China's top leaders are thrashing out an economic growth strategy for the coming year in an annual meeting expected to endorse fine-tuning of policies to contain inflation but support growth.
As Beijing prepares for a succession to a new generation of Communist Party leaders next year, the focus remains on stability. No major shifts in policy are expected from the closed door economic work conference, which reportedly will end on Wednesday.
However, the continued crisis in Europe and weak U.S. recovery, and a slowdown at home, are adding to pressure for China to make faster progress in rebalancing the economy to depend more on consumer demand and less on exports and investment, analysts say.
"Can anything substantial be done to rebalance the economy? Domestic imbalances are getting worse, not better," Standard Chartered Bank said in a report released Monday. It said there is a need for more extensive reforms, such as improved social services, to help boost consumer purchasing.
The report estimated that investment accounted for more than half of all economic activity in China this year, up from 43 percent in 2008. In most modern industrial economies, consumer spending is the lion's share of the economy.
Having brought inflation down from a peak of 6.5 percent in July to 4.2 percent in November, China's planners remain on guard against a resurgence of potentially destabilizing inflation, mindful of past unrest linked to surges in prices.
"To fight a fever you can't just take cold medicine," the party newspaper People's Daily said in a commentary Monday noting various risks to growth, including a potential rebound in housing prices that have begun to fall but remain higher than consumers are hoping for.
Instead of the massive stimulus spending China ordered in late 2008 to counter the global crisis, analysts say authorities are more likely to rely on tax cuts and administrative measures to help encourage more consumer spending.
Setting the tone for this week's meeting, the party's powerful Politburo last week and announced plans to keep a "prudent" monetary policy that would curb price hikes while adopting "pro-active" spending to promote growth.
Most experts expect the government to unwind its credit tightening with further loosening of bank reserve requirements, which were raised to record high levels as authorities sought to deflate the property bubble by restricting bank lending.
China's economic growth abated to 9.1 percent in the July-September quarter from 9.5 percent in the first half of the year, but many economists are forecasting it will fall below 9 percent in 2012.
"We believe the risks are skewed to the downside," the Standard Chartered Bank report said. For China to grow more than 8 percent next year, it needs to keep relatively high rates of capital investment that may prove difficult giving funding shortages for banks, property developers, local governments and many small businesses, it said.
Meanwhile, weakness in demand for Chinese exports is squeezing manufacturers who already were caught between cash shortages brought on by curbs on lending imposed to fight inflation, and rising costs for labor and materials.
Export growth has fallen steadily since hitting a peak of nearly 36 percent in March, and data released over the weekend showed exports slowed further in November, as did imports, with the overall trade surplus plunging 35 percent.
But while Beijing strives to encourage more domestic demand and reduce its reliance on construction investment and exports to drive growth, it is also vowing to focus more on boosting its trade with emerging economies that are more dynamic than those in the U.S. and crisis stricken Europe.
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