Beijing offers growth assurance in its economic balancing act

Wed Jul 31, 2013 7:01am EDT
 
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By Kevin Yao and Aileen Wang

BEIJING (Reuters) - China's authorities, mindful of the risk of a sharp economic slowdown that could derail their reform efforts, sent their clearest signal yet that they will safeguard growth and tweak policy when necessary.

The message from a meeting of China's top decision-making body, the Politburo, sought on Tuesday to dispel market concerns about China's near-term economic outlook by stressing stability of growth.

The main economic planning agency followed on Wednesday with assurances that this year's growth goal was safe and that the authorities would supply markets with relatively ample funding.

"We believe the message here is that stability is highlighted after the unnecessary chaos in the interbank market in June, while the party still sends a signal that the new leadership is reform-minded despite some recent confusion," Bank of America Merrill Lynch analysts said in a note.

The nation's new leadership has pledged to wean China off its addiction to export and credit-fuelled heady growth in favor of one driven more by consumption, making clear it would accept some slowdown as a consequence of such a transition.

Yet a combination of slackening growth, fast expanding credit and frothy property markets has kept investors on edge; their immediate concern that growth could fall well below this year's official 7.5 percent target, already a 23-year low.

As a result China's leadership must walk a fine line between addressing near-term weakness in growth that may complicate economic re-engineering and fears that delaying a financial and manufacturing sector overhaul could result in Japan-style stagnation.

In particular, the politburo's mention of "stable and healthy development" of the real estate sector caught markets' attention, interpreted as a sign that Beijing would not risk any radical action to cool that market, concerned about the impact on overall economic growth.   Continued...

 
Labourers working at a construction site are pictured behind a Chinese flag in Beijing April 24, 2013. REUTERS/Kim Kyung-Hoon