Supporting the real economy and small and medium enterprises is the right solution for China to overcome its economic difficulty, says an article in the China Business News.

Excerpts:

It is a question overshadowing many people's hearts these days if the Chinese economy will have its crisis. Recently, the Shanghai stock market index plummeted 5.3 percent in one day. Against this backdrop, voices calling for the central government's "bailout of the market" are getting louder.

Yet, the central bank announced on June 24 that the liquidity of China's banking system remains at a rational level and the financial agencies should implement prudent monetary policies. This means the central authority has not decided to bailout the market yet.

There are two responses to this attitude. On the one hand, the turning point of liquidity has appeared, and structural conflicts have been aggravated. But that does not mean a shortage of money supply. China is suffering from the side effects of its previous loose financial policies. The temporary pains are good for the Chinese economy in the long run.

On the other hand, several rounds of stimulus policies have not yielded the expected results. People's anxieties will become unrest and fear. Although the risk remains manageable now, the Chinese government should waste no time in taking actions to stimulate the economy.

It is good that Chinese leaders have not taken conventional stimulus policies to save the economy so far. The Chinese economy should be upgraded but not by excessive productivity or repetitive construction. In fact, the Chinese government and society are learning to tolerate the pains of economic decline and have reached a consensus that the pains are worthwhile for sustainable growth in the future. The key is whether China can upgrade its industrial structure successfully.

China's banking industry should draw lessons from its difficulties now and carry out reforms. China's stock market will face another round of harsh tests. The government may have enough capacity to solve the debt crisis. The real concern for China is not these discernible problems but the poor economic conditions of the groups of disadvantaged people, whose life quality will be seriously affected by the weak economy and job markets. They are the foundation for China's social stability.

It is necessary for decision-makers to direct the limited financial resources to support the cash-thirsty real economy and encourage small and medium enterprises to apply for loans. The real economy makes wealth and the enterprises offer jobs. As long as they can get enough financial support, China can overcome its financial difficulty.