ECONOMIC China puts focus on industrial policy, skips big growth...

China puts focus on industrial policy, skips big growth stimulus

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(Dec 12): China’s top leaders including President Xi Jinping vowed to make industrial policy their top economic priority for next year, a message likely to disappoint investors hoping for an emphasis on stimulus.

A readout of the annual economic work conference stressed the use of “technological innovation to lead the construction of a modern industrial system”. It also called to “vigorously” develop the digital economy and the artificial intelligence sector.

The ruling Communist Party’s emphasis on supporting companies to produce higher-value products above trying to spur consumer spending will worry some economists, who have been calling for more aggressive stimulus to boost growth.

Sluggish domestic demand has been one of the biggest drags on China’s economy, hampered by a crisis in the property sector and a weak jobs market. It has also caused deflation.

“I don’t see any signs of large-scale stimulus,” said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered plc, adding that the meeting showed “technology self-reliance is more important”.

The US has imposed sweeping curbs on China’s access to cutting-edge chips, as geopolitical tensions simmer between the world’s largest economies, making homegrown innovations more crucial.

Language calling for more “appropriately stepped up” fiscal measures and a “prudent” monetary policy echoed a meeting of the ruling party’s 24-member Politburo last week.

That conclave also emphasised making “progress” on growth, raising expectations for a gross domestic product target next year of about 5%. That would be harder to achieve than this year’s target because the consumption rebound from the end of Covid measures has largely played out already.

“It’s more about making policies more effective and coordinated,” added Ding. Some economists saw a call to coordinate economic and non-economic policies as telling officials to think more about growth when enforcing plans in areas such as security and the environment.

The readout from the meeting acknowledged a need to boost confidence in the economy, saying its overall “improving trend” was unchanged. Beijing is on target to meet its conservative annual growth target of about 5% for this year, largely due a consumption rebound following the end of coronavirus restrictions. The recovery has also been hampered by weak global demand, record high youth unemployment and the lingering property crisis.

Addressing the main pressure points on the economy, Chinese leaders also pledged to meet builders’ reasonable financing needs, ensure employment for “key groups” of people, and maintain reasonable, ample liquidity.

There were signals of new incremental measures. Policymakers hinted at potentially providing subsidies for households to buy new appliances, cars and furniture to spur consumption. There was also a vague vow to launch a “new round of tax reform”. Tax cuts were mentioned in the readout, in a departure from last year.

The language on housing was unchanged from previous statements, with an emphasis on supplying social housing.

“The measures sound rather traditional and nothing much was very creative,” said Jacqueline Rong, chief China economist at BNP Paribas SA. “Investors’ reaction to this might be rather plain because it takes an indication of a vastly stronger-than-expected pro-growth policy to trigger very excited response.”

The focus on industrial policy is important, Rong added. “The greater emphasis on support for the high-tech industry is linked to high-level security and supply-side reform,” she said.

Compared to last year’s work conference, there was more emphasis on economic problems caused by a supply-side focus. China is facing “insufficient effective domestic demand, overcapacity in certain industries, weak expectations and rather many hidden risks”, according to the Tuesday report. “The complexity, severity and uncertainty of the external environment is rising,” it added.

The meeting also called for efforts to make sure supply-side policy was coordinated with efforts to expand domestic demand. Trade relations with blocs like the European Union have become more strained due to China’s rising manufacturing trade surplus.

The Central Economic Work Conference was held in Beijing from Monday to Tuesday. Xi made a speech at the event, which was attended by all seven members of the Politburo Standing Committee, according to state media.

The final day of the conference overlapped with Xi’s visit to Vietnam, marking the first time the Chinese leader has traveled abroad during the annual economic conference, according to his public schedule.

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