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Outlook of China’s Economic Policy Trend and Situation in 2010 Qi Jingmei Researcher Department of Economic Forecasting, State Information Center
Outlook of China’s Economic Policy Trend and
Situation in 2010
Qi Jingmei
Researcher
Department of Economic Forecasting, State Information Center
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Outlook of China’s Economic Policy Trend and Situation in 2010
Department of Economic Forecasting, State Information Centre
Qi JingmeiApr15, 2010
Main Points：
Macro-Control Target in 2010
Orientation of Macro Economy Policy in 2010
Outlook of Economic Trend in 2010
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1.Macro-Control Target in 2010 ⑴
Economic Growth Target ： From “Keeping Growth” to “Adjusting Structure”
National economy gained 8.7 percent in 2009, lower than the 9.8 percent average annual growth rate of the past 30 years since China’s reform and opening up, still lower than recent 5-year’s average growth rate of 10.2 percent. We have established an 8 percent growth rate for 2010, which focuses on “good performance”, namely, to lay emphasis on transforming the mode of economic development and adjusting economic structure, rather than solelyspeed up economic growth.
1.Macro-Control Target in 2010 ⑵
Price Control Target ： From “Preventing Deflation” to
“Managing Inflation Expectations”
The CPI of 2009 dropped 0.7 percent, and CPI of 2010 should be
controlled within 3 percent. Price policy will turn from preventing
deflation to managing inflation expectations. Economy recovery,
price-hike of international bulk commodities, price adjustment of
domestic resources and increasing labor cost would all drive up
prices, but would not bring about high inflation.
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1.Macro-Control Target in 2010 ⑶
Exchange Rate Control Target：Slight Appreciation of RMB
Exchange rate of RMB against US dollars remained steady in
2009 when external demand dropped sharply. Global economic
rebalancing after the crisis has drawn more and more attention
and RMB is facing great challenge of appreciation. Moderate
appreciation of RMB may benefit China’s economic structure, and
RMB will appreciate moderately and gradually in 2010, expected
to advance about 1.5 percent against US dollars.
Monetary Policy：Moderately Easy Monetary Policy but Total Control Tightened
China is to maintain moderately easy monetary policy in 2010, but in view of the financial control target, the intent of tightening policy is embodied. Growth rate for M2 is targeted around 17 percent in 2010,plunging by 13 percentage points compared to 2009. RMB credit supply is set at around 7.5 trillion targeted in 2010, down by 2 trillion compared to 2009. China has raised the deposit-reserve ratio twice and there remains a possibility of interest rate hike. Monetary policy will more emphasize the pertinence and flexibility of moderate adjustment.
2. Orientation of Macro Economy Policy in 2010 ⑴
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2. Orientation of Macro Economy Policy in 2010 ⑵
Fiscal Policy：Keep Expanding & Focus on Adjusting Structure and Improving People’s Livelihood
China will keep moderate fiscal deficit and national bond in 2010. From the budget we can see that fiscal deficit is 1.05 trillion yuan this year, slightly up from 2009’s 950 billion yuan. China increased its fiscal deficit due to the following considerations: Positive fiscal policy may pertinently resolve problems such as insufficient consumption, large development gap between urban and rural areas, imperfect social security system and so on. And the positive fiscal policy will contribute to the transformation of the economic development mode and the promotion of domestic demand. The key of recent positive fiscal policy is to adjust structure and improve people’s livelihood rather than solely promote economic growth.
2. Orientation of Macro Economy Policy in 2010 ⑶
Agricultural Policy：Continuously Devote to the issues concerning agriculture, rural areas and farmers
Central Government planned to arrange 818.3 billion yuan to agriculture sector in 2010, a year-on-year rise of 93 billion yuan. Firstly, to implement direct subsidies to farmers who grow grains, to increase subsidies on agricultural capitals, fine breeds and farm machinery. Central financial authorities will spend a total subsidy capital of 133.5 billion yuan, up by 6.04 billion yuan. Secondly, to raise the minimum purchase price of grains. Thirdly, to carry on the temporary policy for purchasing & storing major agricultural products, thus to give farmers more benefits.
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2. Orientation of Macro Economy Policy in 2010 ⑷
Industrial Policy：Develop Strategic Emerging Industries and Promote Service Industry’s Development
Firstly, to further adjust and promote key industries. Namely, to intensify innovation, help enterprises develop new products and promote energy saving and consumption reducing. Secondly, to support strategic emerging industry. To develop new energy, new material, energy saving & eco-friendly, bio-pharmaceutical , information network and high-end manufacturing industries. To promote capital input and policy support. Thirdly, to accelerate the development of service industry. To enhance its levels and expand its proportion in national economy. To developmanufacturing-oriented service industry such as services concerning finance, logistic, information, R&D, energy saving and environment protection, thus to appropriately integrate service industry and modern manufacturing industry.
2. Orientation of Macro Economy Policy in 2010 ⑸
Estate Policy：Control Price Hikes and Increase Supply for government-subsidized Housing
Firstly, to firmly prevent the fast skyrocketing of house prices in some cities. Secondly, to continuously implement government-subsidized housing in large scale. The Central Government plans to put 63.2 billion yuan into government-subsidized housing, 8.1 billion yuan more than last year. It plans to build 3 million flats of government-subsidized housing and rebuild 2.8 million shantytowns. Thirdly, to expand land supplies towards medium- and small-sized commercial housing with medium and low price levels, and to accelerate the approval and construction of commercial housing. Fourthly, to prevent buying-for-speculations in housing market. Fifthly, to prevent land prices from to quick hiking.
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2. Orientation of Macro Economy Policy in 2010 ⑹
Employment Policy: To Continue with Positive Employment Policy
To continuously carry on positive employment policy and try every means to increase employment. Central Government plans to input 43.3 billion yuan to increase employment. In 2010, newly-added employees will be more than 9 million, and registered unemployment rate in urban areas should be controlled within 4.6 percent. We should lay priority on the employment of university graduates, migrant workers, and people with job-hunting difficulties, as well as the arrangement of veterans.
2. Orientation of Macro Economy Policy in 2010 ⑺
Policy for People’s Livelihood ： Increase Input and Improve Social Security
The Central Government plans to arrange 318.5 billion yuan to accelerate the establishment of social security system covering rural and urban areas. Firstly, to promote pilots of new pension insurance system in rural areas, the pilot area should be expanded to 23 percent of all towns instead of the 10 percent.Secondly, to solve remaining issues such as dealing with the problem concerned with basic pension insurance of some retired people who have not participate in pension insurance system. The 1.3 million senior personnel with “work-related injuries” should be included in industrial injury insurance system. Thirdly, to help migrant workers participate in social insurance system. Fourthly, to increase basic pensions of retired people by another 10 percent. Fifthly, to enhance the financial aid standard of basic medical insurance and New Cooperative Medical Scheme(NCMS) of rural and urban areas, namely, to increase another 120 yuan, up by 50 percent YOY.
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3. Outlook of Economic Trend in 2010 ⑴
Given the effectiveness of economic stimulating policy of different countries, international economic environment will be improving in 2010. China economic growth will continue to advance in 2010 with the effectiveness of domestic stimulating policy and the inventory replenishments for industrial products. The economic growth will be leveled off after an increase in first half of the year, since it will be impacted by the alleviation of policy effect and the withdrawal of some stimulating policies.
National economic growth is estimated to remain around 9.5 percent in 2010 with CPI growth around 3 percent.
3. Outlook of Economic Trend in 2010 ⑵
Fixed Assets Investment Growth is to Slow DownIn 2010, positive factors driving the investment : 1. The warming-up
of enterprises’ profits has promoted initiatives in investment. 2. Many newly-launched projects in 2009 have promoted large scale follow-up investment. 3. To nurture new growing points to drive investmentgrowth. There remains great investment space for strategic emerging industries such as new energy, new material, environmental protection and bio-technology. 4. Investment initiatives of local governments are high, and everyone is trying to expand investment scales before the withdrawal of stimulus policies. Many local governments have accelerated investment paces in the name of regional planning at the state level.
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3. Outlook of Economic Trend in 2010 ⑵
Unfavorable Factors:1. Investment control policy has been adjusted. The Central Economic Working Conference specified that investment in 2010 should maintain a moderate growth; the investment should focus on the establishment of projects under construction, while new projects should be strictly controlled. 2. Government investment growth will significantly slow down, which will have less driving power towards investment. 3. Newly-added credit will not mirror last year’s growth rate. 4. Problems, such as overcapacity, duplicate construction, retreat of investment efficiency and quality, will restrain investment growth.
Above all, China’s investment in 2010 will continue to witness fast growth, and investment will still be the major drive for economic development. Nominal growth rate of fixed assets investment in China is estimated to be around 25 percent, less than that of 2009.
3. Outlook of Economic Trend in 2010 ⑶Retail Sales of Consumer Goods Continue to Gain a Fast-growing
Momentum.
Favorable factors for consumption growth in 2010: 1. Now we use policy to promote the steady growth of consumption, which is different from early last year’s “investment strategy” to prevent economy slump. This year, consumption will become the key point for economy growth. 2. The fast increase of resident income is beneficial for the enhancement of consumption level. Per capita disposable income in urban areas increased by 9.8 percent in 2009, much higher than the 7.2 percent of average annual growth rate from 1979 to 2008. Per capita net income in rural areas advanced 8.5 percent, higher than the 7.1 percent of average annual growth from 1979 to 2008. 3. Policies concerning the improvement of people’s livelihood, including new medical system reform scheme, full covering of rural social endowment insurance, increasing pensions for retirees, and reforms of performance salary in institutions, have showed their effectiveness.
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3. Outlook of Economic Trend in 2010 ⑶
Expanding Consumption also faces with uncertainties: 1. Policies concerning expanding consumption implemented in 2009 will come up with decreasing effect in 2010. 2. Mute stock market and adjustment policies concerning house prices lead to the decrease of residents’wealth effect and consumption confidence. 3. Price hike of public utilities such as water has a substitution effect on other consumptions.
Judging comprehensively, retail sales of consumer goods will keep a fast growing pace in 2010, as income increases, expenditure expectation improves and consumption confidence recovers. Retail sales of consumer goods in 2010 is expected to rise 19 percent, 3.5 percentage points higher YOY. Actual growth rate will be around 15.5 percent, slightly lower than last year’s level.
Graph1. Economic Growth vs. Actual Consumption Growth 1978-2009
Retail Sales （%）
0.0
5.0
10.0
15.0
20.0
1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
GDP（%）
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3. Outlook of Economic Trend in 2010 ⑷
Import and Export are Expected to Grow SlightlyFavorable Factors concerning export：(1) Global economy is expected
to grow mildly in 2010, which will contribute to the export recovery in China. (2) Export-supporting policy continued to play a role. China has launched a number of Export-supporting policies in export credit insurance, export duties, trade financing, processing trade, and clearance of unwarranted charges. The policy of “stabilize external demand, maintain market growth and market share” will continue to support export. (3) The stability of RMB exchange rate helps export-oriented companies in China maintain a strong export competitiveness.
3. Outlook of Economic Trend in 2010 ⑷
Unfavorable Factors: (1) Global economy will face difficulty in full recovery, as unemployment rates in some major countries remain high, trade protection upgrades, inflation pressure significantly goes up, and financial issues are not thoroughly solved. (2) Consumption modes of developed countries have changed since the financial crisis, which will impact demand for products made in China. (3) Trade protectionism further aggravates, US and EU countries expand anti-dumping and anti-subsidy towards China, trade frictions increase significantly.
China’s export in 2010 is roughly estimated to grow around 15 percent, import around 18 percent, and trade surplus more than 190 billion US dollars, basically rolling over YOY.
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3. Outlook of Economic Trend in 2010 ⑸Industrial Production will Grow Steadily.
In 2010, industrial production is expected to grow steadily, and heavy industry will recover fast particularly. 1. China is witnessing a fast development of industrialization and urbanization, which is not bound to change. 2. PMI (Purchasing Managers Index) of manufacturing industry remained above 50 percent in Jan. to Feb. 2010. This index has been over the climate critical point for more than 11 months. 3. External demand is improving, which promotes export. 4. China has started to enter restocking stage from Q3 last year to the first half of this year. Restocking energy material will contribute to the fast development of industrial production.
Above all, industrial production in China will continue to grow steadily in 2010. Industrial added value of large scale companies will be around 13.5 percent, among which, heavy industry will increase by 14.8 percent and light industry by 10.5 percent.
3. Outlook of Economic Trend in 2010 ⑹
Moderate Climb of Price LevelsFactors driving up prices in 2010: 1. Inflation pressure increases
globally and primary products run on high position in 2010, which make imported inflation the major cause for price hike in China. 2. The increased currency supply in coping with international finance crisis becomes the liquidity basis for price hike. 3. The upward adjustment of electricity and water prices. These adjustment pushes up consumption prices this year. 4. Tail-raising factor. CPI tail-raising factor in 2010 is roughly calculated to be around 1.2 percent and PPI around 3 percent.
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Graph2：Monthly CPI Trend of Tail-raising Factor in 2010
3. Outlook of Economic Trend in 2010 ⑹
Factors preventing prices from rising: (1) National total supply is significantly larger than total demand; supplies of industrial and agricultural products are sufficient, especially in industrial sector, where complicated problems of overcapacity exist. Overall supply/demand fundamental curbs price-hike. (2) Food contributes much to prices. Rice production in China remains good in a row of six years with supplies improving and grain storage sufficient. Meat supply is also sufficient.
Above all, prices in 2010 will grow moderately. In 2010, CPI is expected to advance by 3 percent while PPI by 6 percent.
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