It appears that not all economic bureaucrats are mad fantasists (Christian Noyer, take note). For the message from China’s Central Economic Work Conference this week was that maintaining stable growth will be China’s macro-economic policy for the coming year.
The China Daily opines that “this is a sensible choice given the international and domestic situations”. On the other hand, it is probably the only option open to them these days.
The CD continues:
Internationally, the eurozone sovereign debt crisis has worsened and the US economic recovery remains weak, while domestically rising production costs are compromising the traditional competitive advantages of Chinese exports. It is thus unrealistic for China to continue relying on exports, whose growth has become much slower and will further weaken in the coming year.
Unusually for the paper, there then comes a bordering-on critical assessment of the state of the Chinese economy, and gives some tips for the Government to follow.
Meanwhile, the Shanghai Composite Index, the main gauge of China’s stock market, has dropped to a 10-year low. Quite a number of small and medium-sized enterprises in coastal regions are struggling amid broken capital chains and the high-flying consumer price index continues to dampen public confidence in the health of our economy.
Given this, it would be unsustainable and risky for the country’s economy to follow its old growth pattern and rely on investment as the major economic driver.
On the one hand, there is the urge to squeeze the bubble in the real estate market and keep commodity prices at a reasonable level. On the other hand, to keep unemployment low, there has to be reasonably high growth.
The country needs not worry about so-called new growth points. Given that we still have a long way to go to achieve industrialization and urbanization, opportunities abound.
Community management, for instance, if well planned, will be able to create jobs and considerably improve the quality of life for residents. For example, the non-hazardous treatment of garbage has not been realized for most cities. If garbage classification can be well implemented, jobs will be created and the urban environment will be improved.
So investment should be tilted in favor of the areas, which will bring direct benefits to the life of residents. At the same time, efforts will have to be made to increase the ranks of the middle class and raise the income of those low-income residents. People’s consumption capacity will have a bearing on the country’s economic growth momentum in the near future.
It is absolutely right for central authorities to realize that development focus must be placed on the real economy, given the lesson from the financial meltdown on Wall Street and the eurozone debt crisis. Policy support including tax reforms will hopefully help small and medium-sized enterprises with their financial difficulties and with their technological upgrading as well. The increased consumption capacity will lay the foundation in turn for the development of the real economy.
This virtuous circle will be the key to maintaining stable economic growth.
Western politicians reading this will spot several familiar themes, not least the need to spread the benefits of wealth-creation to as many people as possible.
The question is though, will the economy remain stable and with enough growth to make any of these adjustments? If the hard landing hypothesis is true, then the aspiration of stable growth may compete well with Europe for outlandishness.