BOFIT Viikkokatsaus / BOFIT Weekly Review 2016/31
The general phrasing of meeting findings and lack of distinct economic policy priorities and clarity of action suggest that China’s leaders themselves are not unanimous on how to proceed. Differences over the economic policy framework emerged in May, when a member of China’s senior leadership anonymously criticised debt-financed stimulus and failure at implementing needed reforms. Differences over policy were subsequently seen, for example, in last month’s statement by a People’s Bank of China representative calling for stimulus through fiscal policy rather than monetary policy. This week the influential National Development and Reform Commission (NDRC) demanded additional monetary stimulus through lower interest rates and bank reserve requirements in order to halt the current slowdown in investment.
Some observers, however, believe the politburo meeting has improved the position of decision-makers who question debt-financed stimulus measures and push the reform agenda. There is also a sense, however, that tough reforms of state-owned enterprises, which could impede short-term economic growth, are unlikely to be implemented before the 19th National Communist Party Congress in autumn 2017, when major personnel changes will occur.
China’s economic conditions have remained stable this summer. According to the Purchasing Managers’ Indices (PMI), problems in heavy industry worsened in July, while small firms saw distinct improvements in their activity. Both the official PMI index and the private Caixin/Markit PMI registered service-sector growth in July.