Growth of central regions to be promoted
April 6, 2021 Category Macro-economy, Weekly
The Political Bureau of the Communist Party of China has issued a directive to promote the growth of the country’s central region. It urged the region to develop a modern industry system underpinned by an advanced manufacturing sector, strive for green development, work toward high-quality opening-up, and enable more coordinated growth between urban and rural areas. It was the latest move from the nation’s top leadership to empower the growth of the region, which comprises Anhui, Henan, Jiangxi, Shanxi, Hunan and Hubei provinces. Chen Weidong, Director of the Research Institute of the Bank of China (BOC), said the Politburo meeting further clarified the direction of the central region in future economic growth, with the region being an important pillar to sustain the nation’s medium-high growth rate.
The central region’s share of overall national GDP has risen from 18.8% in 2005 to 22.2% in 2019. The Covid-19 pandemic, which hit the central region hard last year, and Hubei province in particular, took its toll on the region’s growth last year. According to the National Bureau of Statistics (NBS), the central region’s economy expanded 1.3% year-on-year, which was below the national average of 2.2%. “With the pandemic effectively put under control, the trend for the region’s economic upgrading, transformation and quick growth will not be altered. It will continue to be an important regional powerhouse for China’s economic growth,” Chen said.
China first outlined a road map to spur the growth of the central region in a policy document jointly issued in 2006 by the CPC Central Committee and the State Council. The National Development and Reform Commission (NDRC) issued a five-year blueprint to promote the rise of the central region in 2016, which made clear its strategic orientation as a center for advanced manufacturing, a key area for the new type of urbanization, the core area for the development of modern agriculture, the demonstration zone for ecological civilization, and an important sup?port area for all-around opening up. Promoting the development of the central region is also aimed at narrowing the gap between different areas and building a national unified market. The region’s population, which accounts for 26.6% of the national total, means it will be an important part of the overall domestic market.
The BOC’s Chen Weidong added that the rise of the central region will help build a new growth engine and offer a strong impetus to the “dual circulation” development paradigm, in which the domestic market is the mainstay and the domestic and foreign markets reinforce each other. Tommy Wu, Economist at Oxford Economics, said that “as production costs increase in the coastal regions, more enterprises will be willing to move part of their operations inland to take advantage of lower production costs. But these regions need to equip themselves first, with the right infrastructure to capitalize on this future trend. Modernizing infrastructure and logistic systems is the right formula. For China to advance from a middle-income country toward a high-income country, no regions should be left behind.”
China is expected to maintain a neutral monetary policy in the second quarter, as stronger investment will lead to a solid economic recovery, while also implementing additional risk-controls. With consumption continuing to recover and exports remaining strong, the economy is expected to maintain robust GDP growth in the second quarter. Investment in the manufacturing industry may rebound, following a recovery of industrial profit growth, according to analysts. A senior official from the People’s Bank of China (PBOC) stressed the importance of boosting lending to the manufacturing sector. Measures will guide financial institutions to raise medi?um to long-term loans and maintain reasonable growth of credit to manufacturers, especially hightech firms, said Zou Lan, Director of the central bank’s Financial Market Department. China’s manufacturing purchasing managers index (PMI) increased to a stronger-than-expected 51.9 in March, up from 50.6 in February. Some indicators of inflationary pressure, especially producer price inflation, are on the rise due to a global boom in commodity prices and the domestic anti-pollution measures in northern China, said Lu Ting, Chief China Economist at Nomura Securities.
PBOC Governor Yi Gang pledged that China will continue to conduct a “normal” monetary policy and maintain its consist?ency, stability and sustainability. “China still has space in terms of providing liquidity and moderating interest rates,” Yi said, adding that the monetary policy should strike a good balance between supporting growth and preventing risks. The broad money supply M2 is growing at 10% currently, and the pace is in line with nominal GDP growth. “We are projecting strong growth this year at over 8%, and it is on the back of containing the pandemic and seeing the manufacturing sector recovering very quickly,” International Monetary Fund Managing Director Kristalina Georgieva said last week. With the swift economic recovery that has returned to the pre-pandemic level, policymakers may turn their attention to controlling potential risks, especially to rein in property sector bubbles and constrain the rise of government debt, analysts said, as reported by the China Daily. China’s consumption during the three-day Qingming Festival holidays – including tourism and the cinema box office – is approaching, or even surpassing that of 2019, as Chinese rushed to consume after the country lifted restrictions on people’s movements, the Global Times added.
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