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Policy shift to investing may offset slack trade
By Lu Zhengwei |
February 8, 2012, Wednesday
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EDITOR'S note: Many Chinese government officials and economists have spoken of 2012 as a year fraught with difficulties. Some have even expressed concern about a possible slowdown in the pace of reform programs aimed at boosting consumption and reducing reliance on exports and foreign investment. We asked Lu Zhengwei, chief economist at Industrial Bank, to give us his views on how this year is shaping up.
Lu Zhengwei, Industrial Bank
China may loosen its controls over consumer prices and try to stimulate the economy with more investment in major projects. These were two key changes in the government's strategy during a January 31 meeting of the State Council, China's cabinet.
The first is a macro-economic issue. Unlike the State Council meeting held last October, which listed price stabilization as the second most urgent task after fine-tuning macro-economic policies, the January meeting agenda completely ignored the price issue.
That may signal a shift in priorities among China's top leaders, even as the National Bureau of Statistics was warning earlier in the month of a possible rebound in consumer prices.
The second difference to emerge between the October and January meetings is the growing importance of investment as a top priority.
Macro-economic control was still explicit, but officials were stressing the need to ensure sufficient funds for major infrastructure projects. That seemed to push aside earlier emphasis on curtailing projects that were deemed overly costly or polluting.
Top officials are certainly worried about slowing economic growth. They seem ready to restart investment-oriented stimulus. However, they still emphasized that any stimulus would be carried out in an "orderly" fashion, which suggested that the size of investment would be tempered.
Project investment is likely to be used to offset the decline of investment in the property market, after China initiated a series of measures to tame the real estate bubble. Concerns about weaker exports may also underlie the decision to pour more project money into the economy.
The January meeting clearly dismissed speculation that China would loosen its reins on the property market, with the government affirming its commitment to bring home prices down and increase the supply of affordable housing. Officials said they want "home prices to return to a reasonable level." Renewed industrial and infrastructure investment would provide an economic buffer as home prices finally show some sign that they are beginning to drop.
Exports are always a concern. The language at the most recent State Council meeting was similar to that of last October. The government is intent on "promoting stable development of foreign trade."
There was no mention of any new policies in that strategy, but the fact that it was reaffirmed signals that policymakers believe China's exports face another tough year.
Lu Zhengwei, Industrial Bank
China may loosen its controls over consumer prices and try to stimulate the economy with more investment in major projects. These were two key changes in the government's strategy during a January 31 meeting of the State Council, China's cabinet.
The first is a macro-economic issue. Unlike the State Council meeting held last October, which listed price stabilization as the second most urgent task after fine-tuning macro-economic policies, the January meeting agenda completely ignored the price issue.
That may signal a shift in priorities among China's top leaders, even as the National Bureau of Statistics was warning earlier in the month of a possible rebound in consumer prices.
The second difference to emerge between the October and January meetings is the growing importance of investment as a top priority.
Macro-economic control was still explicit, but officials were stressing the need to ensure sufficient funds for major infrastructure projects. That seemed to push aside earlier emphasis on curtailing projects that were deemed overly costly or polluting.
Top officials are certainly worried about slowing economic growth. They seem ready to restart investment-oriented stimulus. However, they still emphasized that any stimulus would be carried out in an "orderly" fashion, which suggested that the size of investment would be tempered.
Project investment is likely to be used to offset the decline of investment in the property market, after China initiated a series of measures to tame the real estate bubble. Concerns about weaker exports may also underlie the decision to pour more project money into the economy.
The January meeting clearly dismissed speculation that China would loosen its reins on the property market, with the government affirming its commitment to bring home prices down and increase the supply of affordable housing. Officials said they want "home prices to return to a reasonable level." Renewed industrial and infrastructure investment would provide an economic buffer as home prices finally show some sign that they are beginning to drop.
Exports are always a concern. The language at the most recent State Council meeting was similar to that of last October. The government is intent on "promoting stable development of foreign trade."
There was no mention of any new policies in that strategy, but the fact that it was reaffirmed signals that policymakers believe China's exports face another tough year.
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