity, an important task for supply side reform this year, calls for joint efforts from an effective market and an active government, a leading economist said.

Justin Yifu Lin, a professor at Peking University and former chief economist at the World Bank, said overcapacity in the steel, coal and cement industries has periodic reasons, which include mainly weak domestic and external demands, but also structural reasons such as non-market-oriented participants and an unfair market environment.

Lin called for the removal of policy burdens on enterprises, in which the resettlement of former employees will be crucial. The government should improve social insurance to support workers laid off due to market factors and direct special funds to resettle those laid off due to policy factors. The supervision and evaluation system should be modified to stimulate government initiative.

He said the rules for corporate debt disposal should be clarified according to the principles of the market and the law, with enterprises, banks and asset management firms being the major participants of bankruptcy, as well as mergers and acquisitions.

The government should also strengthen enforcement of regulations on the environment, quality and safety in order to create a fair market environment.

In addition, Lin suggested boosting demands from home and abroad through investments in infrastructure projects with high rate of returns and encouraging industrial enterprises to “go out” seeking international cooperation along with the advancement of the Belt and Road Initiative.