You can depend on some dramatic changes to Chinese economic policy in the not too distant future.
Helping drive that urgency will be the fact that 2019 is the 70th anniversary of the formation of modern China and any economic slowdown in such an important year would be a disaster for President Xi, (especially as he is now “President for Life’).
Hence the flurry of official press releases and statements from senior officials last week on what the government will be doing to further economic growth in the coming year.
China’s annual Central Economic Work Conference, a gathering of party leaders and policymakers ended on Friday with the release of a long list of official aims for the economy and Chinese society next year (See below).
It was an impressive list, full of worthy aims and policies but unstated and underlying it was the slowing pace of activity in the economy and fears that it could stall in 2019.
Western economists reckon the government will either reveal another cut in the reserve ratio for the country’s banks – thereby pumping more than $US100 billion to more than $US200 billion into the economy to help finance business (it depends whether the cut is a half or one per cent).
This could be done in tandem with or separate to an interest rate cut – the last was nearly two years ago.
A settlement of the trade war with Donald Trump could also help the economy and President Xi.
The trade war with Donald Trump and his administration was not mentioned directly in the list of aims, although like Banquo’s ghost, it was there in some of the aims – such as promoting more imports and exports.
Saturday saw more official commentary that the Chinese government has plans to boost economic activity and stave off the gradual slowdown – especially in the export sensitive advanced manufacturing (high tech) sector.
China’s economic growth slowed to 6.5% in the third quarter, the weakest pace since the global financial crisis and the current 4th quarter looks like seeing even slow growth, judging by the weaker than expected economic data released for October and November.
The head of the National Development and Reform Commission, China’s top economic planning agency said the government will soon announce more supportive measures to boost the economy.
The official Xinhua newsagency reported that Commission chairman, He Lifeng told an end of year conference on the economy that in launching new measures (unspecified) China will keep economic growth within a reasonable range and actively manage external risks and challenges.
He said China will also speed up the restructuring of traditional industries (coal, steel, metal processing, cement) and will increase financial support to provide medium-to-long term capital to the technological transformation of manufacturing firms.
The government has already announced measures to help support growth. These have included reductions in reserve requirements for banks, tax cuts and more infrastructure spending to ward off a sharp deceleration in the world’s second-largest economy. A series of new rail projects were announced for Shanghai last week.
The Work Conference released what amounts to a long ‘wish list’ of economic policy aims for China in 2019. These were listed in no particular order by the Work Conference in its post meeting release as:
– More tax cuts: Proactive fiscal policy should be implemented with more effectiveness, with a larger scale of tax and fee cuts and a relatively substantial increase in the issuance of special-purpose local government bonds.
— Fewer zombie companies: China will speed up the clean-up of “zombie” enterprises, while fostering new technologies and new industrial clusters.
— High-quality manufacturing sector: Technological innovation will be strengthened, with the establishment of an open, coordinated and effective platform for the research and development of generic technology.
— Stronger domestic market: China will accelerate the development of the service industry, including education, childcare, elderly care, medicare, culture and tourism while improving consumption and boosting spending power.
— Rural vitalization strategy: To improve the living environment in rural areas, the country should promote garbage and sewage water treatment, carry out the toilet revolution and continue deepening rural land system reform.
— Capital market reform: China will speed up the launch of a science and technology innovation board on the Shanghai Stock Exchange and experiment with a registration system.
— Further opening-up: Market access should be loosened. Pre-establishment national treatment and the negative list management should be fully implemented to protect legitimate interests of foreign companies in China, especially intellectual property rights.
— More exports and imports: The meeting called for greater efforts to increase imports and exports, push for a more diversified export market, and cut institutional costs of importing procedures.
— Healthy property market: The meeting called for constructing a long-term mechanism to keep the sound development of the real estate market and adhering to the principle that “housing is for living in, not speculation.”
All these aims are fine and good, but the reality will be for the government and President Xi to stop Chinese growth slowing toward stalling speed, without adding too much pressure to the already fragile financial system and shadow banks.