China Pivots Toward Social, Environmental Concerns as Economy Cools

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the haney group prcode 85258080733, China Pivots Toward Social, Environmental Concerns as Economy Cools

Chinas President Xi Jinping said officials shouldnt be judged solely on their record in boosting gross domestic product, the latest signal that policy makers are prepared to tolerate slower economic expansion.

The Communist Party should instead place more importance on achievements in improving peoples livelihood, social development and environmental quality when evaluating the performance of officials, the Xinhua News Agency reported on Saturday, citing Xi at a meeting on personnel management on the eve of the 92nd anniversary of the partys founding.

Xis comments follow remarks he made last month that China wont sacrifice the environment to ensure short-term growth, and take place as the worlds second-largest economy undergoes its worst cash crunch in at least a decade as the government seeks to wring speculative lending out of the banking system.

Xi is further legitimizing the case for slower growth, said Andy Mantel, chief executive of Pacific Sun Advisors, an asset manager in Hong Kong that invests in Chinese stocks.

It is important to let local government officials know there is less importance of non-stop economic growth.

There will be less pressure for local government officials to pump up their economic growth forecasts. China needs growth of about 7 percent to double per capita gross domestic product by 2020 from the level in 2010, Prime Minister Li Keqiang said on May 27 in Berlin after meeting with German Chancellor Angela Merkel during his first trip abroad as premier.

Thats down from an average pace of 10.5 percent a year over the past decade, with growth driven by surging credit, government investment, and exports.

The credit crunch has increased chances that the government will miss its 7.5 percent annual target for economic growth this year, according to Goldman Sachs Group Inc. Xis comments reinforce our view there is a 30 percent chance growth may slump below 7 percent in the third or fourth quarter, said Zhang Zhiwei, Nomura Holdings chief China economist in Hong Kong.

Chinas banking regulator, in his first public comments since the countrys worst cash crunch in at least a decade, said Saturday the operations of its lenders wont be disrupted because theyve built up sufficient cash reserves.

Banks had about 1.5 trillion yuan ($244 billion) of cash reserves as of Friday that could be used for payment and settlement needs, more than double what is usually required, Shang Fulin, chairman of the China Banking Regulatory Commission, said in a speech in Shanghai.

The tight liquidity condition on the interbank market has been easing in the last few days, Shang said at the annual Lujiazui financial conference. This type of situation wont affect the banking sectors smooth operations.

The cash crunch on the interbank market exposes deficiencies in commercial banks liquidity management and their business structures, Shang said.

The next phase of reform in the banking sector will focus on supporting the real economy and risk prevention, he said. The one-day repurchase rate touched a record 13.91 percent on June 20 before tumbling on signs targeted injections of funds were being used to ease the cash crunch.

The slowing pace of economic growth in China remains within a reasonable range and the economy is stable, Peoples Bank of China governor Zhou Xiaochuan told the same forum on Friday in his first comments since the cash crunch.

Zhou also sought to soothe concerns of a further deceleration of growth, saying hes fully confident in Chinas economic prospects and financial system. A recent review by the National Audit Office indicated that total local government direct and guaranteed debt may have risen 13 percent to 12.1 trillion yuan by the end of 2012 from the end of 2010, according to Moodys Investors Service, citing its own calculations based on data in the auditors report that showed a 13 percent increase in the debts of a sample of 36 local authorities.

At the meeting Xi said the Communist Partys departments should place integrity before capability when promoting officials and urged disciplinary violations and corruption be punished during official selection procedures, according to Xinhua. Cadres should be true believers of Marxism, exercise their power carefully and resist corruption, Xi said according to Xinhua.

Xis speech includes a forward-looking recognition that obsessive emphasis on economic growth targets is obsolete and must now be balanced against vital environmental and social concerns, said William Overholt, a senior research fellow at Harvard Universitys John F. Kennedy School of Government in Cambridge, Massachusetts.

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