Reforms seen as key focus but growth safeguarded
Mainland leaders will ensure economic expansion holds above 7pc even as policies aimed at a rebalancing are ushered in, top think tank official says
Reforms will be the top priority next year but the government will not allow growth to slip below 7 per cent, said one of the main authors of the reform plan crafted at the third plenum and adopted as the core for the targets agreed by the Central Economic Work Conference this month.
"Next year is a year of reform. But one important consideration when taking reform steps is to make sure that they are conducive to growth," Liu Shijin, the deputy head of cabinet think tank Development Research Centre, told the South China Morning Post in an interview.
Some economists are concerned that priority given to speeding up reforms - including an overhaul of the hukou household registration system, land policy, the liberalisation of capital accounts and interest rates, and the opening up of state sectors to private investors - will cut government revenues, raise corporate funding costs and pull down economic growth next year. Such fears exist alongside a recognition by many that these moves may ultimately help the economy gain a more sustainable footing.
But Liu said policy reforms would be positive for short-term growth, which was likely to stay above 7 per cent - helped, if needed, by increased government investment spending.
To make room for reforms, some economists expect Beijing to set a lower target for growth next year of 7 per cent from this year's 7.5 per cent.
Though Liu would not elaborate on this, he said the leadership would have greater tolerance for slower economic growth next year after this year's 7.5 per cent. Growth above 7 per cent is seen as sufficient to create enough jobs and keep companies profitable while preventing the books of the government and banks from worsening.
The mainland economy expanded 7.7 per cent in the first three quarters of this year after hitting a 13-year low of 7.8 per cent last year.
"We need to observe how sustainable the economic recovery since mid-year is. We can't overlook the downward pressure next year," Liu said. "The economy is still going through a transitional period during which growth will slow from an annual rate of 10 per cent in the past."
He predicted the economy would grow more than 7 per cent next year, perhaps at about 7.5 per cent, if the external environment was stable and domestic macroeconomic policies were appropriate.
Should growth slip below Beijing's bottom line, the authorities might increase government investment and stimulate private investment in sectors including railways, Liu said, adding that "government investment works the fastest and most effectively [to boost growth]".
On the property market, he said the era of rapid home price rises was nearing its end. "China's residential property investment will peak in the next two to three years. While home prices are still soaring in Beijing, Shanghai, Guangzhou and Shenzhen, they remain at reasonable levels in most tier two and three cities, while a few cities are already suffering oversupply," he said. "The remedy that when tier one cities get sick, the whole nation must take medicine will no longer work."
Instead, Beijing would leave detailed measures to local authorities while issuing general guidelines to keep the overall sector healthy and steady.
Liu declined to provide any timetable for a widening of the much-debated property tax, which has been on trial in Shanghai and Chongqing since 2011.
He said he was not sure if a property tax could help drive down home prices, but agreed it could become the main revenue source for local governments once they cut their reliance on land sales.
Much of the local government debt is secured by land used as collateral to borrow from banks. This is driving up land costs and home prices, as local officials need the revenue to repay debts, which some researchers estimate to have topped 20 trillion yuan (HK$25.3 trillion) from an official audit result of 10.7 trillion yuan at the end of 2010.
"We see the outstanding value [of local government debt] is rising and some defaults may occur," Liu said.