China’s leaders send mixed signals on how to fix economy
Tokyo | China’s leaders have sent mixed signals on their strategies to keep the country’s huge economy on track next year, disappointing markets with their failure to announce major stimulus but offering some hope with a pledge to stabilise the financial system.
The ruling Communist Party’s annual economic work conference made building a “modern industrial system” its No.1 goal, up a place from last year. The priority for 2023 was boosting domestic demand, which fell to the second spot as policymakers put greater emphasis on developing cutting-edge technology and artificial intelligence.
Weak domestic demand, local debt risks and sluggish exports have made China’s post-pandemic rebound elusive this year. AP
The two-day meeting comes as China reaches a critical crossroads. President Xi Jinping is searching for new growth engines to sustain the economy, as a lingering crisis deepens in the property market that has been a key driver for decades. Weak domestic demand, local debt risks and sluggish exports have also made China’s post-pandemic rebound elusive this year, as the Asian giant slides into deflation.
Investors and economists were divided in their responses to this week’s messaging, with some critical of a read-out heavy on rhetoric and light on signals that Beijing was prepared to implement big-ticket stimulus to prop up growth.
Others, however, were more upbeat, pointing to language that reflected a sense of urgency from Mr Xi and his top advisers about addressing the economic challenges threatening decades of robust growth.
“The meeting called for more efforts and better co-ordination to revive the economy and confidence, yet the discussion on cyclical policies could somewhat fall short of market expectations, with a clear absence of consumption stimulus,” Citi analysts said.
This concern was reflected in local shares, with the Hong Kong market weaker on Wednesday after a strong run the day before. Large Chinese companies such as Alibaba, BYD and China Merchants Bank lost ground in early trade.
Tax reform
The 2024 GDP target will not be announced until March, but there has been growing speculation Beijing may set that as high as 5 per cent despite the country’s property crisis, heavy government debt, falling exports and rising unemployment.
“On the whole, the favourable conditions facing China’s development outweigh the unfavourable factors,” a read-out of the meeting, which emphasised both internal and external economic challenges, said.
Goldman Sachs analysts said the statement suggested the government planned fresh rounds of fiscal and tax reform, and would continue to promote technology and innovation, along with consumption. There were also offers of support for the rural sector.
Beijing’s focus also appears to be on modernising the economy through more investment in technology rather than boosting domestic consumption, although that still remained high on the agenda.
Mr Xi was present for the first day on Monday but travelled to Vietnam on Tuesday. Both Western and Chinese manufacturers have been moving some operations to Vietnam as companies seek to diversify away from China.
Beijing is expected to meet its official target of 5 per cent GDP growth for the current calendar year. Economists’ forecast for the country’s growth next year range from 4 per cent to 5 per cent.
Reuters cited government sources saying Beijing was expected to set a target of about 5 per cent for 2024. However, economists said hitting this would require more stimulus to prop up the property market and boost consumption.
Ratings agency Moody’s last week downgraded China’s credit rating, citing high government debt and the property crisis.
So far, the economic headwinds have not dampened China’s appetite for Australia’s top export commodity, iron ore.
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