The annual Central Economic Work Conference (CEWC) just ended in Beijing. The venue is the Jingxi guesthouse a resplendent and magnificent, official building, full of glamour and with all imaginable comforts. The annual Central Economic Work Conference, sets the tone for China’s economic policymaking for the next 12 months 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 few lucky foreign guests and even fewer accredited and highly trusted local party friendly journalists. Here the confidentiality is paramount and news secrecy is absolute. The cooperation of all attendants to achieve this proves demanding but the invitations are so rare that nobody violates the agreement to secrecy. Chatham house rules apply – not only on the participant – on all the source views but also on all the news, because they can’t be leaked out till March to be certain. But as with all things the markets learn the secret news very fast, and they respond even faster…
And although the dates and the venue of the conference are a secret and are not officially announced in advance, nor are the news and not even the location that the conference takes place; all the people know it’s 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….
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 was centred on 2012. The top down leadership consultative conclusion is simple. Keep things running as smooth as possible and maintain the course. The wording was 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 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.
The Politburo membership, does not include the ministers responsible for finance and commerce and are free to set the tone and timbre without fiscal or commercial constraints.
They are the true masters. And they do come across as foreign policy hawks and trade mercantilists, and yet they are also choosing to send clear signals. This year, they are clearly displeased with America pressuring them on Yuan’s low monetary value and reject what they see as foreigners meddling in their internal affairs. 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 cars and SUVs, proclaiming that the US offered illegal subsidies to it’s auto makers.
They also promised to remain “unswerving” in their campaign against property-market speculation and the real estate bubble 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 news alone sent Shanghai’s stockmarket index down to its lowest level since March 2009, with property developers suffering the most damage and loss of value.
And most importantly they chose to support the Euro and the Euro zone nations to avoid having to break up their currency union wanting to set Europe against the US and against the almighty dollar. Teaching a lesson to the “ugly Americans” as one member put it is a high priority in order to escape the much feared and not forgotten colonial revancicism. And then came the shot across the bow of the US. A trade tariff for the iconic American automobiles. The large Jeeps and sport utility vehicles. These quintessential American master products are seen as flagrant luxurious all consuming status goods and are thus served with a punishing tariff making them four to five times more expensive here in Beijing than the comparable Jeep is sold for in the US markets…
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, little detail of the discussions is revealed to the public beyond a bland description of the main points. For a more detailed explanation, ordinary Chinese have to wait until the country’s rubber-stamp legislature, the National People’s Congress (NPC), meets in March. The NPC will also reveal the official growth target for the year.
In 2011 and the six previous years, it 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. Nomura, a bank, forecasts growth of only 7.9%. To meet their 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 this time around.
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.
