China made “Xiconomics” the guiding principle for the world’s second-largest economy as it unveiled the first economic blueprint of President Xi Jinping’s second term.
The plan came with strong political overtones, highlighting a theory bearing Mr. Xi’s name and emphasizing innovation and “high-quality” growth.
There were few signs Beijing will aggressively tackle crippling debt levels and state-sector bloat. Also missing in the blueprint were plans for a long-awaited property tax.
Instead, the plan released late Wednesday after a Communist Party economic conference rattled off a list of promises China has made in the past few years but that haven’t been fully delivered on, such as risk control, overcapacity cuts and broadening market access to foreign companies.
It also talked up poverty alleviation and pollution control, which are among the political initiatives championed by Mr. Xi, as key economic tasks for next year.
Many investors and analysts inside and outside China had hoped that Mr. Xi, who in his second term has been granted greater powers than any Chinese leader in decades, would use his new clout to push through decisive measures to put the economy on sounder footing.
“The biggest surprise is that there is no mention of deleveraging” as a main policy objective, said Larry Hu, Hong Kong-based China economist at Macquarie Group. “The tone of the whole plan is centered on keeping the economy stable.”
Five years ago, Mr. Xi’s first economic blueprint after coming into power pledged to give markets a decisive role in China’s economy, which party documents often refer to as a “socialist market” economy. In the latest plan, the word “market” was conspicuously absent from the long name of Mr. Xi’s theory—“Xi Jinping Thought on Socialist Economy with Chinese Characteristics for a New Era.”
The blueprint called the philosophy the “theoretical crystallization” of the past five years of economic development, and the “latest fruit of socialist political economics.”
The new plan calls for “reasonable” credit expansion next year, an indication that Beijing will tolerate more debt to reach a growth target projected to be around 6.5%, the same as this year.
In recent years, China’s debt levels have been climbing faster than its growth, resulting in downgrades of its credit ratings and warnings from the International Monetary Fund and the World Bank to curb its debt binge even if it hurts growth in the short term.
Beijing had made deleveraging a centerpiece of its economic policy in the past two years. Behind closed doors, as the latest blueprint was being prepared, some officials argued to the leadership that it isn’t realistic to cut debt without jeopardizing growth.
At the core of Xiconomics is so-called “supply-side” reform, a mantra that bears little resemblance to the 1980s-era initiative in the U.S., when President Ronald Reagan used tax cuts to encourage companies to produce and invest more. Beijing’s strategy was rolled out in late 2015 to tackle long-running economic ills such as industrial overcapacity, high debt levels and an out-of-balance property market.
Now, the supply-side strategy appears to be taking on new meanings. Debt reduction, a centerpiece of the strategy since its inception, wasn’t listed as a focus in the plan issued Wednesday, only mentioned in passing.
The statement said China will continue to carry out the supply-side strategy with focus on “promoting innovation and quality of development” in addition to overcapacity reduction.
By Lingling Wei
Wall Street Journal