China To Maintain Economic Course in 2010

The Chinese government is to maintain its current "proactive fiscal policy and moderately easy monetary policy" in 2010, according to its supreme policy-making body, the the Political Bureau of the Communist Party of China (CPC) Central Committee.

Stories on Chinese government news websites at the weekend said the decision means the government, as it completes its economic plans for next year, will not move to cut stimulus spending as a whole.

"We will maintain the continuity and stability of the macro-economic policy," Xinhua News Agency said, quoting the Political Bureau of the Communist Party of China (CPC) Central Committee.

That means those commentators claiming that bubbling asset values and high inflation would force China to slash spending next year, are wrong.

It's very probable China will cut spending next year in some areas, but redirect that to other sectors, especially trying to stimulate domestic consumption.

The Political Bureau meeting, chaired by President (and CPC Central Committee General Secretary) Hu Jintao on Friday used the exact wording - "active fiscal policy and relatively loose monetary setting" - which it adopted a year ago for its pro-growth policy.

Instead of spending heavily on investment, the statement attempts to push the idea that China will switch to promoting consumption.

That was a policy line supported by a later statement from Ministry of Commerce which said retail sales would be accelerated in 2010 so that consumption can make a bigger contribution to growth.

The decision comes after Dubai's debt crisis erupted last week, renewing worries that the global financial crisis had not disappeared completely.

The announcement is supposed to set the tone for the upcoming central economic work meeting, where next year's economic growth policies will be decided.

The message from the meeting was that China would not adopt the exit strategy now.

Instead, the policies would be "adjusted" according to the demand of different sectors.

More efforts would be made to improve the quality and efficiency of economic growth, to promote the transformation of the economic development pattern and structural adjustments, according to a statement released after the meeting.

But there's a bit of wriggle room for the government and policymakers.

According to the reports on Xinhua and in the China Daily paper, The Political Bureau said in its statement that it would "enhance the focus and flexibility of economic policy in the following year according to new situations. It would also further implement and enrich the economic stimulus package to make the economy grow in a more stable, balanced and sustainable way."

That seems to be allowing the Government the room to change spending, cut credit, perhaps lift interest rates or tighten monetary policy by other means (such as increasing the asset reserve ratios the bank must hold).

There are persistent reports that bank lending, the most widely watched indicator in the west at the moment, will be boosted 20% to around 6 trillion Yuan, from the 2009 limit of 5 trillion.

But that will be an effective cut on the 8 trillion or so Yuan already lent in the 10 months to October and 8.5 - 8.7 trillion by the end of next month.

China's economy grew 8.9% year on year in the third quarter this year, accelerating from 7.9% in the second quarter and 6.1% in the first quarter.

The government will aim for growth of 8% next year (that's its minimum, but budget on inflation turning positive, from the months of mild deflation this year). That could happen in the next two months.

The statement from the Political Bureau said that more efforts would be made to promote reform, opening up and innovation, improve people's livelihood and maintain social stability and enhance the vigor and momentum of economic growth.

And next year would see the government would improve policies to spur consumption and ensure investment grows at a reasonable pace.

The government aims to boost domestic demand, especially the sustainable increase in consumption next year.

Xinhua said the government also vows to improve policies to stabilize external demand, actively increase imports and encourage companies to invest overseas.

The statement called for improvements and implementation of policies to encourage private investment as well as increasing support to sectors including agriculture, science and technology, education, public health, culture, social security, energy saving and environmental protection.

The bureau pledged to "actively" deal with climate change next year by implementing measures to cut its carbon intensity and improve energy efficiency, according to the statement.

And the bureau said it would also step up construction of major projects related to energy conservation and environmental protection in 2010.

Other issues on the 2010 economic work agenda included enhancing efforts to boost employment, promoting development in rural areas and increasing farmers' earnings, implementing stimulus plans to support key industries, and deepening the reform of medical and health system, according to the statement.

The official statement quoted President Hu as saying at the meeting, "Year 2009 is the toughest year for China's economic development since the beginning of the new century. However, we have made efforts to seek opportunities from challenges, and have taken the lead globally in the recovery of the general economic situation."

Next year will be very critical as it will be the last year of China's 11th five-year plan (2006-2010), and economic and social development in the year will lay a foundation for the next five-year plan, said Hu.

Reports from Chinese government departments have started fleshing out the statement, with the most interesting being

The Ministry for Commerce said on Saturday that China will strive for a higher growth rate for retail sales in 2010 with a bigger contribution to next year's growth in GDP.

According to comments from Jiang Zengwei, vice minister of commerce, at a forum in Beijing, the ministry will take measures to boost both rural and urban consumption next year.

He said the MOC will expand the "old-for-new" program to encourage more consumers to buy new cars and home appliances on a basis of discount if they give up their old ones to sellers.

Credit consumption and sales promotion, especially those during holidays, will also be encouraged.

China's retail sales grew by 16.2% in the 10 months to October and there are forecasts this could rise to a rate of 18.2% next year.

All this has the feeling of choreographed by the Communist Party.

But China has delivered in 2009 after revealing the $US585 billion stimulus package just over a year ago.

It was a most difficult year and China's economy has rebounded (helped by frenetic lending and investment) in a way that has supported the entire Asian region, including Australia.

The US and Europe remain stuck in a wobbly recovery, with unemployment high and bank lending weak to non-existent, and markets outstripping reality.