Leadership Conference Opens with Mixed Signals on China Economy

The annual Central Economic Work Conference opened in Beijing on Dec. 10, about one month after top leaders announced ambitious reform plans for the Chinese economy.

The meeting will review the state of the economy in 2013 and discuss economic targets and likely reforms for 2014. Top party officials, heads of ministries, and senior provincial officials from across China are attending the closed-door confab that will probably run for three days, and they may agree to aim for a 7.5 percent growth target next year. The conference is happening just as China announces a host of economic numbers that present an unclear picture of the state of the economy.

The ruling party, too, is sending its own mixed messages—once again declaring that China must move away from a growth-at-all-costs, investment-heavy model to an economy more attuned to the state of the environment and popular social welfare. At the same time, top Communist Party officials in recent months have suggested that China’s economy has a minimum acceptable level of gross domestic product, below which it must not fall.

Local governments must “abandon the development mode of ”high investment and heavy pollution for fast growth rate” and set more evaluation criteria related to resources, the environment, scientific innovation, employment, income, health and social insurance,” said a document released on Dec. 9 by the Organization Department of the Chinese Communist Party, the Xinhua News Agency reported.

That however, came with a serious caveat:
“Not judging by GDP alone does not mean we no longer want GDP or economic growth, nor does it mean we will not assess development based on GDP criteria. We emphasize assessment based on scientific and comprehensive development,” the Party document stated.

So what’s the state of growth as presented by the latest statistics? On Sunday, China’s customs bureau reported that exports grew a by strong 12.7 percent in November. Even though that was in part overstated, due to a low base, “nonetheless, there are signs that global trade is gaining momentum, driven by the recovery in high income countries,” wrote Louis Kuijs and Tiffany Qiu, economists at Royal Bank of Scotland in Hong Kong, in a Dec. 10 note.  Still, imports were up only 5.3 percent, a worrying sign, according to the economists: “Growth of imports used in China’s economy slowed, calling for scrutiny in the coming months for potential signs of slower domestic demand.”

And while retail sales surprised on the upside, growing 13.7 percent in November, compared to the same period a year earlier, industrial production and investment both came in below economists’ expectations. Factory production was up 10 percent, compared to the 10.1 percent predicted by economists in a Bloomberg survey—down from a gain of 10.3 percent the month before. Meanwhile, fixed-asset investment in cities was up 19.9 percent in the year through November, compared to a median estimate of 20 percent.

“Together with flattening manufacturing PMI [purchasing managers’ index] readings, these are signs that the growth rebound may have peaked, and tighter credit conditions are weighing on fourth quarter GDP growth,” writes Shen Minggao, an economist at Citigroup in Hong Kong in a Dec. 10 research note. Shen is forecasting 7.5 percent growth for the last quarter of this year, with 7.6 percent for all of 2013.

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