China Economy

Central government's key economic conference to put focus on reform

Central government's key economic conference to put reform at its centre even as economists warn this will bring a slowdown in growth

PUBLISHED : Sunday, 16 December, 2012, 12:00am
UPDATED : Monday, 30 May, 2016, 5:01pm

The central government's key annual economic planning conference began with a call for deeper reform, even as economists warned that any meaningful changes would mean slower short-term growth.

The two-day Central Economic Work Conference would prioritise quality economic development over the pace of growth, Xinhua reported, citing economists from the Chinese Academy of Social Sciences.

The central government would work to assure economic stability, expand domestic demand and speed up economic restructuring.

The policy-setting meeting in Beijing has drawn particular attention this year, coming on the heels of a once-in-a-decade reshuffle that saw Xi Jinping installed as leader of the ruling Communist Party.

During a tour of Guangdong province last week, Xi stressed the need for comprehensive and systemic economic reform, something that he said required courage, toughness and realism, according to Xinhua.

"It is very difficult for the Chinese government to embrace this adjustment with lower GDP growth," said Patrick Chovanec, a professor at Tsinghua University's School of Economics and Management. "The real test is whether they are willing to embrace the lower growth that goes with reform."

The Xinhua dispatch said most economists agreed that China would exceed its 7.5 per cent target for gross domestic product growth this year. The consumer price index would be 3 per cent or less, below the country's inflation target of 4 per cent.

"This year, China can meet its economic targets satisfactorily, which lays a good foundation for next year's economic development," the report said.

Chovanec, however, believes China's GDP growth would actually reach 4-5 per cent this year. He pointed to official Chinese data that indicated private investment had risen 24 per cent year on year. His own estimate, based on discussions with Chinese companies, was that private investment had not grown.

A major factor behind the recent stabilisation of China's economic growth has been a dramatic surge in infrastructure spending since the second quarter, Bank of America Merrill Lynch said in a report. "This type of government-driven growth will unlikely make the market excited," the report said. "One of our major concerns is its exposure to government spending."

This summer, the National Development and Reform Commission approved many rail projects, but they went unfunded for several months, Chovanec said. "Even though the projects were approved, the ability to finance them is limited," he said. "Banks have to roll over their bad debt. What we're seeing increasingly is the Chinese economy is using credit to prevent GDP from collapsing and not financing new investment."

The Chinese government was unlikely to adopt loosening measures in the coming months, in light of China's recovery and inflation pressure, a Daiwa Capital Markets report said. "Maintaining the current pace of monetary expansion should suffice," it said.

Stephen Green, greater China head of research at Standard Chartered, said the market was awaiting details of any policies that came out of the conference. "They are talking a good game," Green said. "We want to see some substance. Economic reform is complicated. You need a plan."