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Economy

Rare open rift over economy emerges in China

Chinese President Xi Jinping, left, and Premier Li Keqiang may not exactly be seeing eye-to-eye over the direction of the country's economy.

BEIJING -- In a rare sign of discord in the runup to a crucial quinquennial political event in China, clear divisions have emerged within the Chinese leadership over macroeconomic policy.

Premier Li Keqiang and other senior government officials view the current state of the Chinese economy in a positive light, but an anonymous figure seen as close to President Xi Jinping has made a splash by issuing a rebuttal recently.

The two opposing camps are locking horns over whether to give top priority to ensuring stable economic and employment conditions or pushing ahead with structural reforms.

Shadow figure

The dissonance in the upper echelon of Chinese government comes at a time when President Xi, who sits at the helm of the Chinese Communist Party as its general secretary, has aggressively concentrated power.

Lying behind the conflict over macroeconomic policy is apparently a tug-of-war over top-level leadership changes to be made at the ruling party's next national congress in the autumn of 2017.

Divisions became clear after an unnamed "authoritative figure" gave an interview about the Chinese economy to the People's Daily, the Communist Party's mouthpiece, on May 9.

The remarks by the anonymous person sharply contradict the Chinese government's official views. This person is widely considered to be someone close to Xi, such as Liu He, Xi's top economic adviser.

Liu currently serves as the director of the Office of the Central Leading Group on Financial and Economic Affairs, the Communist Party's top panel on economic affairs.

Divergent views

The two opposing camps in this dispute perceive the current state of the Chinese economy differently.

The country's economy slowed for three consecutive quarters in the January-March period on a year-on-year basis, but economic indicators for March alone showed signs of improvement.

Many government officials have painted an optimistic picture of the economy, and a spokesperson for the National Development and Reform Commission said the economy "got off to a good start" in 2016. The commission is in charge of formulating and implementing macroeconomic policies and other functions.

Also, a spokesperson for the National Bureau of Statistics said, "China's economic growth could follow a U-shaped or W-shaped trajectory in the short term," meaning the economy could grow more than expected in the short term.

But the anonymous person from the People's Daily interview denied that the economy started off well this year, citing structural problems that remain unresolved. The person painted a bearish picture and warned that the economy will follow an L-shaped trajectory, meaning that growth will not pick up.

Backing this up, economic indicators for April, including industrial production, deteriorated.

But the Chinese government posted a counterargument on its official website on May 16. Noting that there was one less business day in April than in the same month of last year, the government claimed that the economy "will stabilize as it did in the January-March quarter."

The two opposing camps are also clashing over monetary and fiscal policies.

China has repeatedly cut interest rates and banks' reserve requirement ratio since last year.

Noting that "risks are rising in the foreign-exchange market, stocks, bonds, real estate and bank credit because of high leverage," the anonymous interviewee warned that "high leverage, if not controlled, will cause a financial crisis and negative economic growth" due to inflated levels of debt. But Premier Li dismissed such concerns on May 16 and said the debt "is within a controllable level."

The person also said China "should avoid giving the economy a shot in the arm" through reckless spending. Li countered that claim on May 9 when he said that China "has not taken any strong stimulus measures in recent years despite downward pressure facing its economy."

As for supply-side structural reform, which includes cutting China's excess production capacity, the interviewee described it as "a battle that China cannot afford to lose" and stressed the need to give top priority to pushing ahead with reform measures.

The Chinese government's official stance is that it is paying close attention to any signs of sharp deterioration in economic and employment conditions.

Aftereffects

Such mixed signals, though, are making markets jittery.

Figures released on May 13 by the People's Bank of China, the country's central bank, showed that the amount of funds procured by companies and households in April declined significantly from March.

The statistic raised speculation among market players that China's monetary policy has changed due to the influence of one high-profile anonymous interview.

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