China needs pro-growth policies, reforms in 2013: think tank

BEIJING Thu Dec 20, 2012 8:54am EST

Vehicles drive on the 3rd Ring Road through Beijing's central business district, December 17, 2012. REUTERS/Jason Lee

Vehicles drive on the 3rd Ring Road through Beijing's central business district, December 17, 2012.

Credit: Reuters/Jason Lee

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BEIJING (Reuters) - China's economic performance in 2013 needs pro-growth policies and speedier reforms to boost domestic demand in the face of uncertainty in the global environment, a senior economist at the cabinet's think tank said on Thursday.

"We need to focus more on boosting domestic demand," Hou Yongzhi, head of the development of strategy and regional economy of the Development Research Centre (DRC), the State Council's policy think tank, told a news conference.

"How fast growth is will depend on the external environment. We will achieve an appropriate growth rate, which will not be too low," he said, when asked if China could achieve 8 percent growth in 2013.

China is on course to achieve growth of 7.7 percent in 2012, according to forecasts in the benchmark Reuters poll, the slowest full year of expansion since 1999.

While that is way above the world's other major economies, it is far below the roughly 10 percent annual growth seen for most of the last 30 years.

Weakness in the external environment remains a key drag on an economy in which exports generated 31 percent of gross domestic product in 2011, according to World Bank data, and where an estimated 200 million jobs are supported by foreign investment, or in factories producing for overseas markets.

Hou said China's economic potential was bolstered by companies moving up the productivity value chain and the process of urbanization that remained a key driver of growth.

China's urbanization rate may have reached 51.3 percent in 2011, but that remains 10-20 percentage points lower than in developed countries, he said.

Three decades of rapid industrialization and urban investment have lifted hundreds of millions of Chinese out of rural poverty and fuelled China's rapid rise to become the world's second-biggest economy, turning in average annual growth of around 10 percent for the last 30 years.

But skeptics say that the investment-driven, export-oriented model has created massive over-capacity and requires an urgent shift towards domestic-led consumption if China's transition into a truly rich and sustainably expanding - rather than simply vast - economy is to be achieved.

APPROPRIATE GROWTH

"What we need is appropriate growth. We will not drastically slow down our growth rate in order to change our growth model," Hou said. "Equally, we will not abandon change in the economic model in order to pursue growth."

Hou's news conference followed the government's annual Central Economic Work conference, which ended on Sunday and at which sources told Reuters that an annual growth target of 7.5 percent in 2013 was recommended - the same as in 2012.

Hou said the government would continue to push forward existing reforms, including value added tax (VAT) reforms.

China's Finance Minister, Xie Xuren, separately told a meeting of domestic financial officials on Thursday that deepening fiscal reform was a key priority for his ministry as part of efforts to improve national income distribution.

He also said that China would maintain its proactive fiscal policy in 2013 and cut taxes in selected sectors to boost domestic demand and support the development of smaller firms.

Xie added that strengthening regulation on local government debt - the build-up of which was a consequence of a 4 trillion yuan ($640 billion) fiscal stimulus package to fight the effects of the 2008-09 global financial crisis - would be aided by new risk-alert mechanisms and strict controls on new debt issuance.

Hou said the government would put more stress on the quality of economic growth next year, including urbanization.

Analysts say urbanization remains one of the most difficult parts of China's long-term economic development as it includes changes to the Hukou registration system that classifies 1.35 billion people into two groups - farmers and non-farmers.

Farmers have little of the social security coverage given to town-dwelling non-farmers, but they are entitled to "collectively-owned" land to farm.

The rigid regime means an officially rural resident has no access to education, health and other welfare services in the towns where they live and work, even though they may have been there for years. China has 158 million migrant workers.

"There is no doubt that we need to reform the Hukou system to promote urbanization, but we still need to register the population," he said.

(Additional reporting by Aileen Wang; Editing by Nick Edwards and Jacqueline Wong)

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