The changes and challenges for economy in.docx

The changes and challenges for economy in.docx

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Thechangesandchallengesforeconomyin

Thechangesandchallengesforeconomyin2013

Editor'sNote:

In2012,China'seconomyencounteredmoredifficultiesthanitwouldinanormalyear.Somedifficultiesare,sotospeak,imported-likethesluggishdemandfromitsmajortradepartnerswhiletheyweretrying,withdifficulty,tosolvetheproblemsbroughtbythefinancialcrisisoffouryearsago.

Otherdifficultiesstemfromprecautionsthecountryhastakentopreventwidertrouble-controllinginflation,repressingsurgingpricesintherealestatemarket,andslowingresource-andenergy-intensiveindustries.Themainpurposeoftheseeffortsistomaketheeconomylessdependentonexportsandinexpensivelabor,andmoreonqualityproductionanddomesticconsumption.

Anewphaseofthisendeavorbeganasthenewnationalleadership,headedbyXiJinping,emergedfromBeijing'spowertransitioninNovember.AttheCentralEconomicWorkConferencelastweek,policymakersdecidedtomuster"greatercourageandwisdom"totakethenation'sreformanddevelopmentforward.

Society'sinitialresponsetotherenewedcommitmenttoreformwasclear.TheShanghaistockmarketsawitsstrongestrallyintwoyears.ButhowdoeconomistsassessChina'sopportunitiesin2013afterstudyingtheCentralEconomicWorkConferencecommunique?

Whatchangesaretheylookingforwardto?

AndwhatdangersdotheythinkChinashouldwatchoutfor?

Weinvitedfiveofthemtosharetheirviews.

Theeconomyslowedfortwomainreasons:

Theglobaleconomywasweak,andthishitChineseexports.Theotherreasonwasduetoproperty-tighteningmeasuresandcreditcontrolswhichledtoaslowdowninpropertyandinfrastructureinvestmentstartinginlate2011.Thegovernmentchangeditspolicydirectioninthespring,easingcreditconditionsandreversinginfrastructurespending,whichhasledtoamoderaterecoveryinrecentmonths.

Corporationsreducedtheirinventoriesthroughoutmuchof2012,andexcesscapacitybecameaconcernasdemandweakened.Corporateprofitsdroppedsharply.Butthereislessofapushnowtoreduceinventories,andindustrialprofitsareincreasingagaininthefourthquarter.

Thenewleadershiphassetthetonefornextyear:

Theywillcontinueproactivefiscalandprudentmonetarypolicies.Thenewleadershipisconcentratingonurbanizationbeingthebigdriverofdomesticdemand,whichshouldattractmoreinvestmentonpublicinfrastructure.Butit'sunclearhowtheywillstimulateconsumption.

Weexpecttheleadershiptopushforwardin2013withmeasuresthathavealreadywonwidesupport.Thesemayincludereformstoenergypricesandresourcetaxes,aswellasdevelopingthebondmarketandexpandingpensionandhealthinsurance.Ithinkvariousservices,particularlyhealthcareandpublicservices,shouldbedevelopedmorerapidly.

WeexpectGDPgrowthtorecoverfrom7.6percentthisyearto8percentin2013.I'mnotsurehowmuchchangewewillseetothecountry'sgrowthmodel.Thatwillonlyhappenslowly.Wethinkconsumerpriceindexinflationwillrisein2013,mainlyasaresultofrisingfoodprices.WethinkCPIwillaverage3.5percent.Non-foodinflationmayrisebecauseofreformstoutilityandenergyprices.

Themostimportantreformshouldbeincreasingpublicspendingonservicessothatmigrantscanhavebetteraccesstoschoolsandhealthcare,andcanhavebetterhealthcareinsurance,pensionsandotherbenefitsassociatedwithasocialsafetynet.Thiswillinvolvetaxandpublicfinancereforms,andwillbedifficult.Ithinktrueurbanizationwillstimulateinvestmentaswellasconsumption.

WeexpecttheUSeconomytomaintainamodestgrowthrate（2.3percent）,EuropetostagnateandJapantogrowverylittle.Emergingmarketsmayrecoversomewhatfrom2012astheirexportsbecomemorestableandtheynolongerhavetoworryaboutinflationwhensettingtheirmonetarypolicies.ForChina,thismeanstherateofincreaseforexportswillbecomestableatabout8percent.

Inthebestcase,theUSwillshowstronggrowthifitavoidsthefiscalcliff.Andthecrisisintheeurozonewillberesolved.Intheworstcase,theUSwillgooverthefiscalcliff,drivingdownthecountry'sgrowth.Ortheeurozonecrisiswillworsen.

-----WangTao

chiefChinaeconomistwithUBSAG

Despitetheslowdown,China'seconomicperformancethisyearisstillsatisfactory,giventheglobalrecessionandcomparedwithotheremergingmarkets.

Thecountry'sfiscalandmonetarypoliciesthisyearwereappropriate,showingthegovernment'sgoodassessmentoftheinternationalsituation.

Thecountry'sGDPgrowththisyear,Iestimate,maybeintherangeof7.5to7.8percent.Theeconomybottomedoutinthethirdquarterandstabilizedinthefourthquarter,butitisstillhardfortheeconomytoriseabove8percentfor2012.

Lookingforward,theglobaleconomystillneedsfivetosixyearstocompletelyshrugofftherecession.

Idon'tthinkthenewleadershipwillrolloutalarge-scaleeconomicstimuluspackagenextyear.Infact,thereislittleroomforthemtomaneuverwithfiscalandmonetarypolicies,buttheycandomorewiththesocialwelfaresystembybuildingmorekindergartens,schoolsandhospitals.

Meanwhile,thegovernmenthasapprovedanumberofmasstransitrailprojectsthisyear,whichwillhelptoboostinvestmentinthecomingtwotothreeyears.

Theeconomyfor2013shouldimproveabit,withaGDPgrowthprobablyrangingaround7.5percentto8percent.

Consideringtheleadershiptransitionnextyear,steadydevelopmentshouldbeaprimaryconcernforthecentralgovernment.Theymayfirstpromotereforminsocialsecurityandincomedistribution.

IfGDPgrowthdoesnotexceed8percent,itisnotdifficulttokeeptheCPIbetween2to3percent,asChina'sCPIpressureismainlydecidedbythecountry'smonetarypolicy.

Consumptiongrowthnextyearwillbearound13to15percent,almostthesameasthisyear.

UrbanizationwillbethekeydriverforChina'seconomicgrowthinthecomingdecade.Iwouldsuggestanurbanizationmodelcenteredonthesecond-andthird-tiercitiesinsteadofsuper-bigcities.Giventheimbalancesinsuchahugecountry,itcouldbeadown-upmodelinitiatedbyprovincialgovernmentsbasedontheirownexperiences.Theprocessmainlystimulatesreal-estate-relatedinvestment.

TheEuropeanUnionandJapanmaystillfaceasluggisheconomynextyear,whiletheUSeconomywillseeaslowexpansion.Deflation,insteadofinflation,isoneoftheirmajoreconomicconcerns.

Emergingeconomies,whichfaceverysimilarchallengestoChina,willseeaslowdownintheirGDPgrowth.

AllthatmeansChina'simportsandexportsarenotlikelytoimprovemuchnextyear.

-----WangHaifeng

directorofinternationaleconomicsattheInstituteforInternationalEconomicResearch

BackinDecember2011,FitchsaiditexpectedChina'seconomytogrowabout8percentin2012,anditlookslikethishasbeenborneout.Wetookseriouslytheauthorities'statedintentiontogetassetandconsumerpriceinflationundercontrol,andthishasmoreorlessbeenachieved,withoutasharpincreaseinunemployment.

Thekeylimitationsareasfollows:

limitedprogresssofaronrebalancingtowardsamoreconsumption-ledgrowthmodel,andstillalackofclarityabouthowthebuildupofdebtin2009-10willbedealtwith.Thatdebtoverhang,asweseeit,isakeyfactorbehindtheNegativeOutlookonChina'slocalcurrencyratingof"AA-".Theforeigncurrency"A+"rating,meanwhile,remainswellsupportedatStableOutlookbyChina'sexceptionallystrongforeigncurrencysovereignbalancesheetand$3.3trillioninofficialreserves.

Rebalancingtheeconomyisimperative,notoptional,ifafurtherbuildupofstructuralvulnerabilitiesistobeavoided.

InvestmentcannotgoongrowingfasterthanGDP,oritwillstarttooutstripevenChina'shugedomesticsavings,andChinawouldbecomeacurrentaccountdeficitcountry,whichwethinktheauthoritieswouldwishtoavoid.Onekeyquestionishowquicklytheauthoritiesmakeprogressonstructuralreformstofacilitaterebalancing.Thesecouldinclude,butarenotlimitedto,financialliberalizationandstrengtheningofhouseholdincomes.

WethinkChina'seconomywillgrowabout8percentin2013.TheCentralEconomicWorkConferenceconclusionsincludedlanguageonaccommodativefiscalpolicyandprudentmonetarypolicy,whichweseeasasignalauthoritieswanttopreventare-emergenceofinflationandstronghousepricegrowth.Weexpectconsumptiontogrowfasterthaninvestment.

China'surbanizationrateofabout50percentonofficialdata-andprobablyalittlehigherinreality-isstillwellbelow80percentforSouthKoreaortheUS.

Thepointishowefficientlycapitalisinvested,alongwiththefundamentalmacroeconomicconstraintoftheinvestment-savingsbalance.Thereisanotherconstraintintermsoftheabilityofthefinancialsystemtogrowthecredittofundfurthersharprisesininvestment,whichwethinkisprettylimited,giventhebankingsystem'sweakcapitalizationandemergingstrainsinliquidity.

ThemainriskfacingtheChineseandworldeconomyistheresolution,ornot,oftheUSfiscalcliff.Onourbasecaseforecasts,theUSdoesnotfalloffthecliff,buttherewillbeameaningfulfiscaltighteningofabout1.5percentofGDPin2013,andtheUSeconomygrowsabout2.3percent.ForJapan,weexpectgrowthof1.5percent.Fortheeurozone,weexpectstagnationin2013.Fitchforecastsemergingmarketswillgrow4.8percentin2013,upfrom4.3percentin2012.

-----AndrewColquhoun

headofAsia-PacificSovereignRatingswithFitchRatings

Theeconomicsituationin2012wasbeyondpreviousexpectations.Ma