China aims at stability amid alarms of inflation

Updated: 2013-04-18 12:00

By Wei Tian and Chen Jia in Beijing and Joseph Boris in Washington (China Daily)

  Print Mail Large Medium  Small 分享按钮 0

China aims at stability amid alarms of inflation

Premier says economic growth at reasonable level in 1st quarter

Chinese Premier Li Keqiang called for stepped-up efforts to ensure economic growth and higher consumption in China as the State Council reviewed data and began developing government policy goals for the coming months.

But the Asian Development Bank's chief economist warned inflationary pressures could befall China and its neighbors due to the "loose monetary policy" of many developed countries' central banks.

The State Council met Wednesday, two days after the National Bureau of Statistics reported that China's GDP grew 7.7 percent year-on-year in the first quarter, short of the expectations of many economists. The fourth quarter grew by 7.9 percent, reversing a decline of seven consecutive quarters.

Officials in Beijing on Monday stressed that the latest data reflect China's emphasis on stable growth rather than the rapid GDP acceleration of recent years. A spokesman for the statistics bureau, Sheng Laiyun, told reporters "7.7 percent is not a low growth rate given the global and domestic situation and it's good for companies' restructuring and industrial upgrading".

A World Bank economist, Andrew Burns, concurred Wednesday with China's official assessment.

"I think the messaging that the Chinese put on was exactly right: You have to get used to this growth. This is not a problem, this is not something to be worried about, this is the new normal," said Burns, manager of global economic trends in the bank's Development Prospects Group, at a seminar in Washington about the Asian Development Bank's 2013 economic outlook.

Li, defending first-quarter growth as "reasonable", cited the steadiness of China's economic progress and said the country is at a critical juncture in its efforts to shift from an economy led by manufacturing, exports and investment to one driven by services and domestic consumption.

The State Council said at its meeting it was ready to make greater headway toward that transformation, while keeping macroeconomic policies mostly intact. It said greater effort must be made to combine the use of "proactive fiscal policy", which often means government-planned investment in public projects, and "prudent monetary policy", which means caution in the overall management of the credit supply.

The council assigned itself a lengthy list of tasks for the near term: introduce more consumer-friendly policies to encourage spending on healthcare and personal development while it sustains investment in urban roads, railways and environmental facilities; protect domestic agriculture so supplies can help China avoid abrupt price increases; do more to improve the general welfare of Chinese by providing jobs, healthcare, financial support to students from low-income families and State-subsidized housing; implement reforms to ease bureaucratic approvals, while adjusting taxation and pricing of key production materials; further liberalize interest rates while moving toward convertibility of the yuan currency in China's capital account; open up service industries to competition; and ensure local governments' debt loads are manageable.

Jin Liqun, chairman of the board of supervisors of China Investment Corp, the country's sovereign wealth fund, said on Wednesday that economic growth may remain moderate for the next five years - lower than 8 percent year-on-year - as the advantage of abundant cheap labor recedes.

"China's economy should depend on creating more jobs by upgrading its industrial structure. Excessive reliance on investment in infrastructure construction is unsustainable," said Jin, a former vice-minister of finance.

He said the new leadership faces more challenges in social policies: a widening wealth gap, pressure over wages and economic growth in which its modest pace makes it harder to deal with these issues.

The shadow banking system and rising levels of local government indebtedness are also worrisome, Jin said.

Over the next decade, GDP growth of 7 percent might be acceptable to the government, said Ma Jun, chief economist in China with Deutsche Bank.

"Labor costs will continue to rise because of the persistent decrease of the labor population. The Chinese labor force is predicted to fall by 200 million in the next 30 years," he said.

Giordano Lombardo, deputy CEO of Italian investment bank Pioneer Investments, said Chinese manufacturing is moving toward the upstream industrial chain, which "is an inspiring improvement".

The Asian Development Bank, in its outlook issued last week, forecasts Chinese GDP to reach 8.2 percent this year and 8.0 percent in 2014. The 7.8 percent figure for all of 2012 was China's lowest annual growth rate since 1999.

Largely on the strength of steady growth in China and India, the multilateral lender predicted that Asia overall would see average GDP of 6.6 percent in 2013 and 6.7 percent in 2014, up from 6.1 percent last year. The ADB warned, however, that inflation across the continent will likely increase to 4.0 percent this year and 4.2 percent next year, from 3.7 percent in 2012, and said Asian nations' central banks should be ready to act.

Relatively low inflation in China was keeping the region's average low even as some countries endure rates in the double digits, ADB chief economist Changyong Rhee said at the Washington seminar.

The ADB, followed by the World Bank in its global economic forecast this week, warned of the risk of inflation in Asia as well as asset and credit bubbles fueled by accelerated capital inflows enabled by quantitative-easing policies in developed countries, especially the United States and Japan.

Central banks in Asian countries should be wary of continuing policies intended to stimulate their economies because these were "unlikely to be effective as a demand-management tool", Rhee said.

He also highlighted the ADB's forecast that Asian nations' dependence on oil imports from the Middle East will rise sharply over the next two decades, leaving them vulnerable to supply shocks. He stressed the need for regional governments to develop cleaner energy sources and reduce demand in Asia, which the ADB predicts will account for as much as 56 percent of global energy consumption by 2035. It accounted for 34 percent in 2010.