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Cablegate: China Economy: Party Politburo Meets To

VZCZCXRO2564
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #3191/01 3341014
ZNR UUUUU ZZH
P 301014Z NOV 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 6981
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 BEIJING 003191

SIPDIS

SENSITIVE

TREASURY FOR OIA CWINSHIP AND TTYANG

E.O. 12958: N/A
TAGS: ECON EFIN CH
SUBJECT: CHINA ECONOMY: PARTY POLITBURO MEETS TO
DISCUSS ECONOMIC DIRECTION

1. (SBU) SUMMARY: The Chinese Communist Party (CCP)
Political Bureau met on November 27 to discuss
next year's economic policy ahead of the major
State Council planning session, rumored to start
December 10. The official Politburo statement
released after the meeting called for policy
continuity and stability in 2010, maintaining a
mix of "proactive fiscal policy and appropriately
loose monetary policy." The meeting apparently
endorsed a greater focus on consumption, private
investment, exports and "new" industries, while
failing to comment on important economic reforms
up for consideration. Although the Politburo may
have achieved a degree of consensus going forward,
internal debates are expected to continue as China
assesses the external economic environment and the
success of its own policies. END SUMMARY.

The Meeting at Face Value
--------------------------

2. (SBU) As it does every year, the Chinese
Communist Party Politburo, presided over by Party
Chairman Hu Jintao, met to set the tone for the
upcoming government Central Economic Work
Conference (CEWC). A statement released upon
conclusion of the meeting indicated economic
policy in 2010 will focus on "maintaining
sustainable and stable macroeconomic policies" and
"continuing to implement a proactive fiscal policy
and moderately loose monetary policy" while
leaving room to adjust to changing conditions.

3. (SBU) The meeting, according to official media,
had five areas of emphasis: 1) improving the
quality and efficiency of economic growth; 2)
promoting transformation of China's economic
development model and structural adjustment; 3)
furthering economic reform and opening, and self-
innovation; 4) improving livelihoods and
maintaining social harmony and stability; and 5)
coordinating domestic and international factors
while making efforts to achieve the usual "stable
and relatively fast" economic growth. The meeting
resolved that economic policies should continue to
promote domestic demand (particularly consumption),
rational investment growth, structural adjustment
and "new industry" development, rural economic
development, energy efficiency and emissions
reductions, steady trade growth, urbanization,
employment, and the social safety net.

What's New?
-----------

4. (SBU) A comparison with last year's statement
revealed a few differences. On growth, while this
year's statement stressed policy continuity, the
2008 meeting stressed new programs to "expand
domestic demand." The order in which consumption
and investment were mentioned have switched, with
investment listed first last year, and consumption
first this year. Possibly more important, in 2008
the statement called for expanding central
government investment, while this year's promoted
private and "rational" investment growth. Within
the industrial plans, the statement for the first
time mentioned "new" or innovative industries. On
rural reform, the 2009 statement adds a goal of
expanding farmer incomes. The trade section
dropped a goal of expanding imports to only focus
on expanding exports. Finally, the 2009 report
differed with previous years on the level of
detail offered about reform, only noting it should
be "deepened," but failing to list specific areas
needing reform as in previous years.

The Experts Read the Tea Leaves
--------------------------------

5. (SBU) Anxin Securities chief economist Gao
Shanwen was surprised by what he called the
"double loose policy tune," which made no mention
of exit timing. State Information Center Economic
Forecast Office Director General Fan Jianping
pointed out that the statement did allow for

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future policy "adjustments" should conditions
change, underscoring the leadership's concerns
about 2010 economic performance. But he suggested
the failure to mention inflation was an indication
that the government does not see price levels as a
major problem in 2010.

6. (SBU) Fan thought that listing consumption
before investment indicated a shift in policy
focus. NDRC's Academy of Macroeconomic Research
Social Development Research Institute Director
Chen Xinnian observed a move from "expanding
domestic demand" (which includes investment-driven
demand) to "expanding consumption." Gao agreed,
speculating that the Central Government would
continue to emphasize eliminating unneeded
production capacity and reducing carbon emissions.

7. (SBU) Wall Street Journal reporter Andrew
Batson told Econoff he was struck by the inclusion
of wording on urbanization in the statement. He
explained that many of his contacts are focusing
on legalizing and solidifying urban residency as a
means to promote consumption and economic
restructuring.

Comment: What Really Happened
-----------------------------

8. (SBU) The annual pre-CEWC Politburo meeting is
an opportunity for non-State Council officials
(including provincial and commercial authorities)
to air their concerns about major economic policy
initiatives prior to the State Council's planning
sessions. Among the policies likely to be debated
at the CEWC, for example, are exchange rate
appreciation, restrictions on bank lending to
their localities and investment projects, and
allocation of the fiscal pie. While none of these
specific issues were addressed directly in the
Politburo statement, the focus on policy
continuity certainly sent a strong message to the
State Council. Debates on the path forward,
however, are clearly ongoing. This year's CEWC
will apparently be held a couple weeks later in
the year than in previous years. Such a delay may
have been due to a lack of consensus regarding
next year's policy stance among policymakers.

HUNTSMAN

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