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A Year of Expectations
Despite headwinds, national economic policy remains committed to development and opening up
By Li Xiaoyang  ·  2018-12-29  ·   Source: NO. 1 JANUARY 3, 2019

President Xi Jinping speaks at the Central Economic Work Conference which took place in Beijing on December 19-21, 2018 (XINHUA)
One day after the celebration of the 40th anniversary of reform and opening up, the Central Economic Work Conference, China's annual meeting to set the agenda for the economy, was convened on December 19-21, 2018. It reviewed the economic performance in 2018 and outlined major tasks for 2019.

The conference focused on ensuring stable growth and further reform and opening up.

A statement issued after the conference said economic growth remained steady despite increasing downward pressure and mounting uncertainties, both at home and abroad, in 2018. Other achievements included an initial victory in the three tough battles against financial risks, poverty and pollution, as well as new progress in supply-side structural reform. To turn the challenges into impetus for high-quality development, a proactive financial policy, a prudent monetary policy and countercyclical adjustments will be implemented in the new year, the statement promised.

In 2019, China will see a more open market with a favorable business environment, more innovation-oriented manufacturing, stronger domestic demands and higher living standards, it added. Moreover, 2019 is a crucial year for building a moderately prosperous society in all respects by 2020.

"As the statement suggests, China will combine macro, structural and social policies and continue with the three tough battles to ensure steady operation of the economy and financial system to serve the 2020 goal," Xu Hongcai, deputy chief economist with the China Center for International Economic Exchanges, told Beijing Review.

 A workshop of SIASUN, a robot and automation company in Shenyang, northeast China's Liaoning Province (XINHUA)

A stronger market

As the domestic market grows, consumption has become a key pillar of China's economic growth. In 1978, final consumer expenditure contributed only 38.3 percent to economic growth. But in 2017, the figure rose to 58.8 percent and to 78 percent in the first three quarters of 2018.

According to the conference, domestic demands need to be boosted by developing the service industry and increasing household disposable income. As part of the government's income-boosting efforts, special individual income tax deductions for expenditures including children's education, continuing education, health treatment for serious diseases, housing loan interests, rent and elderly care took effect on January 1, 2019, following an increase in the threshold of personal tax from 3,500 yuan ($513) to 5,000 yuan ($725) per month in October 2018.

To meet people's upgraded demands, industries need to embrace hi-tech innovation such as artificial intelligence, industrial Internet and the Internet of Things, to edge toward the high end of the manufacturing chain. As the digital revolution emerges around the globe, China is ready to tap more possibilities created by technologies such as 5G. According to a plan issued in August 2018, the commercial use of 5G technologies in China will take off in 2020 as the country moves faster to deploy the new-generation wireless networks.

In 2018, the Shanghai Stock Exchange launched a science and technology innovation board to spur innovation-oriented development. "The move can introduce more private capital in the technological industry to promote innovation," Chen Baoming, Director of the Research Institute of Comprehensive Development of the Chinese Academy of Science and Technology for Development, told Beijing Review.

Investment role

Apart from consumption, investment is another driver of the economy. The conference stressed that investment contributes to the upgrading of the manufacturing industry and should be consolidated.

According to the National Bureau of Statistics, investment in the manufacturing industry saw a 9.5-percent year-on-year growth from January to November in 2018. The growth rate increased 5.4 percentage points over the corresponding period in the previous year.

"More guidance should be introduced for targeted investment in industries with great growth potential," Shi Lei, Director of the Public Economic Research Center at Fudan University in Shanghai, said.

Chen shares a similar point of view. He calls for greater input into the research and development of core technologies and stricter industrial standards to ensure high-quality and innovation-oriented development of the manufacturing industry.

To create more vitality in the market, the government has stepped up support for small and medium-sized enterprises, especially private businesses.

As follow-up measures, the conference said the monetary transmission mechanism and proportion of direct financing will be improved to make financing more affordable for small and medium-sized enterprises.

According to Xu, the central bank needs to launch countercyclical adjustments by reducing the required reserve ratio for commercial banks and using monetary policy instruments more flexibly to maintain market liquidity at a reasonably ample level.

He also suggested deeper cuts in taxes and fees and the issuing of special-purpose local government bonds to expand investment in infrastructure.

Improving well-being

The conference signaled that employment will be promoted to enhance people's well-being. The most important part of social policies is to ensure peoples' basic living, so employment should be given primary importance, Zhang Liqun, a researcher with the Development Research Center of the State Council, told Beijing Review.

According to a blue paper released on December 25, 2018, the number of employed people in China reached a record high in 2018. By the end of the third quarter of the year, the registered urban unemployment rate stood at 3.82 percent, a historical low. In 2019, the government will continue to promote employment for graduates, migrant workers and former military personnel.

Targeted poverty alleviation remains among the key tasks on the economic agenda in 2019 as well.

Steady efforts in 2018 have seen many examples of successful poverty alleviation mainly by developing tourism and agriculture. Liu Yongfu, head of the State Council Leading Group Office of Poverty Alleviation and Development, said at a news conference on December 13, 2018 that the number of rural residents considered impoverished under the current standards had been reduced by over 85 percent by the end of 2018.

Still, the government needs to boost the rural economy to ensure that people rescued from poverty do not slide back into it, the conference said.

Since many local authorities tightened regulation in 2018, the housing market across China gradually cooled down. In 2019, the focus will be on developing a long-term mechanism to maintain sound development of the market and crack down on housing speculation.

Nevertheless, expectations of a possible adjustment emerged. The housing policy may see a shift in the middle of 2019 as reducing taxes and boosting consumption may not effectively offset the effects of downward pressure, according to a research team of brokerage and wealth management company Huatai Securities. However, it said the fundamental principle of ensuring houses are used for living instead of speculation will remain unchanged.

 Villagers and agrotechnicians from an agricultural company pose for a group photo in a new orchard, part of a poverty reduction program, in Wuying, a village on the border of southwest China's Guizhou Province and Guangxi Zhuang Autonomous Region in the south, on March 29, 2018 (XINHUA)

Opening up

The year 2018, marking the 40th anniversary of reform and opening up, saw the Chinese market open up further despite rising uncertainties caused by the China-U.S.

trade friction and slow global economic growth. A white paper, China and the World Trade Organization (WTO), released by the State Council Information Office in June 2018, highlighted China's contribution to the world economy since its accession to the WTO. It said the Chinese economy has become a major driver of global economic recovery, contributing 30 percent to global growth on average since 2002.

On July 28, 2018, a new negative list of exceptions for foreign investment was released, marking a key effort to lower the market threshold and improve China's business environment.

The first China International Import Expo held in Shanghai in November 2018 marked another Chinese initiative to boost global trade. The success of the initiative can be gauged from the fact that the value of intended deals made at the event reached $57.8 billion.

China is also pushing ahead with the Silk Road Economic Belt and 21st-Century Maritime Silk Road Initiative, tapping the potential of the domestic market by improving both imports and exports.

The conference said all-round opening up will be promoted in 2019. China will continue to boost imports and exports through easing market access, reducing import tariffs, simplifying administrative procedures and cutting institutional costs. The pre-establishment national treatment plus a negative list management will be improved to protect the legitimate rights of foreign companies in China.

In addition, more efforts will be made to introduce international standards into the domestic market, according to the conference.

Meeting challenges

"While growth is moderating, China's economy continues to perform well," the World Bank said on December 20, 2018 in its new China Economic Update. The report said China's GDP growth slowed to 6.5 percent year on year in the third quarter of 2018 from 6.8 percent in the first half mainly due to weaker trade and investment.

According to Zhang, the impact of the China-U.S. trade friction on China's exports could become more prominent in 2019, leading to a decrease in the growth of overseas market demands. The growth of the Chinese market is also seeing a slowdown with reduced purchasing power.

However, to stimulate the economy, China has room to shift government spending to health, education and social security, according to the World Bank report.

Xu said stable economic growth can still be ensured by combining a proactive fiscal policy, a prudent monetary policy and structural reform. "The year 2019 is a new start, furthering the reform and opening up, and deserves more confidence and expectations," he said.

Copyedited by Sudeshna Sarkar

Comments to lixiaoyang@bjreview.com

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