December 16, 2012 6:48 pm

China rulers leave economic policy intact

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China’s new leaders have wrapped up their first significant conclave with an agreement to leave economic policy largely unchanged next year after a run of data in recent months showed growth rebounding in the world’s second-largest economy.

At the close of its annual two-day “central economic work conference” on Sunday night, the ruling Communist party sketched an economic agenda for the coming year that was largely in line with that of the outgoing administration.

Although the language was standard and there were no policy surprises the meeting was the first important policy-setting event for the new administration since it took over running the country in mid-November.

With virtually all the country’s top officials in attendance, the new head of the Communist party, Xi Jinping, outlined the party’s economic “requirements and tasks”, including the acceleration of urbanisation, boosting public infrastructure investment and increasing domestic consumption.

The meeting also agreed to maintain the government’s current “proactive” fiscal policy and “prudent” monetary policy.

China will almost certainly post its weakest annual growth rate this year since 1999, when it grew 7.6 per cent.

But after a pronounced slump earlier in the year the economy has seen a modest rebound in recent months, providing some breathing space for the new administration and no urgent reason for them to change the policy mix radically.

“With rebounding GDP growth, rebounding earning growth and low inflation, we think the Chinese economy is now in a sweet spot and can stay in it through the first half of 2013,” said Lu Ting, an economist at Bank of America Merrill Lynch.

Even if the new leadership does face a more challenging outlook in the coming months it can easily adjust its fiscal and monetary response without having to change its choice of language.

China’s central bank has called its monetary policy “prudent” since late 2010 even as it has swung back and forth from extremely loose to relatively tight and back to relatively loose again.

Fiscal policy has been “proactive” since late 2008, when Beijing unveiled a Rmb4tn stimulus package in reaction to the global financial crisis but no economists expect the government to launch anything near that kind of response in the foreseeable future.

In the statement issued at the end of the meeting on Sunday night, the government vowed to maintain tight curbs on residential real estate that have been in force for the past two years and were introduced to counter rapid housing price rises that have stoked social unrest. The government will also step up construction of low-income housing as it encourages faster urbanisation of the hundreds of millions of peasant farmers.

After a drop in prices and construction activity this year, the residential real estate market appears to have rebounded in the past few months.

Real estate investment accounts directly for about 13 per cent of China’s GDP and a fifth of the country’s fixed-asset investment and has an enormous knock-on effect for a large range of other industries. While promising to boost public investment next year, the Chinese leadership pledged also to “speed up the adjustment of the economic structure and transform the economic development model” by expanding domestic demand and boosting domestic consumption.

On Sunday China’s new leaders also reiterated a pledge made on numerous occasions by the outgoing administration to protect the rights and interests of foreign investors, as well as their intellectual property rights.

The meeting will be followed in the coming weeks by a series of high-level personnel changes, including the appointment of a finance minister, central bank governor and commerce minister. The two-day conclave was attended by party leaders, provincial leaders, regulators, ministers, the heads of state-owned enterprises and state-controlled banks and representatives from the military and paramilitary.

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