China policy outlook: A change in tone for 2017

Workers assemble engines at a factory in Weifang, Shandong province. [Photo/China Daily]

The December Central Economic Work Conference (CEWC), the Chinese government's annual policy meeting, points to a slight shift in the macro policy stance this year away from growth towards reducing financial risks.

The messages from the agenda-setting CEWC and other recent statements suggest policymakers are moving to somewhat more emphasis on reducing financial risks and less on ensuring at least 6.5 percent GDP growth. We forecast 6.3 percent GDP growth for 2017.

The CEWC provided a mandate for further fiscal expansion but called for a less generous monetary stance. We do not expect a benchmark interest rate rise this year but expect policymakers to guide overall credit growth down from almost 17 percent in 2016 to 14-15 percent in 2017.

We expect some further renminbi weakening against a globally strengthening US dollar in 2017, to 7.15, amid continued intervention to dampen further depreciation, flanked by measures to contain outflows such as strictly enforcing regulations on FX purchases. Recent experience indicates the authorities want to avoid high profile measures, such as reducing quotas or imposing new restrictions, if possible.

Local measures to contain housing prices in large cities will be maintained, slowing real estate construction in 2017, while medium-sized cities are asked to reduce stocks of unsold housing. Meanwhile, a government-induced reduction of excess industrial capacity is to be extended to sectors other than coal- mining and steel.

In all, the CEWC and other recent pronouncements by China's policymakers have set the tone for China's policy objectives and directions in 2017. Observing a gradual shift in the macro policy stance towards somewhat less emphasis on growth and more on reducing financial risks, we expect credit growth to slow down this year.

The author is the Hong Kong-based head of Asia economics for Oxford Economics.