To make sense of the current macro-economic situation, one must clarify a few misunderstandings.

First, structural reform cannot replace stimulus policies. Many of the problems facing the Chinese economy are rooted in the distorted economic structure, but this does not mean structural changes can take the place of stimulus policies that keep aggregate demand stable.

Structural reform and macro-economic policies for stable growth are two different vehicles, each with its own target orientation and policy means. The two do not conflict with each other. The structural reform aims to improve the efficiency of resource utilization and increase potential growth. The purpose of maintaining a stable macroeconomic policy is to maintain the full use of resources and thus to unleash the potential for growth, and mostly consists of monetary and fiscal policies targeting demand management.

Many people fear that stimulus policies will result in a large number of inefficient investments that are not conducive to optimizing the economic structure, as shown in many previous cases. However, the remedy is not to avoid stimulus policies, but rather to have appropriate policies at the right timing, with suitable projects to work the magic.

Also, structural reform is a gradual process, and it will not and should not be a silver bullet. Since the Chinese per capita income has grown to a certain level and is still on the rise, an adaptive structural reform is a safer choice. This means that structural reform policies can only be introduced gradually, and the related measures should not be considered an elixir to increase aggregate demand within a short period of time.

The second misunderstanding: a slower economic growth rate does not necessarily mean a better growth quality.

Neither continuous economic overheating nor economic overcooling is favorable to improve the growth quality. Long-term economic overheating causes excessive low-efficiency investments, while sustained overcooled economy is very harsh for the survival of small enterprises. The thermometer to read the temperature of an economy -- in other words, the appropriate index to measure the health of that economy -- is not the growth rate itself, but the GDP inflation factor.

Since 2012, the Chinese macro-economy has been overcool, not overheated. It has been suffering from deflation, not inflation.

The third one, adding government debt and fiscal deficit can lower risks, not increase risks, if two conditions have been met. First of all, there should be a clearly defined boundary of market and government. The government should restrain itself from overstepping into the business that is not even remotely related to public welfare. Second, the government should be prepared to finance some public-good or quasi-public-good projects. If government and market play their roles and cards right, even if the deficit and the debt of the government significantly increases, the risk will be lower, not higher.

Fourthly, macro-economic policies should not be “kidnapped” by housing prices. If incentives are in place, both credit and purchasing power will inevitably expand. When expansion ensues, real estate prices, especially those in first-tiered cities, will be put to test. However, it is ill-advised to let property price take macro-economic policies hostage.

Let's find the culprits behind soaring Chinese housing prices. Property developers touting better infrastructure, location advantages and public service and resources in downtown areas drive the price up. A massive influx of people into big cities puts a strain on the supply of residential land. Local governments with property as their lifeline push up the price. Buyers with some nest egg money in their pockets want to try their luck in the housing market, becoming a speculator or a long-term investor.

Who should be held accountable for the high price? Property developers have their obligations, while the buyers, who have limited choices, should diversify their investments. A more mature and robust financial market and better tax cuts for pension investment will help stabilize housing prices, because people have more investment alternatives other than buying houses.

Policymakers should also weigh in the financial wealth of the buyers, namely, the total of their bank deposit, stocks and pensions, etc. Enhancing purchasing power will be reduced to lip service unless there is an increase in financial wealth. If other factors remain unchanged, the growing financial wealth will boost overall purchasing power.

Zhang Bin is a research fellow at the Institute of World Economics and Politics, the Chinese Academy of Social Sciences. The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.

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This article was translated by Hou Sheng.