China must focus on local economy in face of global slump, says minister

CHINA IS facing into certain recession and must focus on boosting the domestic economy, a senior Communist Party leader has said, his bearish comments underlining the challenges facing the world’s second-biggest economy.

“The one thing that we can be certain of, among all the uncertainties, is that the global economic recession caused by the international financial crisis will be chronic,” vice-premier Wang Qishan was quoted by the official Xinhua news agency.

While economic growth and other indicators remain robust, China finds itself in a precarious position. Exports rose 15.9 per cent last month, which appears a healthy figure but is the lowest rise in five months.

The slowdown in exports and the threat of a property bubble could lead to more efforts to boost growth, although Beijing is keeping one eye on inflation, which it fears could be politically destabilising.

The pressure is starting to tell, particularly as the export markets in Europe and the US, which are crucial to Chinese expansion, start to flag.

“As for our country, which relies highly on external demands, we must see the situation clearly and get our own business done,” Mr Wang told a meeting of government officials and financial executives in Wuhan in central China, an industrial city often described as China’s Chicago.

The rest of the world is watching China’s economy carefully, as remarkable growth in the past three decades has transformed the country from a secretive economic backwater into the world’s factory, with a bigger economy than Japan and growing political muscle to match.

During the economic uncertainty of recent years, financially flush China has played a major role in helping prop up global demand and keep the world economy ticking over. In 2008, China launched a four trillion yuan (€470 billion) fiscal stimulus package to avert catastrophic fallout from the global financial turmoil.

The People’s Bank of China is introducing measures to stop a property bubble – real estate accounts for about 12 per cent of Chinese GDP.

Nearly half of 70 major Chinese cities experienced a decline in the price of housing in October, the widest spread of decline in the country this year so far, as Beijing’s tightening measures took effect.

The People’s Bank, which reports to Mr Wang, wants to bring about a 20 per cent fall in real estate prices in major cities next year.

The bank said in its quarterly report last week that it was ready to fine-tune its prudent monetary policy if needed.

Chinese GDP growth has slowed from 9.7 per cent in the first quarter to 9.5 per cent in the second to 9.1 per cent in the third, its lowest level since 2009. The full-year outcome is expected to be about 9 per cent.

A positive note is that inflation fell to 5.5 per cent in October. Also, foreign direct investment is proving robust, rising 8.75 per cent year on year in October to €6.2 billion, while between January and October, investment from the 27 EU nations, China’s biggest trading partners, increased by 1.05 per cent to €4.1 billion.

Among the reforms Mr Wang calls for are solutions to “structural problems” in China’s financial services industry.

“City banks, rural credit co-operatives, village banks and micro-credit companies should prevent blind expansion and put more focus on improving their development quality and efficiency,” he said.

There are other risks facing the Chinese economy at the moment, not least the prospect of a change in leadership starting early next year. In the run-up to leadership transition, no one is prepared to make difficult policy decisions.