Xi warns China’s economic recovery at ‘critical stage’

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President Xi Jinping has warned that China’s economic recovery is “still at a critical stage” as Communist party leaders pledged to support growth with further “proactive” fiscal and “effective” monetary policy in the new year.

The comments follow months of mixed data in the world’s second-largest economy, with exports in dollar terms turning slightly positive in November after a long dip, while official data suggested manufacturing activity was weakening.

In a speech to a political gathering in Beijing, Xi said that although the economic recovery from the pandemic was improving, it faced an adverse international political and economic environment and overlapping domestic cyclical and structural challenges.

“At present, our country’s economic recovery is still at a critical stage,” the state news agency Xinhua on Friday quoted Xi as saying in the speech earlier in the week. “The development situation facing our country is complex.”

China’s economy has struggled to rebound from the impact of strict Covid controls imposed last year and a deep liquidity crisis in the property sector that have undermined growth and investor and consumer confidence.

The government has gradually stepped up monetary and fiscal stimulus, cutting interest rates and announcing the issuance of Rmb1tn ($140bn) in central government bonds, but the pick-up in activity has been slow and uneven.

Separately, the Communist party’s Politburo declared at a meeting held on Friday to discuss economic work for the coming year that the government should “continue to implement proactive fiscal policies and prudent monetary policies”.

It said Beijing should improve “the quality and efficiency” of fiscal policies while monetary policy should be “flexible, appropriate, precise and effective”, Xinhua reported.

The meeting also said it was “necessary to . . . strengthen economic propaganda and public opinion guidance”. Economists have complained of growing pressure from Beijing not to talk down the economy this year.

Following a sharp rise in youth unemployment, the National Bureau of Statistics this year also discontinued a data series on joblessness among the young.

Xinhua did not reveal whether the Politburo discussed next year’s official gross domestic product growth target. This is usually announced in March at the annual meeting of China’s rubber-stamp parliament and is one of the most keenly anticipated policy decisions in the country’s economic calendar.

Beijing this year set the target for GDP growth at 5 per cent, its lowest in decades. Economists speculate it might set the same level for 2024, though they warn substantial stimulus would be needed to achieve this growth given the lacklustre momentum in the economy.

Citi analysts said in a research note that the language from the Politburo showed a shift in its policy bias towards “progress”, which includes economic growth, after many years in which Beijing stressed “stability”.

“We have long been arguing that development should be a pre-condition for stability, national security and geopolitical agendas,” the analysts wrote. They predicted Beijing would set a target of 5 per cent next year, but warned there would be no “mega stimulus”.

HSBC Greater China economist Erin Xin said in a research note that in addition to policies to boost the housing market, “we expect Beijing to continue to increase fiscal support while monetary policy is likely to remain accommodative”.

“China’s domestic demand recovery still needs more support,” Xin wrote.

The Politburo meeting also called on cadres to step up an anti-corruption drive in the new year, particularly to “seriously investigate and deal with . . . ‘flies and ants’” — a term for corrupt local government and state enterprise officials.