From the highest of its government, China is aggressively promoting a plan to fix the country’s economic stagnation and offset the damage attributable to its decades-long real estate bubble.
The program has a fresh slogan, presented primarily by Xi Jinping, the country’s supreme leader, as “new high-quality productive forces.”
But it has features familiar from China’s economic playbook: the concept is to spur innovation and growth through massive investment in manufacturing, particularly in advanced technology and clean energy, in addition to heavy spending on research and development. There can also be little specific regulation left on how the federal government hopes to persuade Chinese households to reverse the prolonged slowdown in spending.
Premier Li Qiang, the country’s No. 2 official, unveiled the plan on Sunday in a speech to chief executives from world wide who gathered in Beijing for the annual China Development Forum. “We will accelerate the development of new, high-quality productive forces,” he said through the forum’s opening ceremony.
Launched in 2000, the China Development Forum goals to explain to corporate leaders the economic plan presented by the prime minister yearly on March 5.
In previous years, the forum featured lengthy closed-door discussions with chief executives, during which the Prime Minister asked many questions. But talks with the prime minister, often held on the ultimate day of the event, were canceled without explanation this yr, prompting some chief executives to skip Monday and plan to leave on private jets on Sunday evening.
The China Development Forum also featured a fairly open discussion on economic policy with Chinese corporate leaders and ministers the day before the opening ceremony, but that did not occur this yr either.
Evan Greenberg, president and CEO of Chubb Group, a large U.S. insurer, co-hosted the conference opening on Sunday. The list of participants included Tim Cook, Apple’s chief executive, who was in China last week trying to revive iPhone sales, and Mike Henry, chief executive of BHP, the Australian mining giant.
In his speech, Mr. Li called for increased production and increased services and consumption. He has repeatedly urged Chinese households to replace old cars and household appliances, but has not said whether the federal government will provide money to help them achieve this.
Semi-official data shows consumer spending in China is weak as housing prices have fallen by a fifth up to now two years. The variety of housing transactions also dropped. Homeowners complain that they’ve to cut prices by up to half in the event that they want to find buyers.
Real estate accounts for 60 to 80 percent of household wealth, a much larger share than in most countries. Therefore, the approaching collapse of the housing market has left many families feeling less affluent and struggling to pay their mortgages.
Mr. Li mentioned real estate and the related problem of local government debt only briefly when discussing risk. Over the past 4 a long time, he said, “risks and challenges have not defeated us.”
Li said the federal government would try to provide legal residency to greater than 250 million people from farming families who’ve moved permanently to cities but haven’t officially qualified to live there. Cities provide significantly higher medical, retirement, and academic advantages than rural areas.
However, Mr Li didn’t explain how city governments, already running out of cash, could afford to provide such expensive advantages.
The mantra of “new, high-quality manufacturing forces” is partly intended to allay fears in China and abroad that U.S. restrictions on high-tech exports to China could hamper its growth. During briefings before the forum, officials emphasized that manufacturing makes up a large a part of the country’s economy – greater than twice as much as within the United States.
“In China, you can see that it is constantly increasing and is much higher than in other countries,” Shi Dan, director general of economics on the Ministry of the Chinese Academy of Social Sciences, said at a briefing.
China’s trading partners fear that increased production will likely lead to increased Chinese exports. The European Union is preparing to impose tariffs on electric cars from China. The European Union Chamber of Commerce published a report last Wednesday warning that such policies may lead to deindustrialization in Europe as European corporations could also be unable to compete with government-backed Chinese corporations.
Companies whose business was to sell goods to China for constructing homes and infrastructure are closely watching the twin emphasis on high-tech production.
But Andrew Forrest, executive chairman of Fortescue Metals Group, the Australian iron ore mining giant, said China would inevitably proceed to spend large sums on new roads, railways and other infrastructure.
“The infrastructure situation isn’t really going to be a departure from that, it’s just going to be an emphasis on manufacturing,” he said in an interview.
Chinese officials have made quite a few guarantees to stabilize the housing market but have provided few details on how to achieve this.
Li Xuesong, one other director general of economics on the Chinese Academy of Social Sciences, said at a news conference that local governments could provide more housing for public sector staff. However, he didn’t address how local governments, a lot of that are struggling with serious debts, are expected to pay for these apartments.
After the recent collapse of public land sales to developers, many local governments had to cut the wages of municipal staff and needed Beijing’s help with interest payments. China’s Ministry of Finance has launched a program to help some cities repay their debts, provided they limit costly but popular infrastructure construction programs.
Helping consumers afford more spending is crucial, said Wang Dan, chief China economist at Hang Seng Bank’s Shanghai office, during a web based conference hosted by the International Financial Forum, an arm of China’s central bank. “Direct cash transfer would still be the most efficient way,” she said.
For now, the emphasis in China is on strengthening the provision and quality of products, relatively than worrying about demand.
“The growth rate of investment in new driving forces is good,” said Liu Sushe, deputy head of the National Development and Reform Commission.
