China says it will maintain prudent monetary policy in 2013

BEIJING, China – China’s new Communist Party leaders promised Sunday to be ready to spend more if needed to shore up a shaky economic recovery and pledged more market-opening reforms.

In the first statement of their economic goals, the leadership wrapped up a two-day planning meeting by pledging continuity with earlier party plans aimed at making China’s economy more productive and spreading prosperity to its poor. They gave no indication of plans for major changes.

The world’s second-largest economy is gradually pulling out of its deepest slump since the 2008 global crisis, but weaker-than-expected November trade data prompted suggestions the rebound might be faltering.

The leadership under party General Secretary Xi Jinping pledged a “proactive fiscal policy” and “prudent monetary policy” in a statement distributed by the official Xinhua News Agency, referring to willingness to boost spending if needed and keep credit easy so long as inflation stays low.

Xi and other leaders who were installed last month in a once-a-decade handover of power are under pressure to overhaul an economic model based on exports and investment that delivered 30 years of rapid growth but is running out of steam.

The World Bank and other analysts say Beijing needs to curb dominant state companies and promote service industries and consumer spending to keep incomes rising. They say without prompt action, growth might slow abruptly, leaving China stuck at middle-income levels.

Companies, investors and political analysts are watching to see how far Xi and others on the seven-member ruling Standing Committee are willing to go to change the state-dominated economy. They face potential opposition from state companies that might be hurt by changes and have influential allies in the party.

“If China does not change its strategy, it risks falling into the ‘middle income trap’,” Robert Zoellick, former World Bank president, said in a speech at a Beijing business conference last week.

The new leadership affirmed support for earlier party pledges to promote reform, open markets further and encourage economic efficiency. The statement promised to “accelerate structural reform” but gave no details of how far or how fast Xi and other leaders are willing to go in changing the state-dominated economy.

Economic growth fell to a three-and-a-half-year low of 7.4 per cent in the three months ended Sept. 30. Factory output, consumer spending and other indicators are improving in the current quarter but analysts say a recovery is likely to be gradual and too weak to drive a global rebound without improvement in Europe and the United States.

Data last week showed November trade deteriorated sharply following a rebound that started in August. Export growth plunged to 2.9 per cent over a year earlier from October’s 11.6 per cent. Imports were flat, down from October’s 2.4 per cent growth.

Sunday’s statement gave no indication the leadership plans to depart from the party’s official annual economic growth target of 7.5 per cent through 2015.

The statement promised to “fully deepen reforms” and “firmly promote opening up” next year. It said “enhancing quality and efficiency of economic growth” will be a “central task.”

It promised to support the orderly growth of cities, a key element in raising incomes by allowing migrants from the countryside to look for better-paid urban jobs.

The leadership pledged to increase domestic demand, though it gave no details of how it will do that.

Companies are under pressure to put more money in consumers’ pockets by raising wages. Other changes require longer-term effort, such as freeing up money in household budgets by raising government spending on schools, health care and other social programs.

Sunday’s statement promised more spending on building affordable housing and other initiatives aimed at spreading money to China’s poor.

Earlier statements by the new leadership suggested they want to narrow China’s yawning and politically sensitive wealth gap between an elite who have benefited from economic reform and the poor majority.

The new party Politburo pledged this month to pursue both economic growth and “social harmony and stability.”

The government is due to release a long-awaited report this month on proposals for policy changes to narrow the wealth gap.

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