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Tuning up for 2014 reform

时间:2014-01-06 10:59:31  来源:China Daily  作者:

China has set a course of major economic changes but extent and pace of implementation remains the big question, Andrew Moody reports

The annual Central Economic Work Conference in Beijing last month attracted more international attention than usual.

Commentators and observers were looking for what reform steps the new leadership were likely to introduce in the first full year in charge.

The increased anticipation was partly a result of the Third Plenum Session of the 18th Communist Party of China Central Committee in November that laid out an ambitious 10-year program by announcing the setting up of a high-level commission to coordinate nationwide reforms.

The four-day economic work conference was attended by all seven standing committee members of the Political Bureau of the CPC Central Committee, including President Xi Jinping and Premier Li Keqiang.

The main focus, particularly for the markets, was an indication as to what growth target the government was likely to set for 2014.

With the outcome for 2013 still not known — although now expected to be about 7.6 percent — what analysts were looking for was whether the government was about to relax the target from "about 7.5 percent" this year to allow room for structural economic reform.

The actual new figure will not be known until the March meeting of the National People’s Congress, the national legislature.

Those reading the tea leaves at the economic work conference anticipate that this is likely to be between 7 percent — what government officials have already stated is the absolute floor — and 7.5 percent.

With China likely to be buoyed by any pick-up in global economic demand, another 7.5 percent target may not indicate a lack of appetite for reform.

Growth targets also have a history of not changing very much. Until 2012, when it dropped to 7.5 percent, the figure had been held at 8 percent for eight successive years.

As for some of the language used in the official statement released on Dec 13 at the end of the conference, it was difficult to detect discernable change.

In fact, maintaining a "proactive" fiscal policy and "prudent" monetary policy was the same terminology used in the previous year’s statement.

There was, however, a big focus this time on the problem of local government debt, which many hold is the central weakness of the economy. The statement called for local authorities to be held accountable for their budgets and to "put right any incorrect official performance orientation".

The conference also called for industrial restructuring and an end to excess capacity in certain sectors and the phasing out of obsolete industries in favor of those promoting innovation.

In other areas, the conference wanted to push forward agricultural reform to be less reliant on imports and also improve food security.

There was also emphasis on opening up the economy and the need to set up further free trade zones, such as the one in Shanghai launched last year.

This is likely to hold the key as to the pace of the opening-up of China’s capital markets, which is seen as one of the most risky but at the same time vital reform processes the economy has to withstand.

Shuang Ding, senior China economist at banking group Citi in Hong Kong, says the risk of anticlimax following the third plenum had been avoided and it was clear the government was serious about economic reform.

"I would say that it is further confirmation that the leaders are very determined to push ahead with reforms."

Ding, a former economist at the International Monetary Fund, believes the reform agenda still has an inbuilt conservatism. He says the government is likely to stick to a 7.5 percent growth target for 2014.

"This is one of the key messages I got ... that the government is not ready to sacrifice growth in a very significant way and that they emphasize that a stable economic and social environment is still a necessary condition for reform."

He says he can understand the government’s caution on this.

"I think not only policymakers but I would say most in the financial markets are not ready to accept below 7 percent growth yet. I think that would be a real gamechanger."

Michael Power, global investment strategist at Investec Asset Management, based in Cape Town, believes the conference indicated the government is intent on adopting a major reform strategy.

"My essential reading is that the authorities are going to surprise on the upside with regard to taking the tough decisions regarding implementing reform, even if this has the effect of marginally reducing GDP growth," he says.

"I think they realize that 7 to 8 percent real local currency growth, or some 13 percent if you add back inflation and currency appreciation, is hardly modest for a country which already ranks as the world’s second-largest economy."

Ruchir Sharma, head of emerging markets and global macro at Morgan Stanley in New York, and author of Breakout Nations: In search of the Next Economic Miracles, says he was looking for pointers for growth from the conference.

"I will be more encouraged if China relaxes its growth target to below 7.5 percent," he says.

"I just think the current level of growth is just too high for a middle-income economy, and especially when it is taking on so much additional debt to meet that target."

He says that China with a per capita income of around $7,000, has reached the stage when the previous "miracle economies" of East Asia, such as Japan and South Korea began to slow from double digits to around 5 to 6 percent GDP growth.

"The popular narrative is that slower growth will feed joblessness and social tension. This fear is misplaced. Every percentage point of growth in China’s maturing economy now produces 1.6 million to 1.7 million new jobs, up from 1.2 million 10 years ago. So even at GDP growth of 5 to 6 percent, China would generate enough new jobs, particularly at a time when the population is aging and fewer young people are entering the workforce."

Louis Kuijs, chief China economist of the Royal Bank of Scotland in Hong Kong, says the conference made clear that reform would not be carried out overnight and that the agenda set out at the third plenum should not be seen as a short-term project.

"It (the Central Economic Work Conference) was relatively cautious. I don’t think we should expect any rapid breakthroughs relatively soon," he says.

Miranda Carr, head of China research at North Square Blue Oak, based in London, agrees with that assessment.

She says that although the government has a radical agenda, the conference for her made it apparent it was not going to be easy to implement.

"While China’s reform program promises to lift China’s economic development quite radically over the longer term, it is not going to be plain sailing," she says.

"The conference promised stability and steady development and not major change. This indicates that consensus has been difficult to achieve on more contentious issues."

Many were looking to see pointers that the government was intent on introducing financial reform, such as bringing competition into a banking sector dominated by the Big Four State-owned banks, and further opening up the capital markets.

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