Premier points out policy track

Premier Li Keqiang’s down-to-earth assessment of China’s economic fundamentals and his solutions to the current economic woes provide a timely answer to the recent drumbeat of “China pessimists”.

Meeting multinational corporate leaders during the Summer Davos Forum in Tianjin, the premier did not shun problems that are facing the Chinese economy. Instead, he elaborated on China’s economic conditions, his toolbox in the pipeline and reform agenda that will shape the future of the Chinese economy.

He made it clear that China’s growth rate remains acceptable and the country will rely on reform, not stimulus, to maintain stable middle- and long-term growth.

Li’s candid sharing of his views becomes a clear barometer to monitor the Chinese economy. Indeed, the economy is encountering some problems. Despite its micro-stimulus measures launched early this year, China still suffers from economic slow-down. Some key indicators, such as broad measure of money supply in August, show the weakening could continue.

China’s broad monetary supply, or M2, increased by 12.8 percent year-on-year in August, according to Li. It compares with 13.6 percent by the end of last year.

The market has become divided as to how China will tackle the new changes in the economic scenario. Some argue that stimulus of bigger scales should be considered to stem the trend of slow-down while others urge the authorities stick to its prudent stance and avoid overuse of any stimulus measures.

Li’s unswerving refusal to use big-scale stimulus to boost the economy provides a timely anchor for the differing parties and will help the market reach a consensus on China’s economic prospects. It shows China is more tolerant towards slower growth as it renews efforts to carry out its reform agenda, which are more important in generating growth in the long run than short-term stimulus.

Li’s confidence and tolerance are not built on nothing. The crucial economic indicator of urban employment remains stable, which provides a strong support for China to continue to restructure its economy.

In the first eight months, China has created nearly 10 million jobs, which means China is almost meeting its whole-year target of job creation.

With the job market remaining stable, which is the bottom line of the central authorities, China can press ahead with its reform agenda, which may cost jobs in the short term but will unleash more growth potentials of the Chinese economy.

In the coming months, therefore, it is more possible that the authorities use targeted measures to stimulate some sections of the economy, such as agriculture and new industries, to keep growth largely stable. Meanwhile, it will continue to de-leverage the economy, further reduce the power of the government in approval affairs, and cut taxes to revitalize the economy.