Reform comes first in delicate balancing act for China’s economy
- Despite the economic slowdown, Beijing believes the window of opportunity remains open for further opening up to ensure growth is sustainable and not just about numbers
Growth in the world’s second biggest economy is slowing at an alarming rate, prompting some experts to predict it will come in at under 4 per cent in the fourth quarter. Beijing is on high alert.
This is reflected in warnings by Premier Li Keqiang that the economy is facing new downward pressure and a meeting in Shanghai between Li and provincial government heads to coordinate a response. This came four days after he raised concerns in a symposium with economists and entrepreneurs.
In an article in People’s Daily, Xi’s key economic adviser Liu He also raised the possibility of further reforms, including opening up. Liu said Beijing had pinned its hopes of steering the economy through uncharted waters on improving the quality of economic development and technological innovation.
“Given the profound changes in the world and national conditions, technological innovation is … “a matter of survival”, Liu said.
China facing ‘quasi-stagflation’ risk as growth slows, factory prices rise
Amid the current slowdown, top-level attention is focused on the economy’s reliance on smaller private companies that account for 80 per cent of urban jobs and 60 per cent of gross domestic product. Support for this sector from local government is critical to economic expansion and job creation.
But local authorities are struggling because they have had to bear the financial burden of Covid-19 control measures, while the property sector, a source of their revenue, has been affected by a crackdown.
Local government needs more support. Li pledged that Beijing would transfer more money to the provinces and called for more transfer payments at the grass-roots level and for stronger financial support below the county level.
Beijing believes the window of opportunity remains open for economic reform to ensure sustainable growth and get the balance between growth factors right, rather than just focus on numbers.
This involves deleveraging and restructuring, including selectively supporting small and micro businesses. Private business is the core of China’s consumer economy and a pillar of rising incomes and domestic consumption under a strategy to rely less on exports.
Forgoing major changes of policy to stimulate growth may be a hard decision, but remains necessary to keep the focus on reform.
The remarks by Xi and Li help set the scene for the Central Economic Work Conference, a meeting of China’s top leadership expected next month to set priorities for 2022.
