China’s crackdown on graft, media obscures picture for investors

20 Jan 2016 | Author: | No comments yet »

China Says Monetary Policy Must Be Flexible to Boost Growth.

China’s leaders intend to boost the deficit and make monetary policy more “flexible,” according to a statement from a meeting of top economic policy makers, in a sign the government is preparing more stimulus as it battles to support flagging economic growth.

BEIJING—China will focus on reducing industrial overcapacity, slashing its glut of unsold homes and mitigating financial risks under a new economic plan for next year, a senior Chinese official said Monday.Lower investment growth and consumer confidence will further dent China’s economic growth next year, according to an institute under China’s top planning agency.

Investment growth would slow to 9 per cent in 2016 as investment in manufacturing fell and spending on property stagnated, the Economic Daily reported on Sunday, citing the National Development and Reform Commission’s economic research institute. “China’s economy will face big downward pressures next year, and economic growth rate is likely to drop further,” the report said. The warning comes as top leaders, including President Xi Jinping and Premier Li Keqiang, provincial party secretaries and state conglomerate executives, meet in Beijing to discuss ways to arrest a deepening slowdown in the world’s second-biggest economy.

Six central bank interest-rate cuts since late 2014 and fiscal stimulus measures have yet to revive growth, prompting policy makers to renew focus on fixing supply-side problems like overcapacity. “Expanding the fiscal deficit ratio is the best choice available,” said Yao Wei, Paris-based China economist at Societe Generale SA. “More flexibility in monetary policy means further easing, even as a supplement to fiscal policy.” Robust consumption and strength in services hasn’t proved enough to offset the drag from slumping old-economy sectors including steel, coal and cement. Economists are waiting to see whether Beijing sets a target lower than this year’s benchmark of about 7%, which would signal a desire to make needed reforms at the expense of growth. The country’s economic growth prospects were gloomy, with falling industrial profits, deepening factory-gate deflation, worsening overcapacity and growing financial and unemployment risks, the NDRC institute said. “Some hidden unemployment problems will float to the surface to intensify unemployment pressure, and it will be a threat to job stability next year,” according to the report. While the booming e-commerce sector was creating new jobs such as parcel delivery positions, it was also destroying traditional jobs in retailing, it added.

The current tenor of Chinese discussion reflects an economy that has slowed faster than expected this year, highlighting structural impediments masked by years of double-digit growth, leading to falling profits, factory deflation and mounting debt problems. “The economy will follow an L-shaped path, and it won’t be a V-shaped path going forward,” the official said. The battle to clear up zombie companies, meanwhile, would be an uphill one due to “all kinds of difficulties”, including local government protectionism, the institute added.

The authorities should expand fiscal spending, have a high fiscal-GDP ratio, and issue more treasury bonds to raise money for big projects next year, it said. Xi has signaled that growth must be at least 6.5% annually for the next five years in order to double by 2020 per capita growth and income over 2010 levels, so economists expect the 2016 target to be between 6.5% and 7%.

An annual blue book by the Chinese Academy of Social Sciences published last week forecast that GDP growth would fall to 6.6-6.8 per cent next year, while a central bank paper said it would be 6.8 per cent. In addition to immediate task of stabilising growth, the leadership has been advocating “supply-side” changes to put China growth on a sustainable path over the long run. That push includes cutting red tape so that companies can focus more on developing new ideas and products. “We must give more green lights and reduce the number of red lights for businesses so that innovation can be put on a fast track,” former NDRC vice-chairman Xu Xianping said at a conference on the weekend.

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