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Finance & Economy

China faces bumpy road in push for economic growth


Workers loading their truck

Workers loading their truck

The mainland economy faces a year of transition as a new younger leadership has vowed to unleash growth through various economic reforms coupled with a push towards more urbanisation.

However, the path ahead is likely to be bumpy and any changes probably will be more gradual than expected, market watchers say.

The economy is likely to recover further in the first half. But that is when inflation and real estate bubbles may start to fuel concern, some say.

Nomura’s China chief economist Zhang Zhiwei said the world’s second-largest economy might see “a story of two halves: averaging 8.2 per cent in the first half, but then slowing noticeably to 7.2 per cent in the second”.

“Overall, the policy stance is likely to remain loose,” Zhang said.

Infrastructure investment will pick up further as part of incoming premier Li Keqiang‘s urbanisation push, which aims to eventually attract millions more migrant workers to live in cities and enjoy urban education and health care.

Some people also think the urbanisation will inevitably drive up demand for property and push prices higher.

According to Zhang, inflation and financial risks in the so-called shadow banking industry and the property market, as well as overcapacity in various industries, may worsen in the second half, prompting the authorities to shift to a tighter stance.

Others also predict a rough road this year, with many saying the biggest uncertainty lies in how the new leadership will fulfil its pledge to overhaul parts of the economy.

Hong Hao, the chief China strategist at Bocom International, expects investors to stay bullish and push the stock market to new highs in the second quarter as the economy strengthens. After that, the market is likely to undergo a correction as investors see “weaker momentum in economic recovery, slower-than-expected rebound in corporate earnings, and a lack of progress on systemic reforms”.

“How high the [stock] index can shoot depends on the resolution of reform and how it is perceived,” Hong said.

The Central Economic Working Conference held last month highlighted the aim to pursue a “healthy development”, dropping the usual wording about keeping growth “steady and relatively fast”.

Policymakers also pledged to launch structural tax cuts, “genuinely reduce” financing costs for companies and “actively and steadily” push forward urbanisation.

At the same time, the leaders vowed to exercise “greater political courage and wisdom” to deepen economic reforms, “endorse a top-down design” and “clearly lay out general reform plans, roadmaps and timetable”.

The statement did not specify exactly which reforms will be carried out. President Hu Jintao‘s report made at the 18th Communist Party Congress called for overhauls in areas including income distribution, the state-owned sector, the tax system as well as the interest-rate and exchange-rate mechanisms.

The statement came after party chief Xi Jinping followed Deng Xiaoping‘s footsteps in visiting Shenzhen, a southern hub selected for pilot market-reform experiments three decades ago, as his first official trip after taking the top post. The tour spurred market confidence the new leadership is serious about further reforming the economy.

Economists believe that overhauling the land system and household or hukou registration system, and tackling the widening wealth gap are at the top of the new leadership’s agenda.

Li Tie, the director of the National Development and Reform Commission‘s China Centre for Urban Development, told a recent forum there were still 250 million migrant workers who had been included as urban population but did not enjoy equal public services.

Among other challenges, Li said the urbanisation strategy, originally designed to boost domestic consumption, faced a risk of being turned into another form of government-led investment binge similar to the one that took place in the past decade.

“That’s a real concern,” he said, adding that it would be a waste of time if deep-rooted problems were not solved.

Similarly, a plan on revamping the income distribution system to boost wealth for the poor appears to have been delayed. It had been slated for discussion at a legislative meeting last month.

Su Hainan, a vice-chairman of the Association for Labour Studies, still expects a plan to redress the wealth gap to be introduced in March.

Su said the leadership had “sent a strong political message” to carry out such a restructuring.

However, Chen Xinnian, a researcher at the National Development and Reform Commission, said that “cutting a cake in a new way will definitely hurt some people’s interests”.

“While the leadership has high resolution towards reforms, the actual implementation won’t be easy,” he said.

Zhang said a master blueprint for economic reforms might be announced in October at the Communist Party’s third plenary meeting. “We believe the pace of reform will likely pick up in 2014 rather than 2013 as planning takes time,” he said.

Source: SCMP “Mainland faces bumpy road in push for economic growth”
 

About chankaiyee2

Author of the book "Tiananmen's Tremendous Achievements" about how with the help of Tiananmen Protests, talented scholars with moral integrity seized power in the Party and state and brought prosperity to China. The second edition of the book will be published within a few days to mark the 25th anniversary of Tiananmen Protests All the parts in the first edition remain in the second edition with a few changes due to information available later and better understanding. There are also some changes for improvements of style. The new parts are Chapters 12-19 on events in China after the first edition was published: The fierce power struggle for succession between reformists and conservatives; Xi Jinping winning all elders’ support during his mysterious disappearance for 2 weeks in early September, 2012; and Xi Jinping Cyclone. Chan Kai Yee's new book: SPACE ERA STRATEGY: The Way China Beats The US An eye-opening book that tells the truth how the US is losing to China. The US is losing as it adopts the outdated strategy of Air-Sea Battle while China adopts the space era strategy to pursue integrated space and air capabilities: It is losing due to its diplomacy that has given rise to Russian-Chinese alliance. US outdated strategy has enabled China to catch up and surpass the US in key weapons: Hypersonic weapons (HGV) that Pentagon regards as the weapon that will dominate the world in the future. Aerospaceplane in China’s development of space-air bomber that can engage enemy anywhere in the world within an hour and destroy an entire aircraft carrier battle group within minutes. Anti-satellite (ASAT) weapons, anti-ASAT weapons, stealth aircrafts, drones, AEW&C, etc. The book gives detailed descriptions of China’s weapon development based on information mainly from Chinese sources that the author monitors closely. U.S. Must Not Be Beaten by China! China is not a democracy. Its political system cannot prevent the emergence of a despotic leader or stop such a leader when he begins to bring disasters to people. A few decades ago, Mao Zedong, the worst tyrant in world history did emerge and bring disasters to Chinese people. He wanted to fight a nuclear war to replace capitalism with communism but could not bring nuclear holocaust to world people as China was too weak and poor at that time. If a despot like Mao Zedong emerges when China has surpassed the US in military strength, world people will suffer the misery experienced by Chinese people in Mao era. China surpassing the US in GDP is not something to worry about as China has the heavy burden to satisfy its huge population, but China surpassing the US in military strength will be world people’s greatest concern if China remains an autocracy. US people are of much better quality than Chinese people. What they lack is a wise leader to adopt the correct strategy and diplomacy and the creative ways to use its resources in developing its military capabilities. I hope that with the emergence of a great leader, the US can put an end to its decline and remain number one in the world. China, US, space era strategy, air-sea battle, space-air bomber, arms race, weapon development, chan kai yee

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