China Economy

China's leaders pledge to maintain growth momentum

Statement after Politburo Standing Committee meeting indicates Beijing won't let momentum slip but won't launch a massive stimulus either

PUBLISHED : Friday, 26 April, 2013, 12:00am
UPDATED : Friday, 26 April, 2013, 4:40am

China needs to strengthen its economic growth momentum while guarding against financial risks, its top leaders said after their first meeting to discuss the economy in the first quarter.

Their remarks underscored Beijing's priority of achieving stable economic growth and indicate the new leadership may take steps to prevent a further slowdown in economic growth, which eased to 7.7 per cent in the first quarter from 7.9 per cent in the preceding three months.

On the other hand, they also suggested that Beijing isn't going to adopt a drastic stimulus plan, for fear that aggressive credit and investment growth may induce new financial risks.

A massive stimulus programme adopted during the 2008-2009 global crisis caused debts, especially at the local government level, to balloon.

"Domestically, there's a need to strengthen the momentum of economic growth," a statement on the government website said after the meeting yesterday of the Standing Committee of the Communist Party Politburo, chaired by Xi Jinping.

"There remain a lot of factors that may hurt stable agricultural production," it said. "We also need to step up preventing potential risks in the financial sector. Pollution, as well as food and medicine safety problems, remain prominent."

The leaders vowed to stabilise macroeconomic policies while easing microeconomic controls, partly through reducing administrative approvals, and also pledged to improve social welfare services. They said property market controls will continue.

Everbright Securities chief economist Xu Gao said: "Stabilising growth has been put as priority, but the leaders also showed they aren't overly concerned about the macroeconomic situation. It's relatively positive news for market participants who are awaiting an economic recovery."

Xu expects China's economic expansion to accelerate to 8 per cent this year from 7.8 per cent last year, thanks to a gradual recovery in external demand and stable investment in domestic infrastructure.

The leaders said China would increase imports of energy and resources, advanced technologies and equipment and open up the financial and logistics services industries further. They pledged to "decisively curb" excessive capacity and redundant construction while bolstering growth in strategically important emerging industries.

Growth has yet to pick up even after total social financing - a broad measure of available credit - surged to a historic high, suggesting the model of stimulating growth through credit will no longer work.

Fitch Ratings cut China's long-term local currency credit rating earlier this month to A+ from AA-. Moody's Investors Service downgraded the country's outlook to stable from positive. Both cited risks from local governments' rising debt levels.

The leadership appeared to share some of the agencies' concerns, saying the authorities need to urgently set up a mechanism to regulate local governments' financing activities but didn't give details.