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China’s leaders have given almost equal weight to security and reform at an annual economic meeting that sets policy for the following year, according to a Financial Times analysis, amid investor concern that policymakers are more focused on geopolitics than much-needed structural changes.
Beijing released a detailed statement on the Central Economic Work Conference, which was held on Monday and Tuesday, and pledged to pursue measures ranging from “proactive fiscal policies” to tax breaks for strategic industries in 2024.
An FT analysis that compared key words used by the Communist party in this year’s statement with previous years showed that “development”, or economic growth, was the most popular term this year with 50 mentions compared with 45 in 2022 and 40 pre-pandemic in 2019.
This was consistent with previous years except during financial turbulence in China in 2015 and 2016, when “reform” temporarily trumped “development”.
But despite an economic slowdown, the term “reform” was mentioned only 15 times this year, compared with 13 in 2022 and 28 before Covid in 2019, while references to “security” jumped to 14 from nine in 2022 and one in 2019.
“The growing importance of security in the report suggests the government is feeling insecure about both the domestic and international environment,” said Dan Wang, chief economist at Hang Seng Bank China.
She said reform had become increasingly difficult to implement and those measures that had been attempted, such as partial privatisations of state-owned enterprises and redistribution of revenue between central and local governments, had failed to pan out.
The focus on security and the downplaying of reform “sends a negative signal to inventors as the government is prioritising security and downplaying reform”, she said.
China’s economic recovery from the pandemic has faced increasing difficulties from a liquidity crisis in the property market that has weighed on consumer and investor confidence.
Foreign investors are also concerned about Beijing’s increasing focus on national security with the launch of data laws they complain are too vague and new espionage regulations. The authorities have also raided foreign consultancies and suppressed data releases, making it harder for investors to navigate the market.
Analysts advocate reforms to help fuel domestic consumer demand but government loans are pouring into the manufacturing sector, particularly high-technology segments, which Beijing regards as strategic in its competition with the US.
Foreign business has been urging Beijing to remove hundreds of non-tariff barriers to allow them greater market access. But “foreign capital” was mentioned only once in the work conference statement this year compared with five times last year and once in 2019. “Opening up” was mentioned six times compared with seven times in 2022 and 10 in 2019.
“High-quality development” — a sweeping term that takes in Beijing’s strategic objective of moving up technological value chains in manufacturing — was mentioned 19 times versus nine last year and seven in 2019.
“Policymakers maintained [a] pro-growth tone, stressed high-quality growth and emphasised the importance of policy co-ordination,” Goldman Sachs analysts said in a report on the work conference.
They said the statement acknowledged economic challenges, including low demand, overcapacity in some sectors, and a more complicated external environment.
Among the positives were measures to spur domestic demand with incentives for purchases of home appliances, electric vehicles and consumer electronics, they said.
Citi analysts said there was little new on efforts to shore up the property sector, which many economists see as the core of China’s economic slump.
“We still expect an ‘around 5.0 per cent’ official growth target for 2024,” Citi said, but it warned that market patience might erode further without further evidence of cyclical measures to shore up demand.
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