MASAHIRO OKOSHI, Nikkei staff writer
BEIJING -- Chinese Premier Li Keqiang's vision of weaning the economy off unsustainable investment seems to be fading. It is increasingly apparent that President Xi Jinping, not Li, will be the one who dictates which reform levers are pulled. The focus for the time being: creating jobs and tackling problems in the financial system.
Kicking off the National People's Congress on March 5, Li said China will shoot for around 7.5% growth this year, just as it has the previous two years. There had been rumblings that the country might aim lower. President Xi had at one point signaled a willingness to ease the economy onto a slower, steadier path. Setting a more modest target would have hammered home a message of change.
But early attempts to bring about that change, such as whittling down excess production capacity, have hurt sentiment in the manufacturing sector. China's leaders are clearly struggling to strike a balance between restructuring the economy and ensuring social stability.
In his policy speech, Li mentioned the word "reform" 77 times. He talked about the banking sector, where shaky financial products are making everyone sweat. Yet the growth target was left as is. The premier said the decision to maintain it was made only after much deliberation, hinting there had been some disagreement within the leadership.
Does this mean Li's much-touted economic doctrine, nicknamed "Likonomics," is dead? Well, the answer is complicated.
"With 7.27 million college students graduating this year," Li told the congress, "we need to create more jobs, increase the employment rate and boost the number of startups."
Having long relied on labor-intensive industries with low-paying positions, China has a shortage of white-collar jobs -- the kind those university graduates will be after. Services did make up a bigger share of gross domestic product last year than manufacturing. This was a first, and Li attributed the milestone to economic restructuring efforts. In reality, the change was mainly due to rising land prices, which enriched the real estate sector.
If well-educated citizens cannot find work that puts enough yuan in their pockets, it will dim the prospects for creating an economy driven by consumer spending. Idle hands can also sow social unrest. So China's leadership has raised the job-creation goal for urban areas by 1 million, to 10 million. At least that many positions will be needed to absorb soon-to-be graduates as well as individuals who are already out of school and unemployed.
The employment goal is closely tied to the GDP target. This is because the government estimates that every 1 percentage point of growth will yield 1.3 million to 1.5 million new jobs.
But China faces steep challenges. Gone are the days of far overshooting growth targets. The economy barely cleared the bar at 7.7% the past two years. If reaching 7.5% requires too much stimulus, it could further distort the economy. This is to say nothing of other risks -- ballooning local government debt and the proliferation of shadow banking, a term for lightly regulated financial intermediaries.
Stimulus, generally speaking, is supposed to be a no-no under Likonomics, which also calls for reining in credit risk and pressing ahead with structural reforms, including the curtailment of excess production capacity.
China has not necessarily abandoned the doctrine's principles, but Li's philosophy has been tossed into a box filled with a host of other initiatives. The label on the box: "comprehensively deepening reforms." The box's owner: Xi.
Xi's the man
The label comes from the name of the communique issued at the close of the Communist Party's third plenum last November. It was then that Xi seemed to push Li away from the reform levers.
Giving market forces a bigger role in the economy, which Li has advocated, is part of the comprehensive reforms. But the box also includes population policy, the judicial system, national security and other matters. And while the party has endorsed some of Li's suggestions -- faster creation of free trade zones and the transformation of government functions to give private-sector business more flexibility -- Xi's priorities seem to be eclipsing the premier's.
A party entity called a Leading Small Group is taking charge of reform planning, coordination and supervision. Xi is the head of the party. Thus it seems fair to say that Xi ultimately calls the shots on reform, not the State Council, the main administrative organ headed by Li.
Liu He, a Harvard-educated economist who wields considerable influence among Xi's confidants, might have already rounded up hands to do the president's bidding. A senior executive at a state-owned company said that shortly before the plenum, Liu, director of the party's Central Leading Group on Financial and Economic Affairs, was busily recruiting bureaucrats to double or triple his staff at the Central Leading Group. Since then, rumors have swirled that the group and others like it will be merged with the party's new reform team, filling it with Xi allies.
The team, which does include Li, held its first meeting in January.
The third test
In the 35 years since Deng Xiaoping set about transforming the nation's economy and its relations with the outside world, China has crossed two critical economic junctures. It now appears to be standing at a third.
The first came in the late 1980s. A downturn reached its nadir after the Tiananmen Square protests of 1989. Deng responded by reiterating the case for reform in a series of speeches in 1992, delivered while touring the south of the country. Shenzhen, home to China's first business-friendly special economic zone, was among the stops on his route.
Growth flagged again toward the end of the 1990s, as banks choked on bad loans. Again, China avoided a crash by turning outward, joining the World Trade Organization in 2001.
China went on to become the world's second-largest economy. But today it looks to be nearing the end of its peak growth years, slowed by an aging society and other headaches.
Many of the party's planned measures are simply tasks that past leaders put off. Can Xi follow through and usher the economy onto a path of sustainable expansion, while avoiding social unrest? And if the remnants of Likonomics are only part of the guiding doctrine, how can Beijing's economic approach be defined?
The term "Xiconomics" has yet to gain traction -- perhaps because no one is quite sure how quickly and effectively the president can operate those levers.
Likonomics A portmanteau of the words "Li" and "economics," this refers to the economic policy agenda promoted by Premier Li Keqiang, who took office in March last year. The term was coined a few months later by three economists at Barclays Capital. Likonomics emphasizes structural reform, avoiding monetary and fiscal stimulus, and minimizing financial risk. It is aimed at steering China away from excessive reliance on investment and toward stable, sustainable growth over the medium to long term.