Avoiding a hard landing was easy - now for reform
Delivering Beijing’s agenda for change will be no mean feat, and politics will only complicate things
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Delivering Beijing’s agenda for change will be no mean feat, and politics will only complicate things
Reuters in Beijing
25 April 2012
The enormity of China’s long-term economic reform makes piloting the biggest driver of global growth safely past the near-term perils of a hard landing seem straightforward.
Even with structural change, China’s growth rate will likely be nearer 5 per cent than 10 by the end of the decade, its mainly poor population will be ageing rapidly and its firms will face cheap foreign competition in developed markets still struggling with the deleveraging legacy of the 2008-09 financial crisis.
“Avoiding a hard landing was relatively easy. Economic policy for the near term has been predetermined and I don’t see any deviation from that,” Tao Wang, chief China economist at UBS in Hong Kong, said.
Some see the potential for an acceleration of financial sector reform, particularly to make China’s tightly controlled currency more freely convertible, after the recent milestone move to double the size of the daily trading band in which the yuan is actively managed. But Wang at UBS believes the broader reform agenda mapped out in China’s 12th five-year plan is tougher to deliver. “Changing the economic structure, re-orienting the economy, how to improve income distribution, environmental issues, price distortions, financial sector reforms - all these things have been outlined as important, but there isn’t a very clear time line as to when these things will happen,” she said.
Premier Wen Jiabao has plenty to do in his final year in office. A plan for 2012 unveiled in March made 32 pledges for action across nine broad subject areas, with promises to “accelerate”, “deepen” and be “vigorous” in most of them. How he will get through it in 12 months after nine years in which critics say reform has slowed is no mean feat. This is a transition year, when President Hu Jintao and Premier Wen start to hand over the reins of power to a new leadership after a decade in. A smooth handover is the prime objective, which appears to limit leeway for major reform.
But a scandal that has brought the downfall of Bo Xilai, a brash populist once widely seen as a contender for a post in the nine-member committee that rules China, may see faster economic reform in a bid to underpin growth and social stability.
“The pace of financial reform is likely to accelerate through 2012 and 2013,” said Agricultural Bank of China chief economist Xiang Songzuo.
In the meantime, China is set for its slowest full year of growth in a decade, with analysts polled by Reuters forecasting expansion of 8.4 per cent.
Regardless of timing, there is a desire to rebalance growth and reduce the influence of foreign demand and investment flows in an economy where 200 million jobs - around a quarter of the workforce - are estimated to be directly supported by trade. Successive export-led downturns - the 2008-09 global crisis and the still festering European debt crisis - have reinforced the view in Beijing that they need to recalibrate.
Also resonating is a widening wealth gap between rich and poor and persistent complaints from smaller, private sector firms which generate about 80 per cent of China’s jobs, about insufficient access to credit despite efforts to stimulate domestic capital markets.
“We think China has now progressed far enough down the path of financial reform that turning back is not an option,” said Deutsche Bank economist Michael Spencer.
“If policymakers see these reforms through, the impact on the economy will be far more profound than accession to the WTO was,” Spencer wrote in a client note.
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