National People's Congress

New leaders to stress economic stability over reform at NPC meeting

NPC meeting is expected to offer few surprises, with analysts predicting some talk of reform but an overriding focus on economic stability

PUBLISHED : Thursday, 28 February, 2013, 12:00am
UPDATED : Thursday, 28 February, 2013, 5:41am

The annual meeting of the National People's Congress, beginning on Tuesday, will be a stage for the new leadership to unveil more reform thinking, as Beijing focuses on promoting sustainable growth and social equality, analysts say.

But the new administration is also expected to tell deputies that its top short-term priority remains ensuring policy stability, including preventing any sharp rebound in inflation or property prices.

Most observers do not expect any major surprises because the NPC has mostly served as a "rubber stamp" to endorse government proposals.

In its first year in office, the new administration led by Xi Jinping is expected to favour stable growth, with the focus on stability underscored by Beijing's decision - according to sources quoted last week - to retain Zhou Xiaochuan as People's Bank of China governor and keep two other senior bankers at their posts even though all three have reached the normal retirement age.

The mainland economy rebounded from growth rates that hit three-year lows in the middle of last year, to record average growth of 7.8 per cent for the year, thanks to interest-rate cuts and major infrastructure projects. But the recovery remains fragile, according to indicators such as export data.

On Tuesday, when Premier Wen Jiabao delivers his last government work report, wrapping up his second five-year term, he is expected to announce an unchanged gross domestic product growth target of 7.5 per cent for this year.

But analysts will be looking past the numbers for clues about Beijing's dedication to reform, believed to be the key to long-term, sustainable growth.

Government departments are still debating the new leadership's reform plans, with no consensus yet on the need to establish a state agency to guide the process. Analysts do not expect a clear road map to emerge until the party's Central Committee holds its third meeting in September or October.

However, the new leadership is likely to use the NPC meeting to convey its reform ideas to thousands of deputies and strengthen consensus among senior government officials, influential business executives and provincial and city leaders, analysts say.

Widening social inequality, worsening corruption and deteriorating environment threaten to crimp economic growth, which has cooled from the average of 10 per cent seen over the past decade.

China's new leadership needs to establish from the start its commitment to reforms as the driver of this daunting economic transformation

"China's new leadership needs to establish from the start its commitment to reforms as the driver of this daunting economic transformation," said Stephen Roach, a senior lecturer at Yale University's school of management and former chairman of Morgan Stanley Asia.

"The imperatives of China's structural rebalancing are especially urgent," he said, arguing that the NPC meeting "should be used as an important platform to unveil a significant down payment on this rebalancing".

Roach said the reforms needed to be focused on breaking up deeply entrenched power blocs, especially the state-owned enterprises and local governments that were holding back the transformation to a more dynamic, consumer-led growth model.

Hong Hao, the Hong Kong-based chief China strategist at Bank of Communications International, said many investors were looking for pledges to overhaul the one-child policy - to slow the shrinking of the workforce - and for further liberalisation of financial markets to ensure better resource allocation.

Others were awaiting reforms in the land and household registration systems, which would see millions of farmers migrate to the cities and advance incoming premier Li Keqiang's urbanisation strategy, he said.

Li has vowed to create new dividends over the next decade through urbanisation and other reforms, in a bid to offset a fading "demographic dividend". Cheap labour made China the world's manufacturing centre and drove rapid economic growth for the last 30 years, but an ageing population means that advantage is slipping away.

"Market sentiment is very high as we head towards the meeting," Hong said, while cautioning that investors should not be overly optimistic about the outcome of the NPC meeting.

"As expectations are running high, the room for disappointment is large," he said.

His own expectations appear more modest, and probably also more realistic. "I think the most likely announcement will be a continuing anti-corruption campaign, as well as property curbs," he said, while other topics might need further deliberation before a solution was found.

Home prices have been rising since late last year and new home prices rose in 53 of the 70 cities surveyed by the National Bureau of Statistics last month.

Hong said he expected more detailed steps would be unveiled after the State Council issued guidelines earlier this month to cool the real estate market, including the possibility of expanding a trial property tax.

However, he said he did not expect any "general monetary tightening" soon, given that inflation remained tame and was likely to come in at an annual rate of under 3 per cent this month.

The leadership's focus on stability has analysts predicting the continuation of pro-growth policies and robust fixed-asset investment this year, with more funds expected to be directed to subways and green projects.

"The first task of the new leaders is to ensure that the economy continues to recover," HSBC economists Sun Junwei and Qu Hongbin wrote in a research note. "The last thing the new leaders want is a growth double dip."