Agencies
China’s leaders pledged to attain next year’s target for growth and better support the country’s private sector after this year’s central economic work conference on Thursday, saying the country’s coffers would be opened wider for a much-needed jolt to domestic demand.
A statement issued after the two-day conference – an annual gathering which sets the economic agenda for the coming year – served as a show of confidence for Beijing’s determination to keep the world’s second-largest economy growing in 2025 at a sustainable rate.
Though no specific targets were announced for next year – as is typical for the conference, which sets the overall tone for government action – the official readout of the meeting stated major benchmarks would be met through a number of policy changes: a higher fiscal deficit ceiling, more treasury bonds and cuts to interest rates and the reserve requirement ratio.
"While the impact of external changes deepens and the Chinese economy still faces many difficulties and challenges, we must realise that China’s upward economic trend has not changed yet,” read the statement, urging officials to act with conviction in achieving the tasks set out for 2021 to 2025 in a "high-quality” way.
Beijing also reaffirmed its desire to further step up support for ailing private firms – a frequent refrain in official rhetoric – by incentivising investment, limiting "cutthroat competition” viewed as counterproductive, creating uniform standards for market operators and reining in the excesses of local governments.
Investment growth from the private sector, which makes up 60 per cent of national economic output, has stalled as confidence wanes.
Special attention was given to the phenomenon known as neijuan or "involution” observed within many industries, where intense feuding stifles innovation. A planned law for the development of the private sector is expected to address this and other issues affecting profitability.
Campaigns to boost consumption will be launched next year, officials added, and investment will be leveraged through government spending.
Household demand was given particular emphasis in the statement, as an unwillingness by families and individuals to spend has hampered economic recovery.
While growth remained export-heavy in October, retail sales were up 4.8 per cent year on year that month.
This was 1.6 percentage points higher than September, the month the country began rolling out a series of stimulus policies. But consumer inflation hit a five-month low in November, suggesting there is room for more action on the stimulus front.
Beijing vowed "special action” to boost consumption, promote income growth and reduce cost burdens on middle- and low-income groups so they are more willing to spend.
Specifically, "appropriate” increases were promised for retirees’ basic pensions, as well as higher subsidies for medical insurance.
Ding Shuang, chief Greater China economist at Standard Chartered Bank, said wording from the statement about economic growth "remaining stable” indicates that Beijing is likely to continue to maintain this year’s target for gross domestic product growth, "around 5 per cent”, in 2025.
That figure will not be revealed until March, when the country’s top legislature convenes.
"For the next year, China needs to keep steady economic growth, maintain the overall stability of job and price levels, as well as safeguard the basic balance of international payments,” state broadcaster CCTV said in a report on the conference.
China continues to grapple with numerous issues impeding overall economic health; a protracted downturn in its property sector, fading private sector investment, deflationary pressures and heavy debt burdens for many of its localities.
Beijing said it will continue to work hard to stabilise the property sector and stop it from sliding further by regulating the land supply for new developments.
Exports, ordinarily a reliable source of growth, are also in doubt as US president-elect Donald Trump appears poised to launch a new trade war and disputes with the European Union over subsidies and overcapacity have come to a head.However, some momentum has been regained after a series of stimulus measures was introduced starting in late September.
China’s central bank and various state bodies announced or endorsed policies in rapid-fire fashion to help the economy regain pace.
These moves included cuts to interest and mortgage rates, more fiscal spending, support for developers and consumers, urban renewal, and 6 trillion yuan (US$826.4 billion) in new debt swaps for local governments.
The loosening of the long-standing 3 per cent cap on government fiscal deficits – urged after Thursday’s conference – is another proposal in this vein.
Regarding the yuan, Beijing said it would continue to maintain the basic stability of the national currency’s exchange rate to keep it at a reasonable equilibrium.
While economic growth was the primary focus for policymakers this week, the long-term goal of technological advancement – one of the "new quality productive forces” referred to in official rhetoric – remains intact.
Exhortations to avoid systemic risk, a common warning at earlier high-level economic meetings, were also present.
China will explore and expand the functions of its central bank relating to macroprudential and financial stability, the statement read, and maintain stability in the financial and stock markets.
Analysts said the statement from the conference indicates a firm commitment to growth and an understanding of the obstacles the country faces – but does not represent a break from the measured path policymakers have walked so far.
Many of the core questions being asked of China’s economy do not have answers that can be found strictly within the country’s borders, said Li Xuenan, a professor of finance at the Cheung Kong Graduate School of Business in Beijing.
"Due to China’s position as a global factory, boosting domestic demand alone cannot completely solve the problem,” Li said.
"Both domestic and foreign demand are important. We must explore new overseas markets and actively build and integrate into the new global market with an open attitude. It’s just that now, with new trade issues with the West, we have to tap new overseas markets at full speed.” Resolving these issues, Li said, would not happen overnight.
"Restructuring of the industrial chain is not a short-term process. We cannot expect that the problem can be solved in one year or with one policy. This is a protracted battle.”