Chinese leaders promise reform, spending if needed

[December 17, 2012]  BEIJING (AP) -- China's new Communist Party leaders are promising reforms aimed at reducing reliance on exports and more spending if needed to prop up a shaky economic recovery.

In the first statement of their economic goals since taking power in November, the new party leaders pledged continuity Sunday with long-term plans aimed at nurturing self-sustaining growth and raising incomes. There was no indication of plans for major changes or new stimulus.

They promised to support domestic consumption, the growth of small businesses that generate jobs and more migration by rural residents into expanding cities to find better-paid jobs.

The new party general secretary, Xi Jinping, and other leaders are under pressure to overhaul an economic model based on exports and investment that delivered three decades of rapid growth but is running out of steam. Companies and political analysts are watching to see how far they are willing to go in remodeling the state-dominated economy.

In the shorter term, they also need to keep a recovery from China's deepest economic downturn since the 2008 global crisis on track.

Party leaders promised a "proactive fiscal policy" and "prudent monetary policy" in a statement distributed by the official Xinhua News Agency at the end of a two-day annual planning meeting. That refers to willingness to boost government spending if needed and to keep credit easy so long as inflation stays low.

The world's second-largest economy is limping out of the slump that pushed growth to a three-and-a-half-year low of 7.4 percent in the latest quarter but weak November trade data suggested the rebound might be faltering.

The World Bank and other analysts say Beijing needs to curb dominant state companies and promote service industries and consumer spending to keep incomes rising. They say without prompt action, growth might slow abruptly, leaving China stuck at middle-income levels.

Possible reforms face potential opposition from state companies that might see their privileges diminished and have influential allies in the party.

"If China does not change its strategy, it risks falling into the `middle income trap'," Robert Zoellick, former World Bank president, said in a speech at a Beijing business conference last week.

In a tacit acknowledgement of possible obstacles, Sunday's statement said change would require "greater political courage and wisdom."

The new leadership promised to "accelerate structural reform," open markets further and encourage efficiency, though they gave no details of possible changes. It said "enhancing quality and efficiency of economic growth" will be a "central task."

Factory output, consumer spending and other indicators are improving in the current quarter but analysts say a recovery is likely to be gradual and too weak to drive a global rebound without improvement in Europe and the United States.

Data last week showed November trade deteriorated sharply following a rebound that started in August. Export growth plunged to 2.9 percent over a year earlier from October's 11.6 percent. Imports were flat, down from October's 2.4 percent growth.

Sunday's statement gave no indication the leadership plans to depart from the party's official annual economic growth target of 7.5 percent through 2015.

It promised to support the orderly growth of cities, a key element in raising incomes by allowing migrants from the countryside to look for better-paid urban jobs.

The leadership pledged to increase domestic demand, though it gave no details of how it will do that.

Companies are under pressure to help boost consumer spending by putting more money in workers' pockets through wage hikes. Other changes require longer-term effort, such as freeing up money in household budgets by raising government spending on schools, health care and other social programs.

Sunday's statement promised one step in that direction: more spending on building affordable housing and other initiatives aimed at spreading money to China's poor.

Earlier statements by the new leadership suggested they want to narrow China's yawning and politically sensitive wealth gap between an elite who have benefited from economic reform and the poor majority.

The new party Politburo pledged this month to pursue both economic growth and "social harmony and stability."

The government is due to release a long-awaited report this month on proposals for policy changes to narrow the wealth gap.

[Associated Press; By JOE McDONALD]

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