NEWSLETTER Issue I of 2017


China pledges stability, reform in 2017 as key

economic meeting ends

China made stability as the basic tone for next year's economic planning, pledging to push for "substantial progress" in supply-side structural reform in 2017, as a key annual conference concluded on December 16, 2016.

A statement issued after the Central Economic Work Conference, during which Chinese leaders and senior officials gathered to map out priorities for 2017, said "seeking progress while maintaining stability" will be the main theme.

At macro level, China will stick to proactive fiscal and prudent monetary policies in 2017, the statement said, describing monetary policy as "prudent and neutral" and promising better adjustments to ensure stable liquidity. Monetary policymaking should adapt to changes in the use of money supply tools, and further efforts are needed for smoother transmission of policy, the statement said. China will keep the yuan basically stable, while improving the flexibility of exchange rates.

Despite a troublesome start, the Chinese economy is ending 2016 on a firm footing, with encouraging signs of growth being on track to meet the this year's target. In the first three quarters, the economy expanded 6.7 percent, steady with the first half of the year and within the government's target range of between 6.5 and 7 percent.

However, the statement warned of problems in the economy, including persistent industrial overcapacity and accumulating financial risks.

The key to resolving structural imbalance lies in pushing supply-side reform, the meeting agreed, specifying five major tasks: cutting industrial capacity, destocking, de-leveraging, lowering corporate costs and improving weak links.

Fiscal policy should be more proactive and effective and budgets better planned to accommodate supply-side structural reform, cutting business taxes and ensuring incomes.

On the risk side, curbing asset bubbles will assume more importance in 2017 as the property market has raised fears of risks to financial stability.

To combat downward pressure, China adopted a multi-pronged growth policy last year, including cuts in interest rates and lower deposit requirements.

The stimulus has fueled growth in real estate and investment, two sectors that have proved critical growth drivers, but not without unwanted outcomes. For example, house prices in major cities have soared in an unreasonable manner and required tightening measures.

A market-oriented, long-term mechanism will curb real estate bubbles and prevent volatility. In cities where prices are rising fast, authorities should increase land supply and the share of residential housing.

Other policy includes advancing structural reform in agriculture, reviving the real economy and overhauls of state firms.

China will take substantial steps toward mixed-ownership in the sectors of electricity, oil, natural gas, railway, civil aviation, telecommunications and military industries.

Meanwhile, China aims to attract more foreign investment, hoping foreign-funded businesses can play an important role in developing the real economy.

To ensure the economy runs within a reasonable range, the meeting stressed more coordinated policy-making.


Embassy of the People's Republic of China

3505, International Place, NW Washington DC, 20008

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