• Thu
  • Jul 24, 2014
  • Updated: 1:41am
BusinessEconomy

Risks loom on China reform path amid slowing economic growth

Fresh signs of challenge emerge as government agencies outline contrasting views on the minimum level of expansion acceptable

PUBLISHED : Thursday, 06 March, 2014, 12:20pm
UPDATED : Friday, 07 March, 2014, 2:34am

Fresh signs of the struggle ahead for Beijing to deliver a cohesive reform-oriented agenda for economic growth have emerged as two of the mainland's top financial authorities outlined contrasting views on where the economy is heading.

Finance Minister Lou Jiwei says growth as low as 7.2 per cent is acceptable, provided enough jobs are created, while the most senior officials at the top of the National Development and Reform Commission insist that 7.5 per cent is the bare minimum level of economic expansion acceptable.

The contrasting views emerged yesterday during the annual session of the National People's Congress and underscore the clear split that exists in government about how the mainland should reform the economy to deliver long-term, sustainable growth - and the vested interests that must be overcome to do so.

"It's clear that there is no consensus on what level of growth is acceptable to Beijing, which creates some uncertainty about how policy will react to slower growth," Stephen Green, head of Greater China research at Standard Chartered Bank, told the South China Morning Post.

Beijing has shown an increasing willingness to sacrifice some growth rate as it aims to overhaul a growth model that has relied on investment and money printing but at the cost of lower efficiency and rising pollution.

Economists are urging structural reforms to be advanced to prevent any abrupt slowdown in economic growth in the future.

Plagued by serious overcapacity and falling external demand, the mainland's gross domestic product growth, while still fast by international standards, eased to 7.7 per cent last year, the slowest in more than a decade.

Premier Li Keqiang said he would make fiscal reform one of the government's priorities this year.

"The [Ministry of Finance] controls the purse strings. So I imagine interest group opposition to reforms which control local government spending, which cut banqueting, which introduce more transparency into transfer payments etc, all will trigger opposition," Green said.

Lou, who last year caused a stir when quoted as saying growth as low as 6.5 per cent was tolerable, said ministries would have to battle vested interest groups while reforming the fiscal system and the state sector.

Some of that opposition could clearly come from the NDRC.

NDRC chairman Xu Shaoshi said the official 7.5 per cent GDP growth target would be the bottom line and pledged to roll out measures as needed to prevent volatility in the economy.

Zhu Zhixin, a deputy chairman at the commission, said he was worried about numerous risks in the economy.

He warned that reforms such as interest rate liberalisation, asset securitisation and the establishment of a deposit insurance regime might cause volatility in the economy.

"We should make sure there are no major disruptions," he said.

Critics of the NDRC see such comments as an implicit reluctance to endorse reforms that run the risk of destabilising the status quo and hastening reform of the agency itself.

Long tasked with setting industry policies, planning major investments and managing prices, the NDRC has arguably focused much more on development than reform.

As President Xi Jinping has already set up a special panel to guide overall reforms, the commission's role is set to change. And doubtlessly, that is an unsettling prospect for many inside it.

"Let's hope the NDRC finds a new role as a strategic planner and that much of its price-setting and licensing functions will fall away," Green said. "I'm not sure how fast that can happen."

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singleline
While ensuring a healthy employment level is important both to prevent systemic instability and to sustain the authority of Xi and Li, China also needs to maintain a reasonable growth rate also. Japan's collapse of growth in the early 1990s (owing to gross supply-side weakness) had left her businesses seriously over-leveraged.
This was understood only slowly by the ruling elite, reactions were slow, and the process of business deleverage was delayed.
The question of whether China has a debt problem is closely bound up with one's view of future Chinese growth potential.
(From 'The American Phoenix')
It takes a long time for domestic consumption to become a dominant component of aggregate demand in China.
To maintain her growth rate in the short to medium term, China still has to rely on investment expenditure (and also external demand).
lamlm38
now they have closed all the entertainment venues where the heck are the job openings coming from?
 
 
 
 
 

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