The newly announced switch from the current “moderately loose” monetary policy to that old favorite, “prudent”, next year is no more than a formal anointment of what has been going on for months: the withdrawal of the 4 trillion yuan ($600 billion) monetary stimulus to combat 2008’s global financial crisis to be replaced by the 2010 focus on the battle against inflation. The statement followed a Politburo meeting reviewing the new 5-year plan that starts next year.
Easy credit led to a lending boom that the central bank is now striving to rein in through reduced loan quotas, interest rate hikes and increases in banks’ reserve requirements. At the same time it has been introducing measures to reduce the demand for property, the final destination of much of the new lending. Yet inflation hit a 25-month high of 4.4% year-on-year in October and is expected to have been higher in November, way above the target of 3% and despite moves to reverse food price rises which account for about a third of the inflation number.
The brakes are being applied but not too abruptly. Growth has been slowed to 9.6% year-on-year in the third quarter, down from 10.3% in the second and 11.9% in the first. Beijing won’t want to see the economy decelerating for much longer, and will want to see it remaining robust enough to absorb further interest-rate rises and increases in banks’ reserve ratios. The Politburo left policymakers plenty of room to fine tune: macro-regulation should be more “targeted, flexible and effective” while fiscal policy should be “proactive”, the statement said. Proactive fiscal policy might just mean the introduction of a property tax, as a new IMF Working Paper recommends.
A Kim Jong Il birthday day discussion about how the isolation of North Korea’s leaders shape their country’s reactions to the rest of the world in what often appears an irrational way turned to China’s worldview and how it presents itself to the world. It was pointed out to this Bystander that in most countries to be foreign minister is to hold one of the Great Offices of State, yet in China the official with the greatest responsibility for foreign affairs, Dai Bingguo, is a State Councillor who ranks below 50th in the Party’s hierarchy while the foreign minister, Yang Jiechi, ranks around 250th. A little subsequent research reveals that at the apex of that hierarchy, the nine-man Politburo Standing Committee (and it is all men), there is a paucity of foreign experience. None of the nine has lived, worked or studied abroad for any significant time if at all. None, as far as we could find out, speaks fluently or has studied a foreign language, though we understand there is some ability to read in English. All built their careers as domestic politicians in jobs that had no involvement with the rest of the world until being promoted to their current posts. All politics is local to some extent, but the experiential distance of China’ leaders from the rest of the world may amplify the roughness of relations with the U.S. and the E.U. in particular at times when, as now, they are going through a rough patch.
Oxford Analytica offers a contrarian take on the recently concluded 17th party congress. It argues that the new line up of the politburo will limit President Hu Jintao’s power, rather than consolidate it. Not sure I agree in this case, but I like OxAn’s work, so this piece is worth the read. (Link is via Forbes magazine site; OxAn requires registration,)
The party congress went much as scripted. The surprise would have been if it hadn’t.
President Hu Jintao got his “scientific concept of development” enshrined in the constitution, continuing the tradition of each leader adding his own embellishment to the country’s guiding principles. He also cleared the way for reshaping the party’s politburo standing committee — the nine people who really run China — by removing Vice-President Zeng Qinghong and two other senior politicians Luo Gan and Wu Guazheng from the party’s central committee, making them ineligible for reelection to the standing committee for further five year terms.
Zeng was both a princeling (offspring of a revolutionary veteran) and an old associate of Hu’s predecessor, Jiang Zemin. So was Wu, though he buttered his bread with the times, acting as the enforcer for both Jiang and Hu in the role of overseeing party discipline. He turns 70 next year.
Luo, who is 72, oversaw national security and was responsible for implementing the anti-crime campaign that has led to an increasing number of executions. He was a long-time ally of Jiang’s prime minister Li Peng.
Two vice premiers, Wu Yi and Zeng Peiyan, and defense minister Cao Gangchuan have also been put out to pasture.
This is being portrayed in western media as Hu tightening his hold on power, though after five years in office and the likely halfway point in his term, he already has a pretty firm grip. The clearing out of the Jiang old guard has been underway for some time.
Monday sees the secret ballot for the all-important politburo. Two names to look for are Shanghai party chief Xi Jinping and his counterpart in Liaoning, Li Keqiang. Both men, who are 54 years ofd and 52 years old respectively, are talked of as being successors to Hu when the 18th party congress meets in 2012.
None of this jockeying for power, though, is likely to make much difference to business. China’s economy will next week under the new leadership look much the same as it did last week under the old.