The annual Central Economic Work Conference in the People’s Republic of China, just ended in Beijing. The conference’s Beijing venue is the famous Jingxi hotel-guesthouse, a magnificent official building, full of old world glamour and appointed with all modern imaginable comforts in a style. This is where the annual Central Economic Work Conference on China, takes place in a collegiate atmosphere and it sets the tone for China’s economic policymaking and all centrally planned economic directives, for the monetary policy, for external trade relations, and all other state fiscal and financial mechanisms of the future. Especially as it addresses the economy’s health and pulse for this coming year’s 12 months and also for the years ahead.
This is the most important conference to be at, and is attended by thousands of people, including all the members of the ruling Politburo, all government ministers, all provincial chiefs, many military leaders, industrial chiefs, heads of banks and other big state-owned companies, all the civic leadership and the leaders of the commercial classes and a very few lucky foreign guests and even fewer accredited and highly trusted local party friendly journalists.
Here confidentiality of the participants is paramount, the no-naming of sources is sacrosanct and a news blackout is completely observed. This total secrecy is kept absolute by all — organizers, speakers and delegates alike. The cooperation of all attending in order to achieve this near total confidentiality, proves to be a rather trying and demanding task, yet the invitations to speak and attend, are so rare and coveted that is not hard to see why nobody violates their agreement to secrecy. Mainly because of fear of not being called to come back in. It works well…
Of course targeted leaks are expected and welcome. Since the grey eminences know well enough the game of the spread of information, the painting of the vision and the national policy by fevered and secret gossip. To that end propaganda works well too. And if total absolute secrecy was demanded, then why do you bring in the vocal voices? Because you want the word to get out in an authoritative way from those deemed leaders in their field and definitely in the know…
Why else do you invite well known bloggers like your truly to attend?
Of course always, some form of Chatham house rules apply — not only for the participants, speakers, delegates, leaders — but for all the source views and also on all the news emanating from the conference. They do this mainly because they want to protect the economy from the market effects of early leaked economic policy directives or misquotation and innuendo. The official news can’t be leaked out till March to be certain — and then only from official sources — but as with all things critical, the markets learn the “top secret” news very fast — and they go on to respond even faster…
And although the dates and the venue of the conference are never announced in advance, nor are the news from it or about it, and even the location where the conference takes place; all the people know it’s happening at the heavily guarded Jingxi guesthouse in western Beijing. Even though this is the Communist Party’s favourite spot for large closed-door gatherings and special meetings, it still retains the allure of another era of many secrets — as to this day it is an official government secret. It’s like this conference never takes place, although it manages the fate of the Chinese economy and nation and in large part, it affects the fates of the economies around the world in our interconnected and interdependent world economy.
So it goes that this secretive three-day meeting really decides and spells out how to run China’s economy in the next year. And this current conference was centred on the pivotal year 2012. Getting to the essence of it spells simple CONTINUITY…
The top down leadership consultative conclusion is simple. Keep things running as smooth as possible and maintain the present course in steering this vast ship that is China’s economy away from the storms and shoals into a safe harbour. The carefully exercised wording of the summarizing speaker was that the Chinese leadership had decided to maintain a “prudent monetary policy” and a “proactive fiscal policy” in the face of an “extremely grim and complicated” global outlook.
And truth be told, this year’s conference, which ended on December 14th, seemed more worried about growth than about price pressures. Inflation is now receding and consumer prices rose by 4.2% in the year to November, after peaking at 6.5% in the summer; and dollar inflows are also slowing, removing one source of extra liquidity. That has allowed the government to cut the amount it tells banks to keep as reserves. Most economists expect it to carry on cutting in the year ahead. Nonetheless, the CEWC conference chose to describe its monetary policy with the same word “prudent” as it had used last year, when fighting inflation was the priority. It suggests the leaders will cut cautiously and maintain the same growth rate targets as in prior years. No?
The conference focused on the top down directives of the Politburo and the wise elder leaders, whose membership, does not include the ministers responsible for finance and commerce, and who are free to set the tone and timbre for the country, without fiscal or commercial constraints.
They are the true masters. These indirectly elected leaders are the wise masters and are such old timers that all they do is old school. Really old school as is the culture of the conference reflected in all little things, like the constant unsavoury cakes and tea at the conference. And these leaders they want to project power. And they want to come across as foreign policy hawks and trade protection mercantilists, and yet they are also not afraid in choosing to send clear signals in the opposite direction.
Take for example this year’s chosen target. Because this year, they are clearly displeased with America pressuring them on Yuan’s low monetary value and because they reject what they see as foreigners meddling in their internal affairs, they reacted sharply. And as they noted on the eve of the conference closing — when they proclaimed a commercial tit for tat with uncle Sam — slapping a tariff on American big car imports of SUVs, proclaiming that the US offered illegal subsidies to it’s auto makers.
They also promised to remain “vigilant” and “unswerving” in their campaign against foreign manipulation of China.
And they promised to succeed in their efforts to smother property-market speculation, and boost the trend against the real estate bubble, by converting a lot of new build and empty properties into low income housing and building far more than the 16 million scheduled low income homes for the new city dwellers coming in from the agrarian communities and the recently industrialized countryside.
Those carefully and orchestrated “leaked news” alone sent Shanghai’s stockmarket index down to its lowest level since March 2009, with property developers suffering the most damage and the greatest loss of value.
And most importantly the Politburo elders chose to support the Euro and the Euro zone nations, in order to help them avoid from having to break up their currency union. The Chinese elders do this, because they not only want to prop Europe as a counterbalance against the US and against the almighty dollar, but also because they see the era of a world currency as coming to an end and a multipolarity of world currencies arising out of the fall of the Dollar. Teaching a lesson to the “ugly Americans” as one member put it is also a bonus, but not a high priority. Mainly because the emphasis here was in avoiding a double dip recession and a worldwide depression, and not into escaping the much feared and almost forgotten colonial revancicism.
And then came the shot across the bow of the US mercantile juggernaut. A trade tariff for the iconic American automobiles was slapped on the Jeep. The large Jeeps and sport utility vehicles, the ugly hammers and the very large Mercedes built in America all will be far more expensive than their smaller counterparts. These quintessential American master products are seen as the literal ugly American, polluting the environment, consuming vast amounts of oil, hogging the roads and representing all consuming status, and are thus served with a punishing tariff making them four to five times more expensive here in Beijing, than in the comparable Jeep dealership when the same car is sold in the US markets.
The important lesson here is that an unofficial trade war has been declared and the message is clear. Lay off our exports. Because if the Americans keep on pressuring the Chinese on tariffs for the solar industry making Chinese manufactured solar panels more expensive, they will retaliate fully. That is what this shot across the bow represents and nothing more – nothing less.
That’s the shot that was heard around the world coming at the heels of this fantastic Economic meeting in China that addresses all the Chinese economic outlook and the pretty much the world’s economic future from this vibrant economy.
This was a 27 thousand people meeting and yet despite the scale of the meetings, in this vast compound everything seemed orderly and space was plentiful. And although little detail of the discussions is revealed to the public beyond a bland description of the main points, we can share these news here without violating much of the essence of confidentiality. For more detailed explanations, ordinary Chinese have to search the blogosphere, and ask their officials pointed and awkward questions, or simply wait until the country’s rubber-stamp legislature, the National People’s Congress (NPC), meets in March and then releases the news of the economic policy. The NPC meeting will also reveal the official growth target for the year 2012 even though this was announced and discussed here fully.
Just to give you an intelligent guesstimate, in the year 2011 and the six previous years, the Chinese stated official growth rate coming out of this conference, was 8%, a figure China’s economy typically overshot by two percentage points or more.
But 8% would be more of a stretch in 2012 with the current climate and undercurrents pulling back… and deflating the wind from the sails. Still Nomura, a well informed Japanese bank, that keeps tabs on all things China — forecasts a growth rate of only 7.9% for the year 2012 in China. And that is actual rate, not projected or top down government fiat.
Yet we know the Chinese government must meet it’s targets surely. Take for example another difficult year – the year 2009. Back then and in order to get close and meet their steady same 8% growth target in the extremely grim year of 2009, China’s leaders invited local governments to indulge every pet project, and encouraged the banks to finance them. Nothing in this year’s statement suggests they will resort to anything so dramatic. Their “proactive” fiscal policy will instead cut taxes on small firms and service industries, as well as increase spending on public services.
The immense need of China for economic growth can best be summarized by China’s former PM, Zhu Rongji, who retired in 2003, and who had warned consistently that if growth were to slump, “immediate chaos” would follow.
Similar sentiments prevailed at the CEWC conference, this time around and with predictable results in the markets around the world.
Yours,
Pano
PS:
China’s leaders are embracing additional growth and are eager to embrace hegemony with some virtuous excess too. Now that the Chinese space program, the Chinese airplane carrier battle group sailing the China sea and the impressive economic growth all attenuating the positives we are clearly on the face of a new challenge to the western dominance.
China want to revert to world hegemony and economic superiority that enjoyed for almost all of the five Millenia of it’s long history.
And with it’s abundant growth and spring in it’s step, China is the chief economy of the world poised to overtake the American economy within the next decade. Not bad for a very timid leadership team here…
Now if we manage this transition peacefully and without much angst we will all be better off for this…
If we don’t economic conflict might degenerate to actual militaristic showdowns, and that would be a disaster for all concerned.
Here is the new CEO of the world’s economy coming in the heels of terrible upheavals and crises.
