Policymakers should put trust in private sector

When the global economy faces a crisis of confidence in growth, underwhelming data from the mainland does nothing to lift the gloom. Third-quarter year-on-year GDP growth of 7.3 per cent shows China's economy ran at its slowest pace for five years, or since the global financial crisis. The central government's full-year growth target of 7.5 per cent is in doubt.

This would once have put policymakers under pressure to pump money into the economy. But Premier Li Keqiang had pre-empted such expectations by making it clear that amid a push for structural reforms aimed at sustainable economic expansion, the government would regard GDP growth a bit faster or slower than 7.5 per cent as acceptable.

Slowing growth was not unexpected. The release a few days earlier of the lowest monthly inflation figure for five years was a precursor, triggering a sell-off of stocks in the US and Europe. Moreover, producer price deflation extended its record run, reflecting oversupply in key industrial sectors and a soaring debt burden that dampens the appetite for investment.

So long as the government remains comfortably ahead of its job-creation target, a prerequisite to social stability, it is likely to hold its nerve.

It is important that it does if the mainland is to avoid a repetition of the wasteful misallocation of resources that is bound to follow more debt-funded stimulus. In any case, loose monetary policy weakens the case for it.

The new leadership should persist with selective relaxation and stimulus such as easing pressure on bank liquidity and interest rates, boosting the supply of affordable housing for the poor and migrant workers, tax relief for job-creating small enterprises and railway development to support urbanisation.