Steady as China goes
Updated: 2012-12-18 18:23
By Louis Kuijs (China Daily)
The policy messages in the statement released after this weekend's Central Economic Work Conference were broadly in line with recent other statements, including the one after the Dec 4 meeting of the Party's ruling authority, reflecting some satisfaction on growth and emphasizing stability.
The statement implied no material adjustment to the macro policy stance. It also did not suggest a rapid change on the reform front. It reconfirmed key principles without going into many details, suggesting that the work on "comprehensive reform design" and "top down design" reform strategy is still work in progress.
On the macroeconomic front, the statement's content and tone imply the government would like to continue to support economic growth against a backdrop that is described as challenging. At the same time, describing China's economic growth as steady, the statement shied away from major stimulus and called for attention to financial risks. The official prescriptions remain for fiscal policy to be "proactive" and monetary policy to be "prudent". These labels should not necessarily be taken literally but the fact that they remain unchanged is consistent with a stability-oriented approach.
The statement emphasized the "quality" and "efficiency" aspects of economic growth and called for "continuous and healthy growth", as opposed to "steady and relatively fast growth" as was the case until recently. This is in line with an ongoing evolution in economic policymaking toward more emphasis on changing the pattern of growth and somewhat greater tolerance for slower growth. This evolution was evidenced in 2012 when, despite an economic slowdown, policymakers refrained from the kind of major stimulus package that some were advocating.
The policy line on infrastructure balanced the need for more infrastructure against some of the perceived negative aspects of the 2008-10 stimulus package, calling for more spending on projects with a "long-term benefit" for society, while avoiding "repetitive construction".
On the monetary and financial front, notwithstanding a focus on avoiding financial risks, the call for "appropriately expanding social financing" suggests a relatively accommodating attitude to "shadow banking", the non-traditional forms of financing usually involving China's large banks that expanded rapidly again in 2012.
While China's overall level of leverage is still modest compared with most developed countries, the pace of leveraging up since the end of 2008 has been so rapid that observers increasingly worry about the risks involved and the weaknesses in the supervision and regulation of shadow banking.
The call for "genuinely lowering financing costs for the real economy" probably refers more to financial sector reform — possibly to giving banks further leeway in setting lending rates, financial sector deepening or improving access to finance for SMEs — rather than interest rate cuts. The statement confirmed the intention to maintain the controls on the property market.
On economic reforms, the language and orientation is also largely in line with recent policy documents, including the report submitted by President Hu Jintao to the National Congress in early November. Perhaps because the Work Conference took place in the midst of China's leadership transition, it did not contain a lot of detail on the reform agenda but suggested that a comprehensive strategy may be formulated in 2013, including on "comprehensive reform design" and "top level design".
The statement did not mention measures to "improve the income distribution mechanism", despite expectations voiced by senior leaders earlier this year that a strategy would be outlined in the fourth quarter.
One potentially promising area of more policy focus is on the role of urbanization in driving domestic consumption. The text on urbanization was in part about infrastructure and urban planning. However, it was also about "orderly pushing forward the urbanization of migrants". This may in part herald more emphasis than before on the policies needed to ensure more balanced urbanization by enabling migrants to take their families along and behave and spend like other urban citizens, in order to foster more service sector and consumption oriented growth. In our view, this is a key aspect of rebalancing the pattern of growth toward a larger role for domestic consumption. But until recently it has not often been cast as a key part of the rebalancing strategy in policy documents, even though Vice-Premier Li Keqiang has emphasized it in his writings and speeches. Maybe, hopefully, this is starting to change now.
The author is chief China economist at the Royal Bank of Scotland in Hong Kong.