“People may feel a bit disappointed. There is limited room for big policy adjustments as inflation has just slowed while economic growth is not that pessimistic.” — Wang Jun, Economist, China Center for International Educational Exchange, voiced as the country’stop economic policy-setting conference signed off its annual meeting, on Wednesday.
Central Economic Work Conference (December 12 – December 14), held in Beijing and presided over by President Hu Jintao, wrapped up its three-day conference, pledging to take prompt measures ensuring stable and relatively steady economic growth next year. The annual closed-door conference mapped out the developmental priorities for the world’s second-largest economy for 2012; amid a weakening domestic economy and volatile external environment.
Year to Come
The year 2012 is considered to be a crucial year for implementing China’s 12th Five Year Plan (2011-2015), significant for consolidating the growth momentum. With this imperative vision, on the backdrop of European Crisis and US slowdown (the trade partners of the country), Beijing aimed to make policies more focused and flexible to keep pace with changes in the world economy.
The Policy Verdicts
Central Economic Work Conference, which analyzed both the international and domestic economic situations, assured implementation of a “prudent” monetary policy along with a “proactive” fiscal policy for the coming year. The Central leadership signaled a cautious ease of credit restrictions, implemented in the past two years amid fear of reigniting inflation, to prevent a sharp slowdown in the coming fiscal.
The conference strived to ensure that macro-economic regulation policies stay targeted, flexible and more forward-looking next year aiming at the overall stable consumer prices without any explicit shift to a pro-growth policy stance.
Thus, there was no sharp reversal or outright adoption of new policy measures as the growth sustained itself within the comfort zone over the last 2 fiscals. Rather, the advised growth targets appear conducive for avoiding resurgence in inflation and Beijing conference only fine-tuned the economic policies.
Paying heed to the country’s troubled sides; the government agreed to control the property market and vowed to bring housing prices back to “reasonable” levels while maintaining stability of economic growth and price movements. The policy makers reaffirmed to restore the stability of Yuan’s value, while deepening exchange rate reforms. It appears that the government may go for a modest acceleration in money supply and new credit, but the likelihood for interest rate cuts is pretty small.
Moreover, the conference called for job creation and prioritized people’s livelihood as a top agenda. It vowed to increase input into rural development, industrial growth, education, services, health, social security, job creation, environmental protection, technological innovation along with a healthy and stable development of capital and real estate markets
The Numbers Says it All
China has witnessed a shrink in demand for its products in recent months–as a consequence of a sharp consumer spending cuts world wide due to an increasingly bleak economic outlook. Growth in exports sketched a sluggish graph in November while consumer prices rose at their weakest pace. Industrial output growth dodged at an all time low level in more than two years. Manufacturing activity contracted in November exposing the economy at a risk of a hard landing.
China’s GDP growth slowed to 9.1% in the third quarter from 9.5% in the prior sequential quarter. Growth of the consumer price index (CPI), the parameter of the country’s inflation, eased to 4.2% below the expected 4.4% in November from the year’s peak of 6.5% in July.
The sign of rapid disinflation is alarming and may prompt the government to persuade a speedy shift away from the anti-inflation bias adopted a year ago. Industrial output rose 12.4% y/y in November, down from 13.2% in the previous month.
Fixed-asset investment grew 24.5% from January to November y/y, lower than the expected 24.8%. Retail sales number beat expectations, rising 17.3% in November versus the expected 16.6%.
The Growth Diplomacy
Whilst European countries struggle to hammer out a final agreement by March, the US economic recovery, despite perking up slightly of late, is still very fragile. Emerging-market economies like, India and Brazil have also revealed disappointing performance in the third quarter, reducing the possibility of China to shift its exports from crisis-laden Europe to these emerging nations.
Under such turmoil, it is unavoidable that the world’s second largest economy will show a slow yet steady move in carrying out the stimulus policies to keep its predicted growth rate of 8.9% on track in 2012.
