Beijing's course for next year - consumption
The mainland leadership's decision on Friday to continue its economic stimulus measures next year was expected despite concerns over rising expectations of inflation and asset bubbles.
While preparing to pump more money into the economy in 2010, the leaders are increasingly likely to tweak the mainland's stimulus policies more often to reduce overinvestment and overcapacity, and focus more resources on boosting domestic consumption. They view that as a more important driver for economic growth than government spending and exports, as well as something that has been long urged by the mainland's trading partners.
This means the leaders will have to greatly expand and improve the current policies to boost consumption, which have focused on automobiles and the property market. Soaring property prices have heightened concerns about asset bubbles and generated widespread dismay among ordinary mainlanders.
As with past practice, the Communist Party's decision-making Politburo met on Friday to set the tone and guidelines for the upcoming annual national economic conference, where the country's top economic planners and local officials will discuss and hammer out detailed economic growth targets for next year.
The Politburo decided to 'maintain the continuity and stability of macroeconomic policies, and continue to implement the proactive fiscal policy and the appropriately loose monetary policy', according to a statement after the meeting.
Therefore, the mainland leadership is very unlikely to consider an exit from its pro-growth policy next year, and to continue to support the economic rebound as the top priority instead of shifting its attention to inflation and asset bubbles. To indicate its intention to tweak the stimulus measures more often, it said it would 'manage well' the intensity, pace and focus of the policy implementation.
The reasons for sticking to the pro-growth policy are strong. While the mainland's economic growth is expected to reach the target of 8 per cent for this year, Beijing is concerned that the economic rebound, mainly helped by the 4 trillion yuan (HK$4.5 trillion) economic stimulus package, is still fragile and its reading of the international economy is still very cautious. In addition, the policymakers are worried - as private investment continues to remain weak - that the stimulus package is still needed for job creation to maintain social stability.
According to mainland bankers familiar with the thinking of the leadership, the government will continue to set an economic growth target of 8 per cent for next year at the national economic work conference. Some mainland bankers have speculated that the new bank-lending standard may be set at 8 trillion yuan to enable the government to achieve the 8 per cent target.
At the beginning of this year, the government set new bank lending at 5 trillion yuan, but because of the stimulus measures, it had reached more than 8 trillion yuan by the end of October. Bankers expect the mainland leadership's twin priorities for next year will be to slow massive overexpansion in industrial capacity on the one hand and boost domestic consumption on the other.
Economists have warned that the overinvestment would lead not only to waste but also to a backlash of rising protectionism by other countries, which worry that the mainland would flood world markets with more cheaper products at a time of global economic weakness and rising unemployment on their home fronts. But Beijing will face serious resistance from local officials in terms of reducing overinvestment and overexpansion, not least because their job evaluations are still based on the growth of gross domestic products in their regions.
In a trip to Shanghai and Jiangsu over the weekend, Premier Wen Jiabao stressed that the government's important task for the present and near future was to change the focus of economic growth, from relying mainly on exports and investment to a co-ordinated growth of consumption, exports and investment.
Even as the central government is trying to find new ways to boost domestic consumption, its existing plan to boost the property market has been under mounting attack by the media and in internet forums as property prices, which dipped briefly last year, have regained their strong momentum.
To really boost consumption and shift the economic growth on a more healthy growth track, the mainland leadership must undertake drastic reforms to open up more service sectors currently dominated by state firms and encourage private investment.
But mainland policymakers have been making noises along those lines for years, and no significant progress has been made.
The question, then, is whether next year will be any different.