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Print Edition> Business
UPDATED: December 20, 2010 NO. 51 DECEMBER 23, 2010
Mapping a Steady Course
China gears up to steer the economy toward more sustainable growth

"The lagging effect of massive credit expansion in the past two years will continue to provide strong tailwinds for inflation soon," she said.

"Interest rate hikes are also in the cards, but increases might not be as aggressive as for reserve requirement ratios in order to deter hot money inflows," said Guo Tianyong, Director of the Research Center of China's Banking Industry at the Central University of Finance and Economics.

As it maintains a proactive fiscal policy, the government will try to avoid a hard landing of the economy, said Su Ming, Deputy Director of the Research Institute for Fiscal Science of the Ministry of Finance.

"But the precondition is that we must keep the fiscal deficit under 3 percent of GDP," he said.

Tang Min, Deputy Director of the China Development Research Foundation, said policymakers are well aware of the need to arrest the economic slowdown and foster employment.

The fiscal input for next year might go to three major areas: rural infrastructure, construction of affordable houses and emerging industries like information technology and new energies, he said.

Sustainable dynamism

As the country looks for more sustainable sources of growth, economic rebalancing and structural adjustment takes center stage.

"Our goal is to cultivate the consumer market and seek more balanced growth," said the statement.

When the financial crisis crippled the country's exports in late 2008, the government created powerful policy incentives to start the engine of domestic consumption. Subsidies for purchases of home appliances and autos boosted consumer spending and bolstered the national economy. Drawing strength from tax breaks for small vehicles and subsidies to rural buyers, China's auto market has also become the world's largest.

"But it is just a matter of time before the government withdraws the incentives, so a more permanent solution is to put numerous residents on a firmer social footing and remove much of the anxiety making them prone to save," said Wang Tongsan, Director of the Institute of Quantitative and Technical Economics at the Chinese Academy of Social Sciences.

Meanwhile, as Chinese economic growth focuses on quality over quantity, the energy efficient and environment-friendly industries are getting the chance to shine. In search of relief from its reliance on coal, China made a push into wind and hydropower. More importantly, the success with electric car development has already given the country a head start in the global race to a low-carbon economy.

In 2011, China will embark on the path of the green economy and propel environmental protection businesses and low-carbon technologies, said the statement.

Between 2006 and 2009, China eliminated energy-depleting and polluting capacities of 87.12 million tons of steel and 214 million tons of cement, and shut down 60 million kw of thermal power plants, said the National Development and Reform Commission.

China has made impressive achievements in energy conservation and renewable energy during the 11th Five-Year Plan period (2006-10), said Ardo Hansson, lead economist for the World Bank China Office.

But further improvements require continued energy pricing reforms—passing the full economic cost of energy supply to consumers and gradually internalizing environmental costs in energy prices, he said.

It would also help if the country could reduce costs and improve performances of renewable energies, and accelerate diffusion of new energy technologies, he said.

Common benefits

While charting economic guidelines for next year, policymakers are focused on improving the livelihood of residents and spreading wealth among the needy groups.

At this year's Central Economic Work Conference, the government vowed stiffer efforts to promote job creation, bridge the income gap between the rich and poor, and further repair the social safety net, including education, pension and health care. In a bid to shore up the employment landscape, the government promised better services for job-seekers, including university graduates, migrant workers and retired servicemen.

With the wave of liquidity sloshing around the Chinese economy, urban house prices have skyrocketed beyond the reach of most working-class families. That is why policymakers at the conference made clear their ambition to ease the housing pains.

"Efforts will be made to beef up supplies of affordable houses, develop low-rent houses and repair dilapidated buildings in the countryside," said the statement.

"These measures are expected to become a stabilizing force for the market," said Chen Guoqiang, Director of the Real Estate Research Institute at Peking University. "It is also a viable option to encourage private capital into the affordable housing sector and soothe the financing strains."

In addition, the government also plans to press ahead with modern agriculture development, boost rural infrastructure, protect arable land and distribute subsidies to agricultural productions.

As China looks inward for a new source of economic dynamism, there is no better option than the countryside where the enormous population and rising income present the potential for a consumption boom, said Zheng Fengtian, a professor on agriculture and rural development at the Renmin University of China.

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