Government struggles to strike 'golden balance' between growth and restructuring

An annual meeting that brings together China's top policymakers to discuss economic polices that has just been held has produced some surprises.

We initially had not expected the Central Economic Work Conference to deliver anything significant, since it was held soon after the Third Plenum of the Communist Party of China's Central Committee, which spelt out an all-round reform blueprint.

But the economic work conference has offered at least two surprises that give some clues to the mindset of top policymakers.

First, curbing local government debt has been listed as one of the six major tasks for next year.

It is the first time the debt issue has been given such a high priority. The stance is in line with Premier Li Keqiang's efforts since he took office to deleverage the economy.

Local debt has become a serious concern not only because the amount is approaching dangerous levels, but also because over-dependence on it to spur growth distorts the market, weakens efficiency and gives rise to corruption.

The central government began a national audit of local government debt several months ago, the second of its kind since 2010, to gain a clear understanding of the debt picture.

The previous administration saw local debt, coupled with easy credit, as a shortcut to shore up growth whenever the Chinese economy slowed, an attitude the new administration does not share.

When the central government removed GDP growth from the list for evaluating local governments, but added debt controls to it, it became clear that priority is being given to how healthy growth is over how quickly it is achieved.

Second, property market controls were not mentioned in the statement issued when the meeting ended on Dec 13. This indicates that policymakers have realized curbing property prices is impossible if market demand is clearly there. Indeed, since the new leadership took office in March promises to control property prices have been conspicuously absent.

Judging from what the government has done recently, including designating a single agency, the Ministry of Land and Resources, to register real estate across the country, speeding up public housing reforms and construction, and looking at expanding property tax pilots, one thing is almost certain: the government is now focusing on taxation and public housing projects to steer the property market.

From the statement issued after the economic conference, it is clear the government is continuing to seek a balance between growth and reform, and between the roles of the government and the market. That is something the government has been trying to do over the past year, and it is not an easy task.

Li acted as a proactive reformist in his early days of office. He seldom stressed GDP growth in his public utterances, and he scoffed at the growth path of the past decade, saying the old way, featuring expanded credit and policy stimulus, should never be repeated. At the time, there was speculation that Li's bottom line of GDP growth stood at 7 percent, with some officials saying he had suggested that growth of 6 percent was nothing to be afraid of.

But his tone has changed since GDP growth slowed to 7.5 percent, the government's yearly target, in the second quarter. Since then, he has mentioned growth more frequently. And his theory of "a reasonable zone" apparently puts the lower limit of GDP growth at 7.5 percent. In November he said China will seek a "golden balance" between GDP growth and reform.

Clearly, the current administration has pulled back slightly from the pro-active reformist stance it adopted in its initial days of office. It has compromised slightly to pressures such as employment.

Li said: "A certain amount of growth is needed to generate new opportunities for the job market, to make ample room for raising the quality and efficiency of the economic structure, and to allow for the economy to progress on a steady and sustainable course."

As to how fast reforms will be pushed, what is also noteworthy is the yearly growth target to be set at the National People's Congress meeting, usually held in March.

If GDP growth is kept at 7.5 percent, which is very likely to happen, it means reforms will be steady, if not slow. If it is revised downward, it means reforms may be quick, and drastic in some way.

The authors are analysts at Universal Consultancy in Shanghai. The views do not necessarily reflect those of China Daily.

(China Daily 12/20/2013 page12)