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By William Bi
BEIJING (MNI) - History does seem to repeat itself. Four decades ago, the
paramount leader Deng Xiaoping opened China to outside capital and unleashed the
pent-up energy of an enterprising populace, setting course for the country's
Not long after, then-U.S. President Ronald Reagan signed into law the
Economic Recovery Tax Act, slashing marginal taxes across the board. The deficit
ballooned and the economy sank into a "double-dip" recession, forcing the
Republican government to largely retract those tax cuts.
One may say this somewhat mirrors the situation today. As President Donald
Trump and Republican congressional leaders were claiming their "largest tax cut"
in history would boost growth, a prediction roundly disputed by economists,
Chinese President Xi Jinping and his bureaucrats emerged from a three-day
conclave setting in place moderate growth strategies seeking to optimize the
nation's modernization and beat its biggest competitor in terms of quality, if
State media summarized the results of the Central Economic Work Conference
(CEWC) with a few pithy numeric slogans: "One Basic Requirement," "One
Guideline," "One Grasp," and "3+8 Tasks."
The "One Basic Requirement" is that growth will change "from China-made to
China-created, from China-speed to China-quality," as the country changes to a
"strong" rather than "large" manufacturing nation. That requirement will be met
by following the "One Guideline" of Xi's supply-side reform, with a "Grasp" over
China's unequal wealth distribution.
U.S. Republicans may want to take note.
In a 3000-character communique, Xi urges officials and China's 1.3 billion
people to win the "Three Solidifying Battles" -- preventing financial risks,
eliminating poverty and curbing pollution -- by undertaking eight major tasks:
1. Implement supply-side reform
2. Unleash market energy, make state firms stronger, better and bigger
3. Revitalize the countryside
4. Rebalance regional economies
5. Reduce market barriers, seek trade balance, guide outbound investment
6. Improve basic welfare
7. Boost housing supplies, especially rental properties
8. Improve the ecosystem
With this new thinking in focus, Xi has called for the accelerated
formulation of systems of indicators, policies, standards, statistics, economic
and political evaluations, with all the attendant rules and conditions.
Analysts pored over the densely- and carefully-worded summary to look for
clues and changes from past official statements. Here are MNI's takeaways:
--LOWER GROWTH TARGET
To the stability- and target-obsessed China, de-emphasizing quantitative
growth doesn't mean it will abandon goals altogether. But given the likely 6.8%
growth rate this year, even if growth slows to 6.3% per year in 2018-2020, China
can still achieve its target of doubling the GDP by 2020 from 2010, as laid out
in the 18th party congress. Many economists predict that the National People's
Congress in March will target 6.5% growth for 2018.
--DEEPEN SUPPLY-SIDE REFORM
"China doesn't need to cut taxes for businesses in the same way as the new
U.S. tax reform," which seeks to transfer wealth to businesses from individuals,
a prominent state-affiliated economist, Liu Yuhui, told MNI at the annual
Mysteel steel forum in Shanghai last weekend.
Xi's two-year-long push for cutting redundant steel mills, coal mines and
cement plants has in a way been an income transfer. It has given order and life
to industries mired in debts and reckless competition. Those that survived have
enjoyed elevated prices of steel, coal, cement and non-ferrous metals. The CEWC
communique made it clear the measures won't be reversed. Prices of industrial
products such as steel will likely be supported, especially given the increased
costs of protecting the environment in line with Xi's vision for a cleaner
Deleveraging, and the tough regulations over the financial industry, will
continue, but the communique removed a line calling for deleveraging in the real
economy. That nuance suggests regulators may be confident after making initial
inroads and won't likely further tighten the screws.
Xi has pinned much hope for China's future on a cleaner environment and
innovation. Environmental-protection and high-tech industries are among those
expected to benefit. A "youngster China," supported with innovation and
consumption, is now emerging out of the economy of a mature and rather stale
China, Liu said.
--STABLE MONETARY POLICY SHOULD ALSO BE NEUTRAL
In comparison with last year, the CEWC this time emphasized the word
"neutral" in describing its goal for monetary policy, suggesting monetary supply
may be further tightened. The PBOC is likely to raise intermarket borrowing
rates after a 0.05% symbolic increase this month.
This year's communique also added in a prescription about "ensuring
reasonable gains in credit and social financing," which may be needed to address
companies' recent difficulties in selling bonds and raising capital.
New to the CEWC communique this year is a call for "further expanding the
range and depth of opening-up" and a more "orderly" allowance of market access,
accompanied by the promotion of a more even trade balance.
Throughout the year, as President Trump takes the U.S. to a more isolationist
role in the world, China has steadily expanded its presence while carefully
avoiding directly confronting its biggest rival. Expect China to be more
pragmatic in dealing with the Trump administration, such as allowing more
imports of agricultural goods and energy products, which will shrink the trade
surplus while allowing China more leverage in accessing U.S. markets, including
investments the communique said would be "effectively guided and supported."
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