Economic policy change upon us, ex-adviser says
The central government is moving from fighting inflation to promoting growth, a former adviser to the People's Bank of China said yesterday as the think tank he heads forecast the weakest economic growth in more than a decade.
Speaking at a briefing, Li Yang, now vice-president of the Chinese Academy of Social Sciences, cited recent measures to loosen fiscal and monetary policy as evidence of a shift.
'From the recent execution of fiscal policy, [we can see] that promoting growth is more of a priority than other macroeconomic objectives, such as stabilising prices,' Li said at a briefing for the release of the academy's economic Blue Book.
Since the start of this year, Premier Wen Jiabao has insisted that curbing soaring prices is the government's top priority, with the leadership concerned that politically sensitive price rises could trigger discontent and social instability.
However, Wen has twice recently declared the need for 'fine-tuning' as growth and inflation have slowed.
Analysts expect an annual meeting on economic policy to result in measures to promote economic growth, with the global outlook remaining bleak.
However, mainland media reports said yesterday that the Central Economic Work Conference, usually held in early December, had been postponed because the economic situation was 'too complex'.
Inflation has slowed in recent months since hitting a three-year high of 6.5 per cent in July. The consumer price index rose 5.5 per cent in October, down from 6.1 per cent in September.
Some analysts said that this opened the door for policymakers to begin easing restrictions on money supply.
A first step in that direction was taken last week when the People's Bank of China cut banks' reserve requirement ratios, the proportion of deposits they must keep on hand.
Li said the government is likely to adopt a neutral to slightly loose monetary policy next year and that reserve requirement cuts would become 'a trend' in coming months.
He said more attention should be paid to the recent subtle shift in official rhetoric and the government's emphasis on 'flexible, timely and forward-looking policies', even though it has also insisted it will continue its 'prudent monetary policy and proactive fiscal policy'.
In its Blue Book, the academy forecasts the economy will grow 8.9 per cent next year, compared with its growth forecast of 9.2 per cent for this year. It expects inflation of 4.6 per cent next year, down from the 2011 forecast of 5.5 per cent but still above the 4 per cent level the government regards as comfortable.
It said the world's second-largest economy faced a 'very unpredictable' 2012, with both the domestic and global situations undergoing major change.
Unlike Li, the think tank cautioned against significant stimulus to fight the slowdown in growth. 'The direction of macroeconomic controls should not be shifted towards loosening from tightening to support growth,' it said.
The academy predicted that fixed-asset-investment growth would slow to 22.8 per cent next year from an estimated 24.5 per cent this year. It also forecast that the trade surplus will fall to US$135 billion next year, down from an estimated US161 billion this year.
Li said the contribution of exports to gross domestic product growth was likely to fall to zero - down form a high of 6 percentage points - and could even be a drag on growth.