INVESTORS PIN HOPES ON LEADERS’ MEETING

Ahead of key annual work conference, policy advisers are calling for a bigger dose of stimulus and the need to set an explicit GDP growth target

The Communist Party is expected to convene its annual central economic work conference in mid-December, an event that will be closely watched by investors eager to see solutions offered up for some of China’s most pressing economic risks, including coronavirus disruptions and a property downturn.

China’s new leadership is facing economic challenges unseen in two decades, with growth slowing much more than expected and external headwinds mounting.

Many of the conventional macroeconomic policies that have been rolled out have failed to work as intended given the unrelenting zero-Covid policy, which has also exacerbated uncertainty and frustration among private businesses.

Now, a growing chorus of government advisers are calling for a bigger dose of stimulus and the need for an explicit gross domestic product growth target for 2023 ahead of the meeting.

“China should set a growth target of more than 5 per cent next year. It should try to ensure an expansion of around 5 per cent on average in 2022-23,” said Liu Shijin, a central bank adviser and former deputy director of the Development Research Centre of the State Council.

At the China Macroeconomy Forum last week, Liu said slower growth would jeopardise totalfactor productivity, dampen business and affect the country’s ability to change development model.

China’s economy expanded by 3 per cent in the first nine months and is projected to grow by around 3.2 per cent for the full year.

Market sentiment is now so low that ordinary Chinese are saving more to prepare for a worst-case scenario, private entrepreneurs are restructuring businesses to survive the winter and foreign investors are considering Plan B amid potential supply chain disruptions.

Yang Weimin, deputy director of the Chinese People’s Political Consultative Conference’s Economic Affairs Committee, said growth had not reached its potential in the past three years.

“It’s urgent to reverse the trend and bring growth back to a reasonable range,” he said.

After setting a modest and flexible growth target for 2022 at “around 5.5 per cent”, calls are growing for an explicit goal next year. Analysts say a relatively high target will set a strong intention at the start of a new five-year term, which will be easier to achieve given the low comparison base in 2022 and is necessary if Beijing wants to double GDP or per capita income by 2035.

Authorities have provided financing support to ease the property crisis, vowed to encourage private investment in key infrastructure projects, reaffirmed commitment to opening up to foreign investors and cut the required reserve ratio for banks.

Still, economic activity remains subdued due largely to coronavirus disruptions, with the official manufacturing purchasing managers’ index falling to 48 in November from 49.2 in October. Business sentiment in the services and construction sectors also continued to decline.

In the eyes of investors, confusion reigns over policy direction as key government positions, including premier, vicepremier, finance minister, central bank governor, banking regulator and head of the top economic planning agency, will only be decided in March.

The closed-door work conference, where incoming officials will have a say in policymaking, is viewed as an opportunity to look at the new economic thinking.

“The most urgent and important thing policymakers should work on at the conference is a well-planned, systematic easing of the Covid stance,” said Louis Kuijs, chief Asia-Pacific economist of S&P Global Ratings.

S&P has raised its estimate for China’s growth this year to 3.3 per cent, while projecting 4.8 per cent growth for 2023.

China should set a growth target of more than 5 per cent next year

LIU SHIJIN, CENTRAL BANK ADVISER