Kevin Yao

BEIJING (Reuters). Advisers to China’s government recommend that authorities reduce the 2021 target for economic growth by 1% in 2022. This will give policymakers greater flexibility to implement structural reforms amidst growing concerns about the outlook.

As President Xi Jinping, and other high-ranking leaders host the Central Economic Work Conference this month, investors are keeping an eye out for any clues about next year’s reform and policy agenda.

Three advisors revealed to Reuters that they had drafted recommendations on annual economic growth targets ranging as low as 5% and 5.5% ahead of the conclave closed-door. This is in contrast to the 2021 target of “above 6%”.

According to one adviser, “Ideally we need growth between 5-5.5% and around 5.5% next years.”

“It’s important to keep economic stability next to the unveiling of a new leader, and we require some counter-cyclical policy to manage economic pressures.”

One of the top advisers from a government think tank recommended setting a higher target for next year of 5%.

Although the advisers provide policy recommendations to the government, they are not involved in the decision-making process. The formal date for the recommendations was unknown. Subject to anonymity, the advisers spoke.

According to a Reuters poll, economists think China will slow down to 5.5% growth in 2022. But some analysts now reduce their predictions due to fresh risks such a deteriorating property sector. Risks are also being posed by the Omicron coronavirus variation.

Liu Yuanchun (Vice President of Renmin University) said that China should aim for growth of 5.5% in the next 12 months to create new urban jobs.

Traditionally, top leaders endorse a goal for growth at their December meeting. This is usually announced publicly at the beginning of an annual parliament meeting which takes place in March.

Headwinds for the second-largest country in the world are numerous as 2022 approaches. These include a slowing economy and tight COVID-19 regulations that have limited consumption.

The economic recovery from the pandemic slump last year was impressive, but it has been struggling to recover momentum as it struggles with slower manufacturing, huge property market debt, and new COVID-19 epidemics.

The slowing economy will be helped by a boost in monetary support and fiscal assistance next year. This follows a year that was dominated by reducing real estate bubbles.

Louis Kuijs, Oxford Economics’ economist stated in a note that “We expect the macroeconomic stance to relax in response to downward pressure on growth.”

The policymakers are still keen to limit financial risk and leverage and they have become less tolerant of lower growth. Beijing is still concerned about growth, and would prefer to avoid a slowdown.

Leaders at last year’s economic meeting vowed that they would use recovery to promote structural reforms.

In March, a moderate growth goal of “above 6 percent” was set for 2021. This is well under the 8% forecasted by analysts. It gave policymakers greater flexibility to implement ostensibly difficult but essential economic reforms.

REFORM SOLUTIONS

Xi’s reforms aim at reducing the economic dependence on property and borrowing, channeling more resource into high-tech production and creating a greener and more egalitarian economy. 

However, regulatory crackdowns in tech and education have raised concerns about China’s future private sector growth.

China’s Communist Party passed a rare resolution last month to elevate Xi’s standing, consolidating his authority, and enhancing the prospects for a third term as a leader next year.

We expect President Xi Jinping’s ambitious reforms to continue, now that he has been elected for a third time. His ‘New Development Concept’ puts less emphasis on economic growth,” ANZ said in a note, forecasting a wider target range of 4.5–5.5%.

Analysts believe that reforms will be limited in the immediate future due to new pressures.

Hu Yifan is the regional chief investment officer at UBS Global Wealth Management and also chief China economist. She stated this week that she expected the central bank will reduce reserves which banks must hold before Lunar New Years, early February.

After a July-wide cut in reserve ratios, the central banks has defied market expectations and begun to ease its policy.

China could unveil its new pilot property tax program in several cities by next year. Candidates include Shenzhen Hangzhou and Haikou.

Beijing believes a property tax will cool speculation in housing, provide new revenue sources for the government and help reduce China’s gap between rich and poor.