Analysts differ on China policy changes
Xi Jinping is taking the helm as China's new president at a time when the world's second-largest economy faces several challenges at home and internationally.
Domestically, three decades of high growth have led to a widening wealth gap, environmental challenges and rumbling social discontent over inequality and corruption. Internationally, China’s yuan – on course to become a new reserve currency – is under pressure to appreciate against the US dollar, as the world’s biggest economy is recovering from years of economic slowdown.
Thanks to high demand for yuan, the currency yesterday tested the 19-year high and then retreated after the central bank cut its reference rate to a level that required the currency to weaken to within permitted trading limits.
The composition of China’s new leadership may determine the pace of change on issues such as deregulating interest rates and breaking up state monopolies. The make-up of the Politburo Standing Committee will provide more evidence on policy direction as the economy shows signs of rebounding from a seven-quarter slowdown.
Business in Thailand will have to wait for a while to see how China’s economic policy will be amended and how that will affect the Kingdom.
For now, Barclays economists led by Yiping Huang said in a report that China’s new leaders would be more tolerant towards lower "new normal" rates of growth in gross domestic product as the days of massive stimulus to boost the expansion are probably over.
"We expect the new government to accelerate structural reforms in a number of areas to improve growth sustainability. In particular, we expect greater emphasis on promoting urbanisation and transforming the state sector, which are policy themes close to the heart of the new premier," they said, referring to Li Keqiang.
If this is the case, it will be bad news for Thailand, which now reaps about 12 per cent of its export income from China. Lower GDP growth means lower purchasing power of Chinese consumers.
More comforting, Standard & Poor’s Ratings Services believes that Chinese policy-makers will continue to strive for annual GDP growth of above 7 per cent in the next five to 10 years. The rating company does not expect a change in the country’s economic direction, but foresees reforms in several areas.
S&P now rates China at "AA-" with stable outlook.
Efforts to deepen reforms in the financial system and the state-owned-enterprise sector are likely to continue in order to achieve this relatively strong growth, it said.
"Reforms in several key areas are also likely under the new government, in our opinion. The expected 10-year tenure of the new incoming national top leadership should allow them to carry out structural changes that affect many interest groups and need time for implementation," the rating company said in a statement.
A change in the financial relationship between the central and local governments in China is one area.
"We believe the central government will try to move to a fiscal model that will allow a more transparent and sustainable financing of local-government investment projects. We also expect the increased attention to narrow income disparity and rebalance the economic growth structure to continue.
"In our view, the successful achievement of many of the goals outlined above would benefit China’s sovereign credit quality. Strong sustained economic growth would further gains in Chinese income, wealth and efficiency to increase its buffer against potential economic or financial shocks.
"A more transparent and sustainable fiscal framework would also contain the increase in the government’s explicit and contingent liabilities. And a narrower income disparity would ease social tension and provide more flexible options for policy-makers," S&P said.
