China’s leaders focus on soft reforms
29 Jul 2013
The strong rhetoric apart, China's latest policy actions seem aimed at mixing painless reforms with measures to prop up flagging growth according to analysts.
They point out, while premier Li Keqiang is focused on bringing in easy reforms, he seems to be unwilling to initiate radical moves in a bid to avoid tipping the world's second-biggest economy over the edge.
According to analysts from top government think-tanks, there was no reason to doubt the government's commitment to shifting economic gears from an investment- and credit-driven growth model to one that focused more on consumption and innovation.
However, leaders seem to be fully aware of the precarious line they were walking with the economy's weaker-than-expected performance this year highlighting the need to tread carefully.
Reform though crucial for future growth, could deliver an economic shock forcing Beijing to fall back on old-school pump-priming, prolonging the very economic model they aimed to dismantle.
According to He Qiang, an economist in Beijing at the Central University of Finance and Economics, and an adviser to parliament, the government had to safeguard its bottom line in growth, while restructuring the economy. He added it was very difficult to strike an easy balance.
Meanwhile, a copper price collapse of over 60 per cent, zinc cut by up to a half and oil down to $70 a barrel, a scenario that could unfold in the world commodity markets in the event of China's growth falling to 3 per cent in the next three years is under examination at Barclays Plc.
Barclays is not alone in projecting the scenario, rather Nomura Holdings Inc estimates a one-in-three chance of a sharp drop by the end of 2014, and according to Societe Generale SA there was a ''non-negligible risk'' of less than 6 per cent growth this year and an outside chance of 3 per cent average expansion for this half and next.
Premier Li Keqiang's efforts to contain record credit boom, keep property-prices in check and strengthen environmental protections could end up worsening the slowdown and weighing down the global economic recovery according to commentators.
With growth heading towards a 23-year low, a hard landing would maul commodity markets, dealing a severe blow to mineral exporters like Australia, Brazil and South Africa, and miners such as BHP Billiton Ltd and Rio Tinto Group, that had started to slow expansion.
China's growth was down for a second straight quarter to 7.5 per cent in April-to-June, in the longest under 8 per cent expansion streak in at least two decades.
