Recent statements from Chinese President Hu Jintao (胡錦濤) and other senior leaders suggest a subtle shift in policy focus away from inflation control and toward growth creation, analysts said yesterday.
The new thinking at the elite decision-making levels in Beijing comes amid an expanding body of evidence that growth in the world’s fourth-largest economy is still hot — but not too hot.
“China has basically reached its earlier target of preventing overheating,” said Li Huiyong (李慧勇), a Shanghai-based economist with Shenyin Wanguo Securities (申銀萬國證券).
“So the policies that were designed previously will be shifted towards stabilizing the economy and ensuring faster growth,” he said.
The Communist Party’s politburo — the two dozen people who make most of the final policy decisions — met last week for a gathering chaired by Hu and issued a statement spelling out new concerns.
“Challenges and difficulties are growing for maintaining fast and stable economic growth, due to rising international uncertainties and problems in the domestic economy,” Xinhua news agency said, paraphrasing participants.
In separate gatherings with provincial leaders and economists, Premier Wen Jiabao (溫家寶) also called for emphasis on long-term growth.
“The country should make efforts to secure steady and comparatively fast economic growth,” Wen was quoted as saying on the Chinese government’s Web site.
He said this was a task “not only for this year but also for the next few years.”
The stuttering US economy was one main factor behind a 12 percent drop in China’s trade surplus in the first half of the year.
This contributed to a slowdown in growth in China to 10.4 percent in the first half of the year from 11.9 percent for all of last year.
At the same time, inflation now seems a less urgent priority than just a few months back.
Growth in the consumer price index peaked at 8.7 percent in February — nearly a 12-year high — but softened to a more manageable 7.1 percent last month.
“While the government still puts combating inflation at a significant place of its policy agenda, the task is no longer at the top place,” said Sun Mingchun (孫明春), a Hong Kong-based analyst with Lehman Brothers.
“This change clearly reflects a shift of policy bias from inflation to growth, although the balance seems only slightly more weighted toward growth at the time being,” he said in a research note.
While China’s leaders have identified new policy priorities, they may find it harder to design concrete measures to reach their objectives, economists said.
Pulling the lever too hard when trying to boost growth could trigger a new round of inflation, bringing economic policymaking back to where it was a few months ago.
“The dilemma makes it hard to carry out comprehensive economic policies in an effective manner,” Li said.
Given the complexity of the economic situation, China is unlikely to adopt blunt, sweeping measures, and interest rate adjustments seem out of the question for now.
Instead, some observers believe, China could start looking at taxation as a policy tool.
“Currently, economic growth is slowing. But the growth in tax revenues remains above 30 percent,” said Chen Yong (陳勇), a Shanghai-based economist with Haitong Securities (海通證券).
“Tax cuts will help boost investment and consumption. It would be a good idea,” he said.
It is possible that policymakers will decide to get rid of a 5 percent tax on interest rates from bank deposits, economists said.
But this, too, is fraught with uncertainty. Scrapping the tax, which was cut from 20 percent last year, could also encourage people to save more money rather than spend it.
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