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Economic uncertainties and expectations of flagging export growth are big concerns for china in 2012.At home, much has been said about over enthusiastic monetary tightening, which may in turn harm the country’s growth momentum. This gloomy outlook has placed an onus on policymakers to fine-tune their macroeconomic policies and keep a steady hand on the tiller in steering the economy forword.
For 2012, china will adhere to stable and consistent policies and retain its prudent monetary policy and proactive fiscal policy - the macroeconomic outline was mapped out at the annual central Economic Work conference (cEWc), china’s top-level economic meeting, held on December 12-14 in Beijing.
At last year’s cEWc, china pledged to take a prudent monetary stance for 2011, marking a switch from the moderately loose policy adopted to counter the 2008 financial crisis.
Growth anguish
The chinese economy is feeling the chill of lackluster exports since the global economy remains on a slippery slope in large part due to the two-year sovereign debt crisis. The credit rating agency Standard & Poor’s has recently put 15 eurozone nations on a “credit watch” due to deepening economic and political turmoil in the region.
“if the global recession returns, china’s exports may nose-dive 10-12 percent in 2012, taking around 2.25 percentage points off GDP growth, “ said the Swiss investment bank UBS in a recent report. “in addition, the ripple effect will also filter through investments and consumptions.”
UBS trimmed its forecast for china’s economic growth in 2011 to 9 percent from a previous 9.3 percent to reflect weaker prospects in Western economies.
Domestically, signs are emerging that the once-robust growth engine is stalling as policymakers twisted hard on credit screws to quell inflation. Bearing the brunt of the heavy blow were smaller private firms that have found it harder to secure bank loans than state-owned enterprises. Reports have been flooding media outlets that east china’s Zhejiang Province, a cradle of private economy, is experiencing massive factory closures and bankrupt entrepreneurs disappearing to avoid huge debts.
The purchasing managers index (Pmi), a barometer of manufacturing activities, slumped to 49 percent in november. This was the first time that the index has dropped below the boom-bust line of 50 percent in 33 months.
“Judging from the Pmi figures, china is experiencing the most difficult time since the global financial crisis in 2008 and the situation demands the chinese Government loosens its monetary policies,”said Liu Ligang, a researcher from AnZ Greater china.
The quickly cooling real estate market also became a significant drag on growth. Home buyers have stayed on the sidelines, draining life out of the once-exuberant market and dealing a blow to a series of relevant sectors like furniture and appliances.
Zheng Xinli, Vice chairman of the china center for international Economic Exchanges, said the cEWc has sent out a message that the country will prioritize ensuring stable growth in 2012.
“The policymakers should coordinate monetary and fiscal policies to benefit economic rebalancing, and lay a solid groundwork for steady growth in the future,” he added.
Fine-tuning policies
To ensure economic stability, the central Government vowed to make policies more “targeted, flexible and foresighted.” china has already taken some selective steps, geared to small business, to prevent a deeper downturn.
The central bank, the People’s Bank of china,has required commercial banks to bump up lending to cash-starved smaller businesses and the weak agriculture sector. in the first three quarters, small and medium-sized enterprises received 2.26 trillion yuan ($357.03 billion) in new loans, accounting for 68.4 percent of the total.
A more substantial move came on november 30 when the central bank announced to decrease the ratio of deposits that banks must set aside in reserve by 0.5 percentage points for the first time in three years. This was widely seen as a signal for china’s policy shift toward targeted easing as inflation jitters give way to concerns over slowing growth.
“The cut is within expectations given liquidity shortages in the banking system,” said Lu Ting, a Hong Kong-based economist with the Bank of America merrill Lynch. “it is part of ongoing fine-tuning, which has been taking place since early october.”
Ba Shusong, Deputy Director of the Research institute of Finance at the Development Research center of the State council, pointed out that it is inappropriate to adopt more aggressive easing policies for fear of reigniting inflation.
“china must learn lessons from the massive credit expansion two years ago that sowed the seeds of acute inflation,” he said.
Xia Bin, a member of the monetary Policy committee of the People’s Bank of china and a researcher with the Development Research center of the State council, believes the key to stabilizing growth lies in the fiscal front.
“china is positioned to hand out more fiscal stimulus such as tax reductions for smaller businesses and strategic emerging industries, as well as greater efforts to improve the social safety network,”he said.
Need to rebalance
As china embarks on a more sustainable path of growth, economic rebalancing and structural adjustment takes center stage.
china will boost domestic demands, encourage consumptions, expand the proportion of people in mid-income groups, and foster the strategic emerging industries including information technology and new materials, according to the cEWc. moreover, still efforts will be made to protect the environment, as well as enhance energy conservation and emission reductions.
“The slowdown provided a powerful catalyst for the country to accelerate economic rebalancing and wean off reliance on external demands,” said Fan Jianping, chief Economist with the State information center.
instead of pumping massive lending and investments like it did in 2009, china should attach greater importance to seeking more sustainable growth and improving people’s livelihood, he added.
“For example, the government should strengthen anti-monopoly efforts and foster private investments by opening up more state-controlled sectors,” said Fan.
meanwhile steps to transform the growth pattern are already underway. The country’s12th Five-Year Plan (2011-15) vowed vigorous efforts to propel consumption, develop the service sector and eliminate polluting and energy-guzzling businesses.
in September china raised the cut-off point for personal income tax to 3,500 yuan ($553) from 2,000 yuan ($316), a move expected to bolster wage growth and fuel consumptions.
meanwhile, the energy efficient and environment-friendly industries are getting the chance to shine. in attempts to diversify away from fossil fuel, china has made headways in wind and solar energies.
“Economic rebalancing should be a long-term task for china, whatever external environment it faces,” said Wang Tao, chief Economist with the UBS.
“The key is to deepen market-oriented reforms and liberalize pricing of several elementary factors such as power, land and interest rates,” she said. “it is necessary to allow the markets play a leading role in promoting rebalancing.”
Inflationary fears
inflation remains a headache for the economy, though its acuteness is already moderating.
“Upward pressures on consumer prices remain, and we will continue comprehensive measures to prevent inflation from rebounding,” said the cEWc statement.
The consumer price index (cPi), a barometer of inflation, grew 4.2 percent in november 2011 from the previous year, 1.3 percentage points down from october, said the national Bureau of Statistics. This was the fourth straight month of declines, after peaking at 6.5 percent in July 2011.
The biggest driver of the cPi was still food prices, which leapt 8.8 percent in november over the same period 2010. Pork prices, in particular, jumped 26.5 percent.
The producer price index (PPi), an effective gauge of inflation at the wholesale level, edged up slightly by 2.7 percent in november, 2.3 percentage points lower from the previous month.
Policymakers have been pushing all the buttons to tame inflation, with government distributing subsidies to farmers in wheat-growing areas, enhanced price supervision and fought hard against speculation.
“The challenge for policymakers is to enact measures that boost domestic demand and to loosen credit controls somewhat without stoking inflation and property price bubbles,” said Jing Ulrich, JP morgan’s chairwoman for global markets.
For 2012, china will adhere to stable and consistent policies and retain its prudent monetary policy and proactive fiscal policy - the macroeconomic outline was mapped out at the annual central Economic Work conference (cEWc), china’s top-level economic meeting, held on December 12-14 in Beijing.
At last year’s cEWc, china pledged to take a prudent monetary stance for 2011, marking a switch from the moderately loose policy adopted to counter the 2008 financial crisis.
Growth anguish
The chinese economy is feeling the chill of lackluster exports since the global economy remains on a slippery slope in large part due to the two-year sovereign debt crisis. The credit rating agency Standard & Poor’s has recently put 15 eurozone nations on a “credit watch” due to deepening economic and political turmoil in the region.
“if the global recession returns, china’s exports may nose-dive 10-12 percent in 2012, taking around 2.25 percentage points off GDP growth, “ said the Swiss investment bank UBS in a recent report. “in addition, the ripple effect will also filter through investments and consumptions.”
UBS trimmed its forecast for china’s economic growth in 2011 to 9 percent from a previous 9.3 percent to reflect weaker prospects in Western economies.
Domestically, signs are emerging that the once-robust growth engine is stalling as policymakers twisted hard on credit screws to quell inflation. Bearing the brunt of the heavy blow were smaller private firms that have found it harder to secure bank loans than state-owned enterprises. Reports have been flooding media outlets that east china’s Zhejiang Province, a cradle of private economy, is experiencing massive factory closures and bankrupt entrepreneurs disappearing to avoid huge debts.
The purchasing managers index (Pmi), a barometer of manufacturing activities, slumped to 49 percent in november. This was the first time that the index has dropped below the boom-bust line of 50 percent in 33 months.
“Judging from the Pmi figures, china is experiencing the most difficult time since the global financial crisis in 2008 and the situation demands the chinese Government loosens its monetary policies,”said Liu Ligang, a researcher from AnZ Greater china.
The quickly cooling real estate market also became a significant drag on growth. Home buyers have stayed on the sidelines, draining life out of the once-exuberant market and dealing a blow to a series of relevant sectors like furniture and appliances.
Zheng Xinli, Vice chairman of the china center for international Economic Exchanges, said the cEWc has sent out a message that the country will prioritize ensuring stable growth in 2012.
“The policymakers should coordinate monetary and fiscal policies to benefit economic rebalancing, and lay a solid groundwork for steady growth in the future,” he added.
Fine-tuning policies
To ensure economic stability, the central Government vowed to make policies more “targeted, flexible and foresighted.” china has already taken some selective steps, geared to small business, to prevent a deeper downturn.
The central bank, the People’s Bank of china,has required commercial banks to bump up lending to cash-starved smaller businesses and the weak agriculture sector. in the first three quarters, small and medium-sized enterprises received 2.26 trillion yuan ($357.03 billion) in new loans, accounting for 68.4 percent of the total.
A more substantial move came on november 30 when the central bank announced to decrease the ratio of deposits that banks must set aside in reserve by 0.5 percentage points for the first time in three years. This was widely seen as a signal for china’s policy shift toward targeted easing as inflation jitters give way to concerns over slowing growth.
“The cut is within expectations given liquidity shortages in the banking system,” said Lu Ting, a Hong Kong-based economist with the Bank of America merrill Lynch. “it is part of ongoing fine-tuning, which has been taking place since early october.”
Ba Shusong, Deputy Director of the Research institute of Finance at the Development Research center of the State council, pointed out that it is inappropriate to adopt more aggressive easing policies for fear of reigniting inflation.
“china must learn lessons from the massive credit expansion two years ago that sowed the seeds of acute inflation,” he said.
Xia Bin, a member of the monetary Policy committee of the People’s Bank of china and a researcher with the Development Research center of the State council, believes the key to stabilizing growth lies in the fiscal front.
“china is positioned to hand out more fiscal stimulus such as tax reductions for smaller businesses and strategic emerging industries, as well as greater efforts to improve the social safety network,”he said.
Need to rebalance
As china embarks on a more sustainable path of growth, economic rebalancing and structural adjustment takes center stage.
china will boost domestic demands, encourage consumptions, expand the proportion of people in mid-income groups, and foster the strategic emerging industries including information technology and new materials, according to the cEWc. moreover, still efforts will be made to protect the environment, as well as enhance energy conservation and emission reductions.
“The slowdown provided a powerful catalyst for the country to accelerate economic rebalancing and wean off reliance on external demands,” said Fan Jianping, chief Economist with the State information center.
instead of pumping massive lending and investments like it did in 2009, china should attach greater importance to seeking more sustainable growth and improving people’s livelihood, he added.
“For example, the government should strengthen anti-monopoly efforts and foster private investments by opening up more state-controlled sectors,” said Fan.
meanwhile steps to transform the growth pattern are already underway. The country’s12th Five-Year Plan (2011-15) vowed vigorous efforts to propel consumption, develop the service sector and eliminate polluting and energy-guzzling businesses.
in September china raised the cut-off point for personal income tax to 3,500 yuan ($553) from 2,000 yuan ($316), a move expected to bolster wage growth and fuel consumptions.
meanwhile, the energy efficient and environment-friendly industries are getting the chance to shine. in attempts to diversify away from fossil fuel, china has made headways in wind and solar energies.
“Economic rebalancing should be a long-term task for china, whatever external environment it faces,” said Wang Tao, chief Economist with the UBS.
“The key is to deepen market-oriented reforms and liberalize pricing of several elementary factors such as power, land and interest rates,” she said. “it is necessary to allow the markets play a leading role in promoting rebalancing.”
Inflationary fears
inflation remains a headache for the economy, though its acuteness is already moderating.
“Upward pressures on consumer prices remain, and we will continue comprehensive measures to prevent inflation from rebounding,” said the cEWc statement.
The consumer price index (cPi), a barometer of inflation, grew 4.2 percent in november 2011 from the previous year, 1.3 percentage points down from october, said the national Bureau of Statistics. This was the fourth straight month of declines, after peaking at 6.5 percent in July 2011.
The biggest driver of the cPi was still food prices, which leapt 8.8 percent in november over the same period 2010. Pork prices, in particular, jumped 26.5 percent.
The producer price index (PPi), an effective gauge of inflation at the wholesale level, edged up slightly by 2.7 percent in november, 2.3 percentage points lower from the previous month.
Policymakers have been pushing all the buttons to tame inflation, with government distributing subsidies to farmers in wheat-growing areas, enhanced price supervision and fought hard against speculation.
“The challenge for policymakers is to enact measures that boost domestic demand and to loosen credit controls somewhat without stoking inflation and property price bubbles,” said Jing Ulrich, JP morgan’s chairwoman for global markets.