China to Add Flexibility to Economic Policies, Pare Investment
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By Bloomberg News
Dec. 7 (Bloomberg) -- China will add flexibility to some monetary economic policies next year and rein in new investment projects after a $586 billion economic stimulus package helped growth rebound in the world’s third-largest economy.
China will maintain a “moderately” loose monetary-policy stance and “proactive” fiscal policies as its recovery isn’t yet solid, according to a statement by the annual central economic work conference published by the official Xinhua news agency. Chinese President Hu Jintao and Premier Wen Jiabao attended the three-day meeting that ended today in Beijing.
The country’s stimulus package and a record surge in bank lending have helped fixed-asset investment accelerate and economic growth rebound from its steepest slump in more than a decade. Still, a credit boom may undermine bank balance sheets and government researchers said today the nation’s industrial over-capacity has worsened.
China will ensure “moderate” growth of investment and focus on finishing existing projects in 2010, the government said. Policies will focus on boosting consumer spending, improving the social safety net and adjusting the nation’s growth models, the government said.
“As China’s economy recovers and is about to meet the government’s target, the government is able to rebalance growth by boosting consumption instead of further spurring investment, which may risk overheating and excess capacity,” said Xing Ziqiang, an economist at China International Capital Corp.
Consumer Spending
China will supply more homes, continue trade-in programs for home appliances and vehicles in rural areas and relax urban residence controls in medium-size and small cities to shore up consumer spending, the government said.
Growth accelerated to 8.9 percent in the third quarter after slipping to 6.1 percent in the first. The government is targeting 8 percent growth for the full year.
Urban fixed-asset investment expanded by 33 percent in the first 10 months from a year earlier and new projects climbed 81 percent.
China’s overcapacity problem is worsening, with 21 of 24 industries facing excess supply in the third quarter, up from 19 in the first quarter, Zhang Tao, a researcher with the Chinese Academy of Social Sciences, said in Beijing today. The government has told companies to halt construction of new cement factories and begun studying ways to tackle a glut in steel production through mergers and the closing of obsolete plants.
Bank Lending
China’s mostly state-owned banks have extended $1.3 trillion of loans this year, helping the Shanghai Composite Index to gain 83 percent. The nation’s lending boom and “excessively loose credit conditions” may erode bank balance sheets, the Bank for International Settlement said in a quarterly report published today.
The government will better manage inflationary expectations next year, according to today’s statement, which made no further mention of inflation or asset prices.
China’s growth may quicken to 9.1 percent next year from an estimated 8.3 percent this year, the government-backed Chinese Academy of Social Sciences said in its economic outlook published today. Consumer prices may rise 2 percent next year after falling 0.5 percent in 2009, government researchers said.
“As inflation may not materialize in the near term, Chinese leaders tend to remain cautious and won’t change the overall policy tone,” said CICC’s Xing. “They are still worried about uncertainties in the global recovery, which may be set back by the Dubai debt crisis.”
Dubai roiled international and regional markets after it announced on Nov. 25 that it was seeking a “standstill” agreement on loans incurred by Dubai World, which has $59 billion in liabilities.
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Last Updated: December 7, 2009 06:58 EST
