Chinese President Hu Jintao at the CEWC this year - Xinhua
Chinese policymakers confirmed they will continue to selectively ease economic variables to stimulate growth in the face of an �extremely grim and complicated global outlook.� Top government officials, including Premier Wen Jiabao and President Hu Jintao, met in the context of the policy-setting Central Economic Working Conference (CEWC) on Wednesday and vowed to support growth as risks of a hard landing rise.
Selective easing is the name of the game in China. The clearest signal was sent on November 30 when the People�s Bank of China cut bank reserve requirement ratios by 50 basis points for the first time in nearly three years.
On Wednesday, policymakers made it even clearer that they stand ready to support growth as the global economy cools. The CEWC communiqué noted China will �maintain its prudent monetary policy and proactive fiscal policy in 2012,� according to official news agency Xinhua. �With the world economy slowing and international financial markets in chaos, several prominent risks have arisen. The world�s economic recovery is expected to remain unstable and uncertain,� read the release.
In other words, China�s top officials have acknowledged the possibility of a hard landing, particularly as the global economy continues to deteriorate. GDP growth has already slowed to 9.1% in Q3, down from 9.5% in Q2 and 9.7% in Q1. Barclays� analysts see GDP growing at an average 8.4% in 2012, with the possibility of a much steeper 4 percentage point decline if the Eurozone and the U.S. slide into recession.
China�s policymakers also vowed to keep the yuan �basically stable� in 2012, meaning they will continue to absorb dollars to fight appreciation.
Another sign that China is slowing is the easing of inflationary pressures. CPI growth fell to 4.2% in November from the year�s peak of 6.5% in July. But loan growth continues to rise, �which is likely to lead to more non-performing loans,� a source close to government decision-makers told China Daily. Bank lending accelerated in the last couple of days of November, with the four largest financial institutions extending about 70 billion yuan ($11 billion) in two days, compared with 100 to 140 billion during the first 28 days of the month.
China also faces a worrying real estate bubble. The PBoC has been clamping down on property markets to contain prices. Residential investment, which makes up 12% of GDP according to Barclays, is being squeezed as Chinese authorities are set on forcing a 20% correction in real estate markets. This will clearly impact growth.
The government announced a plan to build 36 million units over the next five years, 10 million of those between 2011 and 2012. Beyond trying to boost supply, the central government is clamping down on demand via property taxes, higher downpayment requirements, and caps on how many properties residents can own.
China�s Commerce Ministry added that it will impose anti-subsidy and anti-dumping duties on imports of certain U.S. cars, affecting General Motors, Chrysler, and Ford.
�Progress while maintaining stability� was the slogan of this year�s CEWC. China will do everything in its power to stimulate growth and attain much-needed social stability. But, as it unleashes policies aimed at pumping the economy, it will be forced to reckon with unwanted consequences, like a dangerous real estate bubble.
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