Growth vow amid global woe

Updated: 2011-12-15 07:58

By Li Xiang and Joy Li (China Daily)

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Growth vow amid global woe

Economic expansion to be stable despite 'grim' world outlook

BEIJING / HONG KONG - A pledge to maintain stable growth next year against the backdrop of a "grim" global economy while transforming the country's economic model was delivered at a key conference on Wednesday.

The annual three-day Central Economic Work Conference, which concluded in Beijing, laid out an economic blueprint for 2012 and agreed to "make progress while maintaining stability".

A statement issued after the conference noted the challenges to economic growth and inflation due to the global outlook.

The statement described the current global economy as "extremely grim and complicated" as the eurozone sovereign debt crisis has worsened and economic recovery in the US remains weak.

"Stability means to maintain basically steady macroeconomic policies, relatively fast economic growth, stable consumer prices and social stability," the statement said.

China will maintain "prudent" monetary policies and "proactive" fiscal policies, the statement said, despite the easing of inflation.

The statement indicated that policymakers will shore up growth while avoiding reawakening the inflation dragon, analysts said.

"Stability is clearly on top of the economic agenda next year," Lian Ping, chief economist at Bank of Communications, said.

"It means that the focus of next year's policy will be on maintaining stable growth and domestic prices," he said. "It also means maintaining the property tightening, keeping the yuan's exchange rate stable and avoiding an economic hard landing," he said.

Policymakers stressed the importance of boosting domestic demand to accelerate the transformation of the growth model toward a more consumption-driven one against the backdrop of weak external demand.

"The proactive fiscal policy shows the government's determination to spur domestic consumption to keep the GDP growth rate above 8 percent next year," Banny Lam, associate director and economist at CCB International Securities, said.

"Certain new industries as identified in the 12th Five-Year Plan (2011-2015) will be likely to get more support and tax cuts are also likely to encourage spending," Lam said.

Zhao Qingming, a researcher at the China Construction Bank, said that structural tax cuts and increasing government spending in areas such as affordable housing, social safety nets and education are crucial fiscal measures to stimulate the economy in 2012.

The stock market continued to slump on Wednesday after the government's stability-oriented economic policies failed to boost weak market sentiment that has pushed down the benchmark Shanghai Composite Index to its lowest level in more than two years.

Economists expect economic growth to fall below 9 percent and export growth to slow to around 10 percent in 2012.

"Economic indicators -including the consumer price index, the producer price index, housing prices and the stock market - show that there is a growing risk of an economic downturn," said Qu Hongbin, HSBC Holdings PLC's chief economist for China.

"Export growth will also significantly decelerate given that a recession in the euro area has almost become a certainty," he said.

Some economists are calling for notable monetary loosening for China to maintain growth.

"We think that prudent monetary policy does not mean policy easing will be less forthcoming," said Liu Ligang, head of China economics at the Australia and New Zealand Banking Group.

"As economic activity continues to slow, we think another reserve requirement ratio cut is possible before the end of the year, and possibly another two to three cuts in the first half of 2012," Liu said.

Liu noted that the country's bank loans next year will perhaps exceed this year's level of about 7 trillion yuan ($1.1 trillion) but will not hit the high level of 10 trillion yuan in 2009.

But some economists warned that China should continue to be on alert about inflation and a surge in commodity prices as both Europe and the US have adopted loosening measures to revive their economies.

Economists expect more easing measures by the US although the US Federal Reserve refrained from launching a third round of quantitative easing.

China Daily