Indian, Chinese leaders ponder growth
December 16, 2011

December 11th marked China’s 10th Anniversary at the WTO, a significant milestone which was signaled by President Hu Jintao announcing prying open the doors a little more into China’s vast economy.

The next day he and fellow leaders retreated to an army-run guesthouse for a secretive three-day meeting to decide how to run China’s economy in 2012. Their gnomic conclusion: to maintain a “prudent monetary policy” and a “proactive fiscal policy” in the face of an “extremely grim and complicated” global outlook.

Setting the tone for the next year of economic policy making, the annual Central Economic Work Conference (CEWC) was attended by members of the ruling Politburo, government ministers, provincial chiefs, military leaders and heads of banks and other big state-owned companies.

This year’s conference, which ended on December 14th, seemed more worried about growth than about price pressures. Wrapping up its most important economic meeting of the year, the Chinese Communist Party agreed to focus on maintaining fast economic growth amid the worsening outlook.

“Growth has replaced inflation as Beijing’s top policy concern,” said Qu Hongbin, co-head of Asian economics research at HSBC. “The economy is likely to slow further, calling for more aggressive easing measures.”
Despite the scale of the meetings, little detail of the discussions is revealed to the public beyond a bland description of the main points. For a more detailed explanation, ordinary Chinese have to wait until the country’s rubber-stamp legislature, the National People’s Congress (NPC), meets in March. The NPC will also reveal the official growth target for the year. In 2011 and the six previous years, it was 8 percent, a figure China’s economy typically overshoots by two percentage points or more. But 8% would be more of a stretch in 2012. Nomura, a bank, forecasts growth of only 7.9 percent.
Like India, whose economy is also beginning to falter due to irresponsible austerity programs unleashed in the West, the Chinese economy is also facing the harsh heat from the Western hemisphere.

The latest economic data out of China all show a slowdown in growth, driven primarily by slowing housing sales and construction and sliding exports, particularly to crisis-hit Europe. The data out of India reflects a similar slide. Manufacturing, production, industrial output and the rupee, have all slipped to multi-month lows, leaving many analysts hoping India will achieve its GDP growth target of 8+ percent next year. High growth rates in India and other emerging economies, are sapped by capacity constraints, volatile capital flows and a slowdown in external demand. They have also suffered inflationary pressures and widening capital account deficits.

Mr Mukherjee’s warning comes two days ahead of a crucial monetary policy review meeting by the Reserve Bank of India and follows recent data showing that India’s economic growth has slowed to below 7 percent in the quarter to the end of September and that industrial production fell sharply in October.

“We expect property investment and exports to weaken further and adversely affect related industries in the coming months,” said Zhang Zhiwei, an economist at Nomura.

In order for both China and India to survive the slippery slope down, they will have to pull all stops, including significantly ramping up domestic consumption and production, boosting exports and implementing stringent policy measures to reign in the economy.

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