BEIJING -- China will make deflating the country's growing property bubble a top priority in 2017 along with fiscal stimulus, aiming to keep the economy on an even keel as Communist Party leadership prepares for a twice-a-decade changeover.
President Xi Jinping and other top cadres gathered for three days here through Friday for the annual Central Economic Work Conference, reflecting on progress in 2016 and charting the course for next year, the second year of the Xi administration's first five-year plan. China's consumption and production have been fairly robust since autumn. But real estate prices in major cities continue to climb, creating a need for policy that can underpin growth while also keeping the bubble in check.
The party's National Congress, held once every five years, will take place next autumn. Leaders having hit retirement age will make way for younger blood -- a chance for party factions to put their preferred people in charge. Xi and his followers are doing all they can to avoid an economic slump until then.
Bolder fiscal policy is on the way next year, according to a statement by conference attendees. China slashed corporate taxes and embarked on major infrastructure projects in 2016 to offset a slowdown in private investment. In 2017, infrastructure investment growth is likely to approach 25%, compared to 20% this year, according to Zhao Yang, chief China economist at Nomura Holdings. Meanwhile, the Ministry of Finance said Thursday that a tax break for small cars set to expire at the end of 2016 will be extended.
On the monetary side, party leaders target "prudent and neutral" policy in 2017, according to state news outlet Xinhua, rather than this year's merely "prudent" policy -- a sign that moderate tightening could be on the way. The People's Bank of China has used market operations since autumn to guide short-term interest rates higher and instructed commercial banks to slow the pace of new lending. This policy now has the party's official stamp of approval.
The shift aims in part to avoid a plunge in the value of the yuan associated with capital flight. China intends to both make foreign exchange trading more flexible and stabilize its currency at a rational, balanced level, according to the statement.
The other goal is to steer clear of the financial turmoil a rupture in the real estate bubble could cause. Curbing financial risk will take on a more central role in policy than before, the statement said. The country is also to take strong steps to restrain an asset bubble, enhance financial oversight and avoid creating instability in the financial system.
Real estate was a much hotter topic this year than last. Houses were referred to as places to live, not objects to speculate on. Measures to keep prices from plunging, as well as from overheating, are to be looked into. The likely goal is to have owners rent properties, rather than flip them for a profit. Governments in cities with sky-high prices are also encouraged to provide more land for development and increase the share used for residential purposes.
The target for China's economic growth in 2017 -- and how it will compare to 2016's 6.5% to 7% -- went unmentioned. But Xi has said that 6.5% average annual growth is the absolute minimum target for the five years from 2016 to 2020.
A host of structural reforms to combat oversupply in the steel and coal markets were introduced at last year's economic conference. The group took a softer stance this time around, content to keep cutting production capacity and pursuing ongoing reforms for businesses such as state enterprises. Structural reform, after all, entails lost jobs and other collateral damage -- a dangerous proposition when party leadership positions are on the line.