Translating President Xi Jinping’s “high quality” growth ideas into actions and policies was expected to be the focus as some 400 cadres and provincial governors gathered at a heavily guarded hotel in Beijing on Monday for China’s annual economic conference.
But the three-day session to map out the economic agenda for 2018 comes amid headwinds from across the Pacific, with US President Donald Trump set to officially label China as a competitor when he lays out the national security strategy on Monday.
Analysts said a less friendly Washington, Trump’s tax cut plans and the Federal Reserve’s interest rate rises could complicate Beijing’s campaign to reduce debt and curb pollution next year.
“China could take a wait-and-see approach as there are still many uncertainties around implementing these policies,” said Larry Hu, chief China economist at Macquarie Securities in Hong Kong.
Domestic deleveraging, however, poses a much bigger threat to the world’s second largest economy. “It could be the biggest downside risk next year,” Hu said.
Ahead of the conference, the 25-member Politburo outlined three key economic tasks for 2018 – risk prevention, poverty reduction and pollution control – and highlighted the need to reduce macroeconomic leverage ratios and provide support for the real economy.
The Chinese leadership under Xi has managed to stabilise China’s growth in 2017 – headline growth in the first three quarters was 6.9 per cent, while the yuan exchange rate has strengthened against the dollar by about 4 per cent and foreign exchange reserves have gone up for 10 consecutive months.
China’s economic focus has shifted to tackling deeper-rooted problems such as excessive financial exuberance and weak economic activities on the ground. During a factory tour last week, Xi climbed into the driving seat of a Chinese-made crane to show his support for the “real economy”.
Ding Shuang, chief Greater China economist at Standard Chartered Bank, said state firms – which account for most of China’s corporate debt – would likely be targeted at the economic conference.
China’s corporate leverage was about 163.4 per cent of the national gross domestic product by the end of June, according to the Bank for International Settlements. That is much higher than the United States, where it was 73.3 per cent, and Germany at 53.8 per cent.
China’s ratio has jumped from 100.7 per cent a decade ago, adding to concerns over financial risks.
Despite the challenges of the country’s debt-fuelled growth, Ding said “the authorities may have already considered or even calculated the impact of deleveraging on the real economy”.
The top leadership has not yet mentioned a specific growth target for next year, but market consensus puts it at “around 6.5 per cent” to accommodate domestic tightening and external changes.
Louis Kuijs, chief Asia economist at Oxford Economics, warned that “a slightly faster than projected slowdown in overall credit growth could easily result in a significantly more pronounced economic slowdown”, which Beijing would want to avoid.
“We think that the financial tightening will continue in 2018, but do not expect it to cause a substantial economic slowdown, as policymakers are keen to reduce overall credit growth only gradually,” he wrote in a research note.