December 14, 2011 1:36 pm

Growth is now China’s top policy concern

China’s ruling Communist party wrapped up its most important economic meeting of the year with an agreement to focus on maintaining fast economic growth in the midst of what it described as an “extremely grim and complicated” global outlook.

The annual three-day Central Economic Work Conference for top Communist officials sets policy for the coming year and this meeting clearly signalled that the leaders of the world’s second-largest economy are concerned about a slowdown in growth.

“Growth has replaced inflation as Beijing's top policy concern,” said Qu Hongbin, co-head of Asian economics research at HSBC. “The economy is likely to slow further, calling for more aggressive easing measures.”

At the same conference last year, China’s leaders explicitly named taming inflation as the key policy goal for 2011.

Stubbornly high price rises peaked in July, when the consumer price index rose an annualized 6.5 per cent, but have since fallen back as growth slowed in recent months.

In November annual inflation was 4.2 per cent, down from 5.5 per cent in October.

Another key message from the conference was the need to “maintain stability” in a year that will see most of the country’s top officials, including the President and Premier, replaced in a once-in-a-decade leadership transition.

“Stability means to maintain basically steady macro-economic policy, relatively fast economic growth, stable consumer prices and social stability,” said a statement released at the close of the conference on Wednesday.

The latest economic data out of China all show a slowdown in growth, driven primarily by slowing housing sales and construction and sliding exports, particularly to crisis-hit Europe.

“We expect property investment and exports to weaken further and adversely affect related industries in the coming months,” said Zhang Zhiwei, an economist at Nomura.

China’s economy is hugely reliant on real estate investment, which directly accounted for about 13 per cent of gross domestic product last year, and on the export-oriented manufacturing sector.

But despite fears of an impending crash in the property sector, the conference stressed Beijing's intention to “unswervingly” maintain the current range of tight restrictions on the housing market until prices fall to a “reasonable level”.

Since early last year, China has imposed increasingly restrictive policies to lower unaffordable housing prices, including higher down-payments, limits on the number of houses people can own, construction of low-income housing and a property tax pilot scheme.

At the conference, China’s leaders agreed to expand the property tax trial and reform the broader tax system to make it fairer and support growth and other policy objectives like reducing environmental pollution.

They also vowed to spend more on low-income housing, social welfare, agriculture and major infrastructure projects.

But Beijing doesn’t have the same resources it did in 2008, when it launched a Rmb4tn stimulus package to boost growth in the face of the global financial crisis, and few analysts expect it has the desire or ability to muster that sort of firepower again.

“More concrete measures will be announced in the next few quarters to support growth and jobs, although we are unlikely to see a repeat of the last massive stimulus package,” Mr Qu said.

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