| BEIJING, July 31
BEIJING, July 31 China's authorities, mindful of
the risk of a sharp economic slowdown that could derail their
reform efforts, sent their clearest signal yet that they will
safeguard growth and tweak policy when necessary.
The message from a meeting of China's top decision-making
body, the Politburo, sought on Tuesday to dispel market concerns
about China's near-term economic outlook by stressing stability
The main economic planning agency followed on Wednesday with
assurances that this year's growth goal was safe and that the
authorities would supply markets with relatively ample funding.
"We believe the message here is that stability is
highlighted after the unnecessary chaos in the interbank market
in June, while the party still sends a signal that the new
leadership is reform-minded despite some recent confusion," Bank
of America Merrill Lynch analysts said in a note.
The nation's new leadership has pledged to wean China off
its addiction to export and credit-fuelled heady growth in
favour of one driven more by consumption, making clear it would
accept some slowdown as a consequence of such a transition.
Yet a combination of slackening growth, fast expanding
credit and frothy property markets has kept investors on edge;
their immediate concern that growth could fall well below this
year's official 7.5 percent target, already a 23-year low.
As a result China's leadership must walk a fine line between
addressing near-term weakness in growth that may complicate
economic re-engineering and fears that delaying a financial and
manufacturing sector overhaul could result in Japan-style
In particular, the politburo's mention of "stable and
healthy development" of the real estate sector caught markets'
attention, interpreted as a sign that Beijing would not risk any
radical action to cool that market, concerned about the impact
on overall economic growth.
Such a view was reinforced on Wednesday by comments from a
senior central bank official, who dismissed any link between the
property boom and easy credit.
The remarks helped buoy Hong Kong listed property shares.
Economists said Beijing faces a tough balancing act, but it
has some budget wiggle room, which the politburo suggested it
was willing to use.
"Fiscal policy will play a bigger role in supporting the
economy as we need to maintain prudent monetary policy," said
Zhu Baoliang, chief economist at the State Information Centre, a
top government think-tank in Beijing.
"There will be more tax cuts and the fiscal deficit may
exceed 2 percent of GDP (target)," he said, adding that this
should allow growth to stabilise in the second half of the year.
While most expectations point to an expansion of fiscal
spending and targeted investment that supports reform, some in
markets are speculating the central bank may be persuaded to
relax bank reserve limits if the economy's slow down prompts
As recently as last month officials seemed more concerned
about establishing their reform credentials. They stressed
readiness to accept some economic pain as part of an effort to
shift China's economy onto a new, more balanced growth
A cash crunch that hit China's money market last month was
taken as a sign that Beijing meant business in its drive to rein
in speculative excesses.
Yet a stock market rout that followed and a slew of weak
economic data and even weaker indicators such as purchasing
managers' surveys prompted the authorities to offer a more
Economists said the latest pronouncements also made a point
that boosting growth and reforms were not mutually exclusive.
"The central authorities will continue to coordinate the
multiple tasks of stabilising growth, restructuring the economy
and promoting reforms," the official Xinhua news agency said,
citing a statement released after the politburo meeting.
Both the party leadership and the planning agency
highlighted plans to boost China's urban population by 400
million over the next decade, with the planning agency's chief,
Xu Shaoshi, saying the government would unveil its urbanisation
plan in the second half of the year.
Economists said giving the timeframe for what is considered
a key part of the planned economic overhaul not only served to
burnish Beijing's reform credentials but also opened up the way
for more government investment.
While using massive infrastructure investment to boost
growth is no longer an option, more targeted spending seen as
supporting long-term economic rebalancing was a strong
"In the second half, we expect the policy support to focus
on more investment in public services, such as urban facilities,
hospitals, waste disposal, sewage treatment, as well as light
rail and subways in cities," said Zhu Jianfang, chief economist
at CITIC Securities in Beijing.
"Such spending will help restructure the economy and also