China would seek a higher “quality and efficiency” of growth next year, it said at the weekend, signalling new leaders may accept slower expansion in exchange for a more sustainable model.
There was no mention of seeking “relatively fast” growth, a policy in place since 2006, in a report yesterday by the state-run Xinhua news agency after the annual central economic work conference in Beijing. Leaders vowed to target “sustained and healthy development” as they maintained a “prudent” monetary policy and “proactive” fiscal stance, Xinhua said.
Chinese leaders assuming power in a once-a-decade handover to be completed in March must decide on the pace of market-driven change to boost consumer demand and rein in the role of exports and investment. Communist Party chief Xi Jinping, who made the case for restructuring during a visit to Guangdong province this month, faces an economy likely to have grown this year at the weakest rate since 1999.
“Now the focus is firmly on reform for next year and the future,” said Shen Jianguang, the Hong Kong-based chief Asia economist at Mizuho Securities Asia. “The key to watch is how fast the new leadership will proceed with the real tough structural change and reform. Many of these are easier said than done.”
Even so, “next year is considered a vital year for the new leadership”, so the government would not allow a so-called hard landing in growth, Shen said.
The need to improve the quality of expansion was also cited by the party’s ruling Politburo in a December 4 statement reported by Xinhua.
China would “fully deepen reforms” in the economy and “firmly promote opening-up” next year, Xinhua said. The nation would maintain property-market controls and increase urbanisation, Xinhua reported, citing the closed-door meeting.
The government usually reveals specific economic targets at the legislature’s annual meeting in March. Nine of 16 economists surveyed by Bloomberg last month forecast China would keep its 7.5 percent goal for growth in gross domestic product next year. The figure was the lowest target since 2004 when it was announced in March this year.
The median estimate in a Bloomberg News survey is for 7.7 percent expansion this year.
People’s Bank of China governor Zhou Xiaochuan spoke yesterday of limits on reform.
He said China would keep controls on short-term capital flows even if it implemented deeper convertibility of the yuan. It would not welcome capital flows such as those by some hedge funds that entered or exited the country in one or two weeks, Zhou said at a conference in Sanya, China.
Wu Xiaoling, a former deputy governor at the bank who is now deputy director of the financial and economic committee of parliament, said at the same event that circumstances would be right next year to further loosen controls on interest rates. China should consider adding several basis points to the Shanghai interbank offered rate to replace the current central bank benchmark interest rate, Wu said.
Chine would “properly expand” aggregate financing to maintain a “moderate increase” in lending next year and reiterated that it would keep the yuan’s exchange rate “basically stable”, Xinhua said on Sunday.
The ruling Politburo said this month that China would keep economic policies stable, making adjustments as needed to deal with difficulties. At the same time, the economy would “face various challenges that should not be underestimated” next year, Xinhua reported on December 4.
China should not delay economic restructuring, Xi said during a tour of Guangdong, where he paid tribute to Deng Xiaoping, a former leader who drove opening of the economy.
“We should master greater political courage and wisdom to push forward the next reforms,” Xinhua said on Sunday in its report. It cited a phrase by Deng about “crossing the river by feeling for the stones”.
The benchmark Shanghai composite index rose 0.5 percent yesterday, extending the biggest rally in three years as the government’s plans to increase urbanisation spurred gains in commodity producers.
“The meeting sent a stronger signal of speeding up reforms,” said Sun Junwei, a Beijing-based economist at HSBC Holdings. At the same time, slack in the job market and producer-price deflation indicated that officials needed to stay focused on growth goals, Sun said.
The government’s labels for its policies are sometimes altered after the fact. For example, China started raising interest rates in 2010 before dropping its “moderately loose” stance of monetary policy in place since 2008.
The language of a prudent monetary policy has framed interest-rate moves in both directions. China raised borrowing costs and the reserve requirement ratio for lenders from October 2010 to July 2011 as inflation gained. Since then, with economic growth slowing, the central bank lowered rates twice and the reserve ratio three times, pausing since July.
Caterpillar, the world’s biggest construction and mining equipment maker, expected growth to increase next year as China’s government focused on urbanisation, chairman and chief executive Doug Oberhelman said in an interview on December 6. - Bloomberg