2011 has concluded with China’s annual Central Economic Work Conference, which has set the rhetoric that will shape the decisions of 2012. Not surprisingly, the emphasis for next year will be to shore up and seek stability in a treacherous world economy. Expect conservative-leaning policies from a China looking to shield itself from overseas shocks while still squeezing out just enough growth to keep people employed and happy at home. Political terms are ending later this year, and so we may have to wait until at least November to see long-awaited financial reforms.
The Phrase to Know in 2012
In his interview earlier this week with Caixin Media, People’s Bank director general Zhou Xiaochuan made reference to the Chinese government’s new goal to “seek progress through stability.” What does this phrase mean? I agree that this phrase sounds vague and meaningless by itself. The trick with this and any other party rhetoric is to read between the lines. In the right context, these government phrases take on a potent meaning and reveal much about the communist party’s confidence in the domestic and world economies.
The phrase “稳中求进” (wen zhong qiu jin) “seek progress through stability” was coined during December’s Central Economic Work Conference (CEWC). The work conference is one of China’s most influential economic summits in which the country’s leaders meet to decide the direction of economic policies for the following year. This piece of rhetoric is meant to become a recurring theme in 2012 government policy, and will be reflected in every decision made over the next 12 months. “Seek progress through stability” will be the phrase to know in 2012, and so it’s important that we stop to take a look at what it means.
With all Chinese phrases, the devil is in the subtle details. I like to joke that the trick to understanding Chinese government rhetoric is to not read it at face value, but to analyze its first derivative. In other words, it’s really not about what the government is saying this week, but more about what they’re no longer saying, or what they’re just now saying for the first time.
In 2010, the CEWC concluded that the government’s 2011 goal would be to “pursue active, healthy, stable growth while remaining cautious and flexible” (积极稳健、审慎灵活). This sounds vague, but the phrase is a lot more than what meets the eye. Specifically, the order of the Chinese characters here tells a lot about government goals in 2011.
积极 - “Active” here means “we have room to overshoot the magic 8% minimum GDP growth needed for social stability.” “Stable” is a reference to controlling inflation. By putting these characters next to each other, the government is saying that they will shoot for more growth than the minimum, but will hit the brakes if inflation gets out of control.
稳 - Growth is further qualified as being “healthy.” The word “healthy” here isn’t directly talking about sustainability, but is rather referring to the structure of China’s economy. In years past, provinces would invest in fixed assets to create jobs and boost output regardless of whether or not these projects created redundancies in regional industrial economies. This “unhealthy” growth resulted in massive yet powerless sectors of the Chinese economy that are now overcapacity, unprofitable and internationally uncompetitive. Steel is a great example of this.
审慎灵活 - “Cautious and flexible” is making reference to the instability and unpredictability of the world economy. 2011 was the first year China enacted its 12th 5-year plan (FYP). There is a risk with new major policies that government officials on a county level might follow them too literally to fulfill quotas and seek promotion. Political gain here comes at the expense of critical thinking and decision-making, and so in the event of an economic downturn officials might be stuck reading cookbooks while the oven is on fire.
Reassembled, the 2010-2011 government rhetoric can be understood as: “We would like to see GDP growth in 2011 to be higher than 9% while still taking measures to prevent inflation and overheating. Fiscal policy will be loose enough to spur growth, but investments will be purposeful and forward thinking. Having said that, we expect quick and drastic decisions if we start to see signs of a hard landing from our RMB 4 trillion stimulus package.” The beauty of Chinese government rhetoric is that you can condense all of that nuance into just eight characters.
2012 Rhetoric in Context
Now that we have established the 2011 rhetoric set by the 2010 CEWC, it is possible to do a YoY analysis on China’s new slogan for 2012. Reading the rhetoric, we immediately see that “积极” “active growth exceeding the minimum requirement of 8%” has been eliminated outright. Chinese officials are trenching for a hard year and no longer expect 2012 GDP growth to exceed 9%. In fact, the rhetoric has shifted from describing what kind of growth the government expects to no longer talking about growth at all.
稳中 - The emphasis in this year’s economic rhetoric is the character “稳” - “stability.” China is looking to avoid a hard landing at any cost, because economic instability means social instability, and social instability means political instability. In 2012, China will have to create enough jobs in urban areas to satisfy the joint demand of migrant laborers and new entries into the workforce. At the same time, too much gas can lead to a spike in CPI or a fresh investment bubble. In fact, they have taken the idea of stability a step further by making the primary goal “稳中” – “surround ourselves in stability.”
Political stability will be a major issue for China in 2012. The US election is sure to bring an unprecedented storm of anti-Chinese sentiment as politicians frame capital outflows to China as the reason for US. The reality that China is now losing manufacturing orders to India, Vietnam and Mexico will make little difference once campaign ads start to air. A flailing Eurozone will only add fuel to this fire as countries stop importing Chinese goods in favor of stimulating their own economies or in search of a cheaper deal from less developed countries. All the while, China will be making its own political transition in October from Hu Jintao’s administration to that of Xi Jinping. China doesn’t want an incident while everyone up top is shuffling offices.
The hunt for stability will also mean scaling back some of the more ambitious directives launched in the 12th FYP. Goals to restructure and upgrade certain industries or launch major infrastructural projects may have to wait until the storm has passed and policymakers are comfortable enough to loose the necessary funds. 2012 will be a year of managing expectations.
求进 – Once the first goal of establishing firm and lasting stability has been accomplished, China will transition into its second 2012 goal of “seeking progress” “求进.” Some issues have to be tackled in 2012. Economic reform will be a major point of contention between political groups in China. Recently, neo-leftist circles in China have been attacking the privatization of industry and capitalistic trends initiated by Deng Xiaoping in the late 80’s. These groups have cited class separation, the corruption of officials, and the privatization of health care and education as the evils of capitalism. This debate will not result in a major reversal of economic policy, but it will determine whether state-owned enterprises or small-to-medium private enterprises will be granted more power as China’s economy continues to develop.
Financial reform will be on the table this week at China’s National Financial Work Conference. This conference is held once every five years, and will be taking place today and tomorrow, January 6-7. Issues up for discussion will be the creation of regulatory bodies for China’s bond markets and SOE asset management, as well as reforms aimed at weaning China away from knee-jerk financial controls and towards mid-term policies established scientifically through the careful and measured use of forecasting models.
Considering China’s upcoming political shifts, though, some issues may ultimately be punted into 2012. China will likely reach its goal of maintaining stability, but we may have to wait until next year’s CEWC for real talk of major reform.
"If I have seen a little further it is by standing on the shoulders of Giants."
- Isaac Newton
Chris Lowder is the Director of Marketing Services at China Monitor. For more insights from China Monitor and the China Economic Information Network (中国经济信息网), please visit our website at www.chinamonitorisg.com