China's Central Economic Work Conference concluded Sunday. The annual meeting sets economic goals for the year ahead and usually includes a grab bag of policy prescriptions.
In keeping with the 18th Party Congress report's emphasis on shifting to a more sustainable growth model, the official statement from the conference vowed that China would focus on the quality and efficiency of economic growth in 2013, deepen economic reforms, further urbanization and maintain strict property controls. The conference did not publicly provide an economic growth target for 2013 but most analysts believe the government is aiming for at least 7.5 percent.
Some argue that China is sending a strong signal on economic reforms but not everyone is convinced. FT Alphaville told readers:
Don't be misled by the proclamations of “reform†or “quality growth†from China's central economic work conference at the weekend. It's more of the same, at least for the time being.
The economy appears to have bottomed out, as evidenced by recent data and the fact that in November China power consumption grew at the fastest pace in nine months. But the growth is still heavily weighted toward investment over consumption and last week the China Academy of Social Sciences published a report warning that that the economic imbalance has significantly worsened over the last 10 years.
The government is aware of the problems and has promised repeatedly to change the growth model. Xi Jinping, in power for barely a month, has raised expectations for reforms, as Xinhua noted in “China Awaits More After Xi's New Moves“:
Now that the public's expectations have been raised, the challenge lies in living up to these expectations..
People are also wondering whether monopolies will be broken up or at least weakened, whether more opportunities will be given to the private sector, and whether gaps can be narrowed between different industries and state-owned and private companies.
ONE OF THE KEYS TO WEAKENING MONOPOLIES and strengthening the private sector might be the long-awaited income distribution reform plan. Premier Wen Jiabao has talked about such a plan since 2004 and over the last several months there have been repeated promises in the Chinese press that a plan would be delivered before the end of the year.
Last week, The Wall Street Journal wrote in “China Tries to Shut Rising Income Gap†that:
Now, the plan is finally set to be released this month after a push by Mr. Wen, in the 11th hour of his tenure. But after at least a half-dozen drafts, some of the most significant proposals have been watered down, or dropped completely, after opposition from state-owned firms, researchers involved in the project say. The result is a general set of principles rather than a practical road map with specifics on how to redistribute wealth, they say.
Caijing, one of China's top business magazines, on Monday reported that the plan would be delayed past the end of the year because of opposition by special interest groups.
This is potentially bad news, though the income distribution reform plan is Wen Jiabao's initiative and he is a lame duck. It is possible that Mr. Xi and Li Keqiang, Mr. Wen's successor, want to introduce their own plan sometime in 2013, though if you believe in “seeking truth from facts †this new delay is both a worrisome sign of the power and intransigence of Chinese special interests and a risk for Xi Jinping, as raising expectations can be dangerous if you do not deliver.
China has also raised expectations in its dispute with Japan over the Diaoyu/Senkaku Islands. Last week China conducted aerial reconnaissance of the disputed Diaoyu/Senkaku Islands, a move that prompted Washington to “raise concerns†with Beijing. The New York Times reports that the overflight is part of a strategy to regain effective control of the islands that was set three months ago and overseen by Mr. Xi, before the 18th Party Congress.
The Chinese government has repeatedly stated that the islands are Chinese territory and any retreat from the more assertive position it has taken over the last several months could be very damaging to the government's credibility.
On Sunday Japan elected Shinzo Abe as Prime Minister in a landslide victory for his Liberal Democratic Party, whose “manifesto maintains Japan should step up control over the disputed islands and consider stationing officials there permanently.â€
OCCUPATION OF THE ISLANDS by either side would be an explosive move. At a conference in Sanya over the weekend, former President Jimmy Carter called for Japan and China to reach a “no occupation†consensus over the Diaoyu/Senkaku Islands.
The United States, whose top two foreign holders of its debt are Japan and China, is in a difficult position. Last week Mr. Carter was in Beijing and his meetings with Mr. Li and Mr. Xi received top billing in state media. During his meeting, Mr. Xi called for more “positive energy†for the China-U.S. partnership. It appears that Mr. Xi is signaling that he wants a good relationship with the United States, in spite of the growing tensions with Japan.
Given the highly public assertiveness of the last several months however, China will not ignore moves by Mr. Abe to fulfill his campaign pledges to step up control over the disputed islands. Conflict is unlikely, but continued tensions and a growing arms race in the region appear inevitable.
