China highlights stability in 2017 economic work

BEIJING - China on Friday made stability as the basic tone for next year's economic planning, pledging to push for "substantial progress" in supply-side structural reform in 2017, as a key annual conference concluded.

A statement issued after the Central Economic Work Conference, during which Chinese leaders and senior officials gathered to map out priorities for 2017, said "seeking progress while maintaining stability" will be the main theme.

President Xi Jinping and Premier Li Keqiang addressed the conference.

This year's meeting is particularly important as 2017 will see the 19th Communist Party of China (CPC) National Congress, when a new central committee will be elected.

At macro level, China will stick to proactive fiscal and prudent monetary policies in 2017, the statement said, describing monetary policy as "prudent and neutral" and promising better adjustments to ensure stable liquidity.

Monetary policymaking should adapt to changes in the use of money supply tools, and further efforts are needed for smoother transmission of policy, the statement said.

China will keep the yuan basically stable, while improving the flexibility of exchange rates.

"The stance shows the government is trying to find a subtle balance between stabilizing growth and controlling asset bubbles," noted Hong Hao, chief China strategist at BOCOM International.

The statement did not give a specific growth target for 2017, which is usually made public in March when China's top legislature convenes. Analysts largely expect the goal to be lowered to allow more leeway for pushing reforms.

Zhou Hao, Senior EM Economist Asia with Commerzbank, expects the target to be at 6.5 percent for 2017.

Despite a troublesome start, the Chinese economy is ending 2016 on a firm footing, with encouraging signs of growth being on track to meet the this year's target.

In the first three quarters, the economy expanded 6.7 percent, steady with the first half of the year and within the government's target range of between 6.5 and 7 percent.

However, Friday's statement warned of problems in the economy, including persistent industrial overcapacity and accumulating financial risks.

The key to resolving structural imbalance lies in pushing supply-side reform, the meeting agreed, specifying five major tasks: cutting industrial capacity, destocking, de-leveraging, lowering corporate costs and improving weak links.

Fiscal policy should be more proactive and effective and budgets better planned to accommodate supply-side structural reform, cutting business taxes and ensuring incomes.

On the risk side, curbing asset bubbles will assume more importance in 2017 as the property market has raised fears of risks to financial stability.

To combat downward pressure, China adopted a multi-pronged growth policy last year, including cuts in interest rates and lower deposit requirements.

The stimulus has fueled growth in real estate and investment, two sectors that have proved critical growth drivers, but not without unwanted outcomes. For example, house prices in major cities have soared in an unreasonable manner and required tightening measures.

A market-oriented, long-term mechanism will curb real estate bubbles and prevent volatility. In cities where prices are rising fast, authorities should increase land supply and the share of residential housing.

Other policy includes advancing structural reform in agriculture, reviving the real economy and overhauls of state firms.

China will take substantial steps toward mixed-ownership in the sectors of electricity, oil, natural gas, railway, civil aviation, telecommunications and military industries.

Meanwhile, China aims to attract more foreign investment, hoping foreign-funded businesses can play an important role in developing the real economy.

To ensure the economy runs within a reasonable range, the meeting stressed more coordinated policy-making.