New guidelines confirm policy continuity with three central themes
Updated: 2012-12-19 06:54
(HK Edition)
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Attended by all the new Politburo members, the annual central economic work conference (CEWC) of China has set out broad guidelines for economic policymaking for 2013, with emphasis on three central themes, namely macro policy continuity, gradual reforms, and growth model transformation.
Under each of these themes, we note some interesting points:
1) On the less controversial macro policy, the CEWC confirmed a "proactive fiscal policy" and "prudent monetary policy", which could mean a mix of moderately expansionary fiscal policy (slightly higher fiscal deficit compared with 2012) and a neutral monetary stance (flat interest rates in 2013).
It reiterated its pledge "to maintain property market regulation", signaling a consensus among key leaders to prevent a further property bubble building up and a price surge.
On fiscal policy, it emphasised "structural tax cuts", which in theory will help reduce the burden on private business and the service sectors.
2) On the much debated reform outlook, the CEWC emphasised "deepening reform and further opening-up" of markets. It is worth noting that the president-to-be, Xi Jinping, already signaled his commitment last week by following in the footsteps of the former leader, Deng Xiaoping, with a visit to the coastal city of Shenzhen. This is his first official visit outside of Beijing after being confirmed as the general secretary of the Communist Party of China.
Also, interestingly, amid different domestic voices, the CEWC "calls for top-level design and overall planning, and an explicitly proposed reform plan - the road map - and timetable". It also endorsed the bottom-up approach by emphasising its aim "to encourage bold exploration and a pioneering spirit, 'crossing the river by touching the stones'".
This supports my view that there are reasons to be optimistic about a more market-based Chinese economy, with necessary structural reforms likely to be brought forward to reduce the accumulated socio-economic political confrontations and imbalances. On the other hand, we shall not expect too much for aggressive structural reforms in the short term.
The new government is fully aware of the tough challenges it faces in the coming years, so simply maintaining the status quo is not an option. But even if the government takes decisive action, it will take time to draw up the necessary plans and build consensus among key stakeholders. Any systemic reforms are more likely to be proposed at the third plenary session of the Central Committee in Autumn 2013.
3) On the rebalancing of the Chinese economy, the CEWC emphasised its aim to enhance "quality and efficiency of economic growth" with a focus on "innovation and adjusting the industrial structure". Xi Jinping has highlighted both these aims in recent speeches.
Note that this year's CEWC replaced the previous statement "to maintain steady and relatively fast growth" with "to promote sustained and healthy development". This indicates that the government is more willing to tolerate lower growth provided employment and systemic financial risks remain stable.
Judging that the global economy will be "in a sustained period of slower growth", the CEWC emphasises the importance of domestic demand to economic growth, by "strengthening the fundamental role of consumption and to guide the key role played by investment".
It also highlighted the importance to "increase and guide private investment, and to expand public investment in infrastructure, the areas that won't lead to repetitive construction". It also emphasised "quality development of the urbanisation", which it considers "a main potential driver for expanding domestic demand".
The author is China economist at Barclays Capital Asia. The opinions expressed here are entirely her own.
(HK Edition 12/19/2012 page2)