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China’s leaders have for the first time explicitly committed to reversing a fall in investment, one of the main drivers of growth in the world’s second-largest economy.
The pledge, made at the end of a two-day economic policy conference of top Communist party officials, was the first official indication that a sudden and sharp slowdown in fixed-asset investment in recent months is worrying leaders.
“We will promote the stabilisation and recovery of investment,” said a report of the meeting, which was chaired by President Xi Jinping. This would be achieved by increasing central government investment, implementing key projects and stimulating private investment, said the report published by state news agency Xinhua.
Government data released last month showed China’s fixed-asset investment fell 1.7 per cent in the year to October, following a 0.5 per cent decline recorded for the year to September.
The sharp decline in reported investment in China suggested Xi’s campaign against excessive industrial competition, a problem Beijing calls neijuan or “involution”, might be affecting the economy.
The two-day party economic work conference, which sets out priorities for the coming year, said China would thoroughly tackle involution, but the Xinhua report did not say how this would be done without undermining investment.
The meeting also agreed to revitalise China’s slumping real estate sector and invest in high-tech industries, Xinhua said.
China’s economy has for decades relied heavily for growth on investment, particularly in infrastructure and property, but also in recent years in high-end manufacturing of products ranging from electric vehicles to semiconductors.
China does not release standalone monthly fixed-asset investment (FAI) comparisons, but the pace of the year-to-date decline revealed last month implied a sudden year-on-year drop of 11 per cent in October.
Goldman Sachs analysts have estimated that about 60 per cent of the fall in FAI was due to statistical corrections of previously over-reported data.
But they said that a still significant 40 per cent of the decline could be attributed to Beijing’s “anti-involution” policies — which could be deterring local authorities from allowing new investment in industry — as well as to China’s property crisis and slowing infrastructure-related fiscal spending.
Nomura chief China economist Ting Lu said the conference’s call on Thursday to promote a recovery in investment “decisively demonstrates that the top leadership is well aware of the recent slump in FAI”.
Lu said Beijing would probably direct more of the proceeds of local government bond issuance and other financing tools towards infrastructure projects in order to boost investment.
The readout from the meeting also showed that Beijing was aware of a slump in demand in the second half of this year, but was not yet prepared to launch a large stimulus to reflate the economy, he said.
“The memo indicates Beijing will ramp up policy support in coming months, but it is yet to formulate and execute a decisive stimulus programme, which would address the root causes and could effectively stabilise growth,” Lu said.
The IMF this week called on Beijing to adopt much more aggressive measures to stimulate domestic demand and reflate its economy, with trading partners warning China will face retaliation if it does not reduce its export surpluses.
Analysts at Citi said the conference readout also showed growing government urgency over the need to counter China’s population decline, with policymakers saying they would “strive to stabilise new births”.
“Announced policies could be further expanded in the coming year, especially the free pre-school education,” the analysts said.
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