Analysis: New China leaders must steady economy in 2013 before driving reform

Tue Jan 15, 2013 4:06pm EST
 
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By Nick Edwards

BEIJING (Reuters) - China's new leaders must stabilise the economy this year to keep employment high while avoiding a surge in housing prices and inflation that could undermine reforms needed to overhaul the country's export-oriented growth model.

Without stability, incoming President Xi Jinping and Premier Li Keqiang, who are set to be confirmed in March, have no chance of delivering a slew of reforms they say are needed now to tackle a host of financial, industrial and income imbalances that threaten China's future.

Failure to close one of the world's widest rich-poor gaps or deflate a dangerous property bubble could create a backlash that could even break the Communist Party's grip on power.

"Stabilizing growth is a pre-condition for delivering on reform and the new leadership has a long list of urgent issues," said Xiang Songzuo, chief economist at the Agricultural Bank of China, one of the country's "Big Four" state-backed lenders.

"They have to prioritize," Xiang said.

INFLATION LEGACY

Many analysts say the top priority is to ensure growth does not deviate far from the 7.5 percent rate likely to be set as the 2013 target during China's annual meeting of parliament in March - too slow puts jobs at risk, too fast and speculative investment activity jumps.

The closing months of 2008 offer the most recent precedent.   Continued...

 
China's new Politburo Standing Committee members (from L to R) Xi Jinping, Li Keqiang, Zhang Dejiang, Yu Zhengsheng, Liu Yunshan, Wang Qishan and Zhang Gaoli, arrive to meet with the press at the Great Hall of the People in Beijing, November 15, 2012. REUTERS/China Daily