China to maintain continuity and stability of macroeconomic policies

Pre-adjustments or fine-tuning at appropriate time

With the annual Central Economic Work Conference around the corner, what macroeconomic policies China will adopt in 2013 has attracted extensive attention from both domestic and foreign media organizations. Experts generally believe that as the world economy remains sluggish and the domestic economy is seeking a new balance, China will maintain the continuity and stability of its macroeconomic policies, and moderately predetermine or fine-tune these policies at an appropriate time.

Maintaining continuity and stability of macroeconomic policies

"China is likely to continue to implement a proactive fiscal policy and prudent monetary policy next year," said Zhu Jianfang, chief economist at CITIC Securities. The Chinese government faces only a small deficit this year, and needs to accelerate implementing certain construction plans that have been approved to ensure steady economic growth, so it may adopt a more proactive fiscal policy next year. Furthermore, as the country promotes structural tax cuts and expands the scope of the pilot programs of replacing the turnover tax with the value-added tax and levying the property tax, it will have to increase financial subsidies, pointing to a larger deficit and greater fiscal easing.

Lu Zhengwei, chief economist at Industrial Bank Company, also believes that since the central government emphasized the continuity and stability of macroeconomic policies, China will likely continue to implement the proactive fiscal policy and prudent monetary policy next year. The country's fiscal expenditure will mainly go to such fields concerning people's livelihood as transportation, irrigation and water conservation, and social housing. The monetary policy will be relatively discretionary. At the beginning of next year, China will keep the monetary policy as tight as in the second half of this year, and may tighten the policy in months when consumer prices rise steadily, in order to maintain overall price stability.

Cao Yuanzheng, chief economist at the Bank of China, said that China will maintain loose macroeconomic policies next year. It will adopt a more proactive fiscal policy as well as stable and loose monetary policy. Due to the sluggish global economic recovery, slowdown in capital inflows, and narrowing trade surplus, China's funds outstanding for foreign exchange will expand at a slower pace, which will change the traditional monetary expansion mechanism and likely force the country to lower reserve requirements to replenish liquidity.

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