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TRADE WARS
As Xi ascends, will economic reforms finally take off?
By Julien GIRAULT
Beijing (AFP) Oct 17, 2017


China factory inflation rises as PBoC boss sees strong H2 growth
Beijing (AFP) Oct 16, 2017 - China's factory price inflation rose again in September, official data showed Monday, indicating the improving domestic demand while the central bank chief said he expects strong growth in the second half despite fears of slowdown.

The producer price index (PPI), an important barometer of the industrial sector, accelerated to a better-than-expected 6.9 percent on-year, picking up from 6.3 percent in August.

The increase comes as the government battles to reduce excess industrial capacity and pollution and will please leaders looking to transform the country's growth driver from exports and state investment to one based on domestic consumption.

The figures, which followed healthy imports data on Friday, come days before the Communist Party holds its twice-a-decade gathering that will hand Xi Jinping a second term as president.

The data was announced after People's Bank of China governor Zhou Xiaochuan said the world's number-two economy could grow seven percent in the second half of the year after expanding 6.9 percent in the first six months.

"The momentum of economic growth has rebounded this year," Zhou said at a G30 International Banking Seminar on Sunday, according to remarks published on the bank's website Monday.

"The driving force propelling economic growth came mainly from the rapid pickup in household consumption," he added. "The development of the service industry has accelerated."

The over-reliance on investment has saddled the country with a ballooning debt load, prompting warnings from analysts that it could hurt China's growth and trigger another financial crisis.

"China's overall leverage ratio is quite high," Zhou told the audience of policymakers and bankers, blaming the high corporate debt levels in particular. "We will further deepen reform and promote gradual deleveraging."

China's factory gate inflation for September unveiled by the National Bureau of Statistics beat the 6.4 percent forecast by a Bloomberg News survey of economists.

However, the consumer price index (CPI), a main gauge of retail inflation, rose 1.6 percent year-on-year in September, lower than 1.8 percent in August, owing to a fall in food prices.

As Chinese President Xi Jinping prepares for a second five-year term, foreign investors will be watching for any sign of his long-promised reforms to further open up the world's second-largest economy.

Xi will likely lay out his future economic policies on Wednesday, when he opens a five-yearly Communist Party congress that will extend his tenure as general secretary.

While he is expected to fill top posts with loyalists, analysts are divided as to whether he will use his increased powers to let the market rule or keep the state firmly in charge of the economy.

Xi has sought to cast himself as a champion of globalisation as the United States retreats behind President Donald Trump's "America First" policy.

But foreign companies complain that his words have not been backed by deeds, as the state retains control over the economy.

US and European firms report being barred from certain sectors and forced to share their technologies with local competitors.

The EU Chamber of Commerce in China summed up the exasperation as "promise fatigue".

Underperforming state-owned enterprises, which have saddled the economy with huge debts and overcapacity exceeding domestic demand, have been propped up or merged into massive companies.

- Premier sidelined -

Private firms, meanwhile, are being subjected to closer control by the Communist Party, via cells it deploys inside companies.

While the government is seeking to turn toward a consumption-based economy, the state has continued to fuel growth through an accumulation of debt that, according to the IMF, is on a "dangerous trajectory".

Congress spokesman Tuo Zhen said Tuesday that China "will not slow the pace" of reforms, but he admitted there were still "tough problems to solve" such as "systemic obstacles".

But some analysts are not convinced by such public pronouncements.

"There has been general disappointment on economic performance and direction," said Christopher Balding, economics professor at Peking University in the southern city of Shenzhen.

"China is significantly more centralised than it was even five years ago. At this point, it would be very difficult for anyone to make a serious argument that China is seriously interested in opening up economically," he told AFP.

When Xi took office five years ago, his premier Li Keqiang was seen as the man in charge of shepherding the economy.

Li had promised "fair treatment" to foreign firms, a larger role for the market and structural reforms in favour of the private sector.

But analysts say the premier has been sidelined as Xi has further centralised power around himself.

Li "struggled to rally support around his reformist views" and curb state-owned enterprises, but he "has clearly not been a very influential premier", according to the Economist Intelligence Unit.

- ' Tough decisions' -

Supported by his economic adviser Liu He, Xi chairs the commission leading financial and economic affairs as well as a powerful new committee devoted to reforms.

In July Xi called for "stronger financial regulation" to contain "systemic financial risks" -- raising concern among analysts that this could stifle much-needed reforms.

"Xi Jinping has increasingly stressed the importance of 'stability' on all fronts," Louis Kuijs of Oxford Economics said in a note.

"Bold, potentially disruptive economic reform and forceful deleveraging are not consistent with stability."

But some are optimistic that Xi will use his new mandate and increased powers after the week-long congress to accelerate reforms.

"Mr Xi's strengthened position will give his administration the authority to take the tough decisions necessary to tackle China's debt overhang," according to the Economist Intelligence Unit.

Julian Evans-Pritchard, China economist at Capital Economics, said the implementation of reform is "likely to accelerate" after the congress if Xi emerges in a stronger position.

However, the reforms adopted so far have failed to address the underlying causes of state sector inefficiency, with underperforming companies not allowed to declare bankruptcy and leave the market, Evans-Pritchard said.

"But given Xi's reluctance to relinquish state control over key parts of the economy," he said, "China's structural problems are likely to remain unresolved."

TRADE WARS
S. Korea, China renew $56 bn currency swap deal despite diplomatic tensions
Seoul (AFP) Oct 13, 2017
South Korea and China have renewed a $56 billion currency swap deal, Seoul said Friday, despite tensions over the controversial deployment of a US anti-missile system in the South. There had been fears the diplomatic row would threaten the major economic agreement that expired on Tuesday, but the central Bank of Korea said it has been extended for another three years. Ties between the tw ... read more

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