Chinese officials yesterday acknowledged the sweeping list of economic goals re-emphasized at the end of a key Chinese Communist Party (CCP) meeting this week contained “many complex contradictions,” pointing to a bumpy road ahead for policy implementation.
Pressure for deep changes in how the world’s second-largest economy functions has risen this year, with consumer and business sentiment near record lows domestically, and global leaders increasingly concerned with China’s export dominance.
Following a four-day, closed-door meeting led by Chinese President Xi Jinping (習近平), which takes place about once every five years, officials made a raft of seemingly contradictory pledges, such as modernizing the industrial complex while expanding domestic demand to stimulate growth and simultaneously curb debt risks.
Photo: AP
The initial summary of the meeting, known as the “Third Plenum,” did not contain details on how Beijing plans to resolve the tensions between policy goals, such as how to get consumers to spend more while resources flow primarily to producers and infrastructure.
Concerns are growing that without a structural shift that gives consumers a greater role in the economy, debt would continue to outpace growth to finance Beijing’s industrial modernization and global prominence goals.
Some analysts say that Beijing’s economic path risks a prolonged period of near-stagnation and persistent deflation threats as seen in Japan since the 1990s.
“High debt levels plus increasing deflationary pressures eventually could result in a Japan-style ... low growth and very low inflation,” said Julian Evans-Pritchard, head of China economics at Capital Economics.
“That, I think, would force them to change course on their current policies. But that might not happen straight away. That might only happen in a few years’ time,” he said.
Contradictions in Chinese policy efforts have been present for decades, as were goals to increase manufacturing value added, enhance social security, liberalize land use and improve local government tax revenues.
However, making tough choices is an increasingly urgent task. China grew at a slower-than-expected pace in the second quarter this year, leaning hard on industrial output and external demand, but showing persistent domestic weakness.
Speaking at a media briefing yesterday along with other CCP officials, Tang Fangyu (唐芳雨), deputy director of the central committee’s policy research office, said Beijing was aware of the challenges.
“The deeper the reform goes, the more complex and acute the conflicts of interest it touches,” Tang said.
“Pushing forward Chinese-style modernization faces many complex conflicts and problems, and we must overcome multiple difficulties and obstructions.”
The EU Chamber of Commerce in China said it was “positive that China’s leadership has again acknowledged many of the headwinds facing the country’s economy,” but the outcome was largely “a reiteration of points.”
“There appears to be no deviation from [China’s] immediate priority, which is to balance its economic recovery against national security concerns, while maintaining social stability.”
China is expected to publish a document with more detailed policy plans in the coming days.
However, the fact that the initial post-plenum announcement borrowed heavily from China’s existing playbook disappointed some economists.
“Nothing new under the sun: the same industrial policies, the same sense of things,” said Alicia Garcia Herrero, chief economist for Asia Pacific at the French investment bank Natixis.
“Really no change in direction, no consumption-led growth, nothing. No sentence on the power of market forces, nothing. So, it’s really disappointing,” she added.
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