China’s Cautious Creep For Growth

China will keep its economic policies steady next year in the face of growing uncertainty over the prospects of the world economy and its own leadership transition. At the same time, it is signaling that it stands ready to stimulate the economy through increased social spending and tax changes to promote domestic consumption should the worst prognostications of an “extremely grim and complicated” outlook for the global economy, and particularly its developed-economy export markets, come to pass.

After the conclusion of the three-day annual central economic work conference, which brings together the country’s top central and provincial economic planners, the heads of its biggest state companies, senior PLA officers and top leaders (both the president and prime minister attend), state media reported that:

China will ensure that macroeconomic regulation policies and overall consumer prices will remain basically stable and will guarantee the steady growth of the economy and maintain social stability.

Post-meeting statements from the annual work meeting rarely add little that isn’t in the current five-year plan, and are most profitably read for tone. This year’s does not reflect the sharp debate over where the balance between macroeconomic policies to promote growth and those to fight inflation should fall, with the extent to which measures to cool the property market should continue acting as its proxy.

With inflation slowing, if still elevated, and growth next year possibly falling below 9% for the first time in a decade the pendulum is swinging towards more expansionary policy, but ever so slowly. The decision to continue next year the measures imposed to cool the property market, “to ensure housing prices return to a reasonable level”, even though real estate accounts for 15% of GDP, indicates that the go-for-growthers didn’t have the argument all their own way. The debt incurred from the infrastructure splurge from the previous round of stimulus spending casts a long, grim shadow of its own–as is the specter, always frightening to the Party’s leadership, of social unrest such as that playing out in Wukan.

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