Commentary: What path will economy take

The once-in-a-decade leadership transition in China has triggered a lot of speculation over its possible impact on the country's economic policy. Starting with the macroeconomic policy stance, some observers think a major stimulus package is on its way after the new leadership is unveiled during the 18th National Congress of the Communist Party of China.

My colleagues and I at the Royal Bank of Scotland do not think so. In our view, a stimulus package has not come because policymakers are broadly comfortable with the growth outlook and now more concerned about the quality of growth. They are also still dealing with the negative consequences of the previous stimulus package and have somewhat greater tolerance for lower growth than in 2008.

Indeed, there are increasing signs that, after a steady economic slowdown through mid-2012, economic growth has bottomed out, even though we do not expect a rapid rebound in growth. Given this outlook, we do not expect a major economic stimulus ahead, although we think the macro-policy will remain supportive to growth.

In the monetary area, while we expect monetary conditions to be kept accommodative, we do not see much room anymore for interest rate cuts. In the fiscal area, we expect a continued constructive approach to infrastructure projects and some pro-consumption measures to be included in the 2013 budget.

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