China announced at a key meeting on economic management for 2022 that it would prioritize stability by focusing on business conditions. The emphasis on stability — more prominent this year than in others — comes amid tremendous downward pressure on Chinese growth.
However, there was no mention at the Central Economic Work Conference of the fact that the unexpectedly large slowdown was mainly because of economic policies launched without explanation by the administration of President Xi Jinping. Greater transparency is a must if this “policy-induced slump” is to be overcome.
On China’s housing bubble, which has attracted a great deal of attention, Xi has repeatedly said that “housing is for living, not for speculation.” In line with that notion, he has begun promoting policies that prioritize the development of housing, including rental units, for middle- and low-income earners.
However, no concrete prescriptions have been given for managing problems at real estate giants like China Evergrande Group, which has partially defaulted on its debt. Property development is stagnant in China, and housing prices have begun falling. This minor policy revision will not be enough to solve the country’s problems. Given the global ramifications of this issue, Beijing’s response has been sorely lacking.
Recently, Xi has been pushing the idea of “common prosperity,” which he insists will reduce inequality. He offered some clarification at the recent economic work conference, saying, “First we will make the pie bigger, and then we will distribute it based on a rational system.” The government should be commended for showing some consideration for concerns that socialist trends might suddenly strengthen.
State-owned enterprises was another topic left conspicuously unaddressed at the economic meeting. The International Monetary Fund has previously noted that reform of state-owned enterprises is key to achieving high-quality growth in China. The Xi administration is clearly headed in the opposite direction. Pressure continues to mount on private businesses as Beijing pursues a policy of making state-owned enterprises “stronger and bigger.”
China’s expanding state-owned enterprises are effectively sanctuaries, safe from antitrust measures, but the control over major private information technology companies has become increasingly strict. The government’s rationale is to “prevent the disorderly expansion of capital,” but the application of this concept is too arbitrary. Foreign companies investing in China are understandably worried.
Twenty years have passed since China joined the World Trade Organization. The country has benefited greatly from membership, and it has grown rapidly. However, the fundamental problem of preferential treatment for state-owned enterprises has not been solved. This has always been a sticking point in trade negotiations.
China’s economic growth target for 2021 was “6% or more.” The target for 2022, which will be announced next spring, is thought to have been discussed at the recent meeting. Some in China believe the next goal should be lowered to the 5% range. We hope leaders will find an appropriate level.