BOFIT Viikkokatsaus / BOFIT Weekly 2016/51

The communique from the mid-December Central Economic Work Conference highlighted the usual themes of maintaining stability and moving ahead with reforms. News agency Xinhua reported that the economic work conference warned of excess capacity in certain branches and mounting problems in the financial sector. To bring these issues under control, conference stressed reining in overcapacity, reducing inventories, bringing down debt levels and lowering business costs. More concrete proposals included partial privatisation of state-owned firms, seen as a way to improve efficiency of state-owned enterprises operating in such sectors as electrical power generation, oil & gas, railways, airlines, telecommunications and military industry.

Statements on economic policy suggest that expansionary fiscal policy continues, while monetary policy was vaguely characterised as “stable and neutral.”  The government, however, expressed concerns about potential bubbles in the housing and finance markets, as well rising debt problems, which limit the room to stimulate the economy. Current capital outflow and depreciation pressure of the yuan highlighted the contradictory stances presented at the conference, as emphasis was put on exchange rate stability, while promising greater exchange rate flexibility. Decision-makers seemed split on how to proceed under current circumstances.

Many observers expect no major changes in economic and reform policies before the party congress next autumn. Among matters to be decided at the congress are the nominations of persons to replace outgoing members of the party’s seven-member politburo standing committee.