Beijing: China will deepen economic and financial reforms and further open its markets to foreign investors as it looks to move from high-speed to high-quality growth, President Xi Jinping said on Wednesday.
China will push ahead with market-oriented reforms of its foreign exchange rate as well as its financial system, and let the market play a decisive role in the allocation of resources, Xi said at the opening of a key, twice-a-decade Communist Party Congress.
“China’s open door will not be closed, it will be only be opened wider,” Xi said.
The government will “clean up rules and practices that hinder a unified market and fair competition, support development of private firms and stimulate vitality of all types of market entities,” Xi said, while pledging to further open China’s services sector to foreign investors.
However, while expressing support for market reform and private firms, Xi also called for stronger, bigger state firms.
The government will “promote strengthening, improvement and expansion of state capital, (and) effectively prevent loss of state assets, deepen reform of state-owned enterprises, development a mixed-ownership economy and cultivate globally competitive world-class firms,” Xi said.
Xi’s comments reiterated a long-standing pledge by party leaders to give a greater role to free-market forces to improve efficiency and put the economy on a more sustainable growth path.
But as Xi gears up for his second five-year term, foreign business executives and analysts increasingly believe market liberalisation is seen as secondary to his state-centred approach to economic policy and his focus on stability.
Other painful reforms that many economists say are needed have also moved slowly under Xi. They include overhauling China’s bloated and debt-laden state sector, fixing the fiscal system to tackle local government debt and bringing in new property taxes to ward off housing bubbles.
Lower growth targets?
China should also strengthen consumption as a foundation for economic development, Xi said, and will expand the middle class and narrow the gap in development between rural and urban areas.
Beijing’s campaign to rein in high debt levels and industrial overcapacity will continue as part of supply-side structural reforms, he added.
Xi also proposed a goal of developing China into a “basically” modernised, innovation-driven country by 2035 and a modern “strong power” by 2050.
But analysts said that suggests the government is likely to continue to target moderately high economic growth in coming years, which could see the country’s large debt pile climb even further.
China’s gross domestic income per capita would need to rise by an average of 6.6 per cent a year in real US dollar terms from 2017 onwards to become an “innovative economy” and match the development level of today’s South Korea by 2035, ANZ estimated.
That growth figure needs to be no lower than 4.9 per cent for China to be a “modernised economy” — the by World Bank’s definition of high income countries — all the way to 2050, ANZ added.
“Nobody knows what is a ‘modernised country’, but from the wording of Xi Jinping you can tell what he would like to achieve is for China to be one of the high income countries today like Japan and Australia,” said Raymond Yeung, Great China Chief Economist at ANZ in Hong Kong.
Reduce debt risks
China is expected to post its strongest economic growth in several years this year, riding on a government-led construction boom, but economists said it is still relying too heavily on credit-fuelled stimulus despite policymakers’ vows to reduce debt risks.
Some international agencies and economists have argued Beijing should abandon its arbitrary annual growth targets or lower it to become less reliant on government stimulus and bank credit. Less ambitious growth targets would also give policymakers more room for tougher reforms.
Specific economic targets for 2018 are likely to be set during an economic work meeting later this year, but are not expected to be announced until March.
The International Monetary Fund warned this year that China’s credit growth was on a “dangerous trajectory” and called for “decisive action”, while the Bank for International Settlements said in late 2016 that excessive debt growth was signalling a banking crisis in the next three years.