Tuesday June 18, 2024

Central Economic Work Conference and growth

By Shakeel Ahmad Ramay
February 27, 2023

Central Economic Work Conference (CEWC) was organised from Dec 15 to 16, 2022. It is a routine meeting where top leadership of Communist Party of China and government meets to deliberate on future economic policy.

The CEWC 2022, however, got special attention due to four specific reasons. First, it is the first meeting after the historic 20th National People’s Congress. Second, China is adopting to live with Covid-19 policy. Third, China is looking to accelerate growth and shed off negative impacts of 2022 to achieve common prosperity. Fourth, world is struggling to get economic momentum and is looking at China.

Acceleration of economic growth is major concern of China in the backdrop of negative implications of Covid-19 in 2022, especially during the second and third quarter. China observed a sharp drop in the GDP growth rate due to sudden drop in consumption and bad performance of real estate sector. Global bad economic situation also contributed to lower GDP growth rate.

However, contrary to propaganda, Chinese economy remained quite stable. After the troubled 2nd and 3rd quarter, Chinese economy rebounded during the fourth quarter. It posted a positive GDP growth rate of 3 percent and GDP reached at $17.88 trillion.

Despite the relief, Chinese economy still has to get the acceleration which can pull the world economy upward. Thus, China has to deliberate on policy choices which can cater needs of domestic and global markets.

Chinese leadership kept both dimensions at the heart of discussion at CEWC, 2022. CWEC initiated proceedings by analysing the past year performance and negative implications of the Covid-19. Scientific decision-making approach was applied to analyse the performance and set the agenda for next year. For the next year, CEWC identified pro-economic growth policies and strategies as priority area of work. Before delving into detail, it is pertinent to underline here that CEWC does not make policies, it only provides direction.

With conclusion of CEWC session, the work on policy formulation has been started. Government and CPC institutions are working to translate the vision into policy and action frameworks. The process of policy formulation will be completed before the start of two sessions in March 2023.

However, the actions of China, since the conclusion of CEWC, provides us a glimpse how China will be devising policies to accelerate the growth. A bird’s eye view of last few months suggests that domestic consumption, real estate facilitations and expanding investment have been adopted as leading tools to accelerate the growth rate.

First, China will be working to enhance domestic consumption for not only to accelerate GDP growth rate but also to negate any negative externalities. Citizens will be encouraged to go for higher consumption by increasing income and providing them policy cushions. Human Resource and Social Security Ministry data shows China has extended social security cover to 1.368 billion people.

Moreover, middle class will be instrumental to give a push to consumption. It is also anticipated that family savings will be contributing to enhance consumption which observed a rapid growth during the 2020-2022 period. Andy Rothman highlighted that family bank has observed an increase of 42 percent ($4.8 trillion) in savings.

Second, China has introduced many measures for real estate sector. Government has given a 16-point agenda to facilitate real estate sector. Chinese central policy banks are also preparing to offer credit line of $256 billion. The credit line will inflate to $431 billion by accounting the contribution of local banks and financial institutions.

Third, China has started to invest on infrastructure and is expanding public spending. It will be renovating 53,000 communities in 2023. Further, it will also renovate 1,00,000km gas pipeline in addition to 15,000km of rainwater pipes which will be built or renovated. Many provinces have also planned to invest on infrastructure and transport networks. All these initiatives will contribute to enhance growth.

Fourth, technology has been identified as another accelerator of growth. CEWC proposed that policy should prioritise self-sufficiency and self-reliance. For ensuring growth, policy should give maximum possible freedom to tech companies.

Fifth, China will be encouraging foreign direct investment by improving business environment and opening up. Although, it has increased the number of preferred foreign investment fields, the process will be further accelerated.

According to data, number of FDI encourage list has increased from 987 fields in 2017 to 1,474 in 2022. It helped China attract $334 billion as FDI which is record high for China.

Sixth, to share the dividend of growth with the world, China will also expedite work on BRI and CIIE. In pursuance of objective, China is planning to organise BRI forum this year. CIIE will be including new fields for attracting exporters to China. It will offer new opportunities to them to benefit from Chinese market.

The discussion above indicates China will be working to accelerate growth on two fronts – domestic and international. Despite, these proactive measures, the acceleration of growth will not be a smooth ride. There will be bumps on the way. In the words of Han Wenxiu, Central Financial and Economic Affairs Commission, "The first quarter of next year was likely to suffer from significant disruptions”. But, the second quarter was expected to see an economic improvement at an “accelerated pace”.