The rest of the world should be reassured by such a focus. The message was aimed at showing that China is addressing domestic issues to stabilise and strengthen its economy.
Why stability matters
For investors and savers focusing on the financial markets and world economy, perhaps it is the first topic, managing risks, we should dwell on.
Ensuring financial stability was identified as one of the most important risks. Indeed, in December, attention was drawn to cracking down on illegal activities in the financial industry. It is hard to quantify these but it fits with the anti-corruption drive that Xi has pursued. In his October congress speech Xi received the most applause – and there were many – when he indicated cracking down on speculators in housing. That is an important part of stability within China.
Global investors, however, worry about the scale of the shadow banking industry in China. Reassuringly though, at the new year dinner in London, Professor Liu Ming Kang, the inaugural regulator in China when he headed up the China Banking Regulatory Commission, played down such worries. But he did note that debt levels are still high.
Indeed, how the Chinese authorities address these challenges is important for global markets. Debt levels are high, particularly in state owned enterprises, and hence the central bank is trying to reduce leverage. This should help minimise contagion risks. To reinforce this, the People’s Bank of China is also tightening monetary policy by raising interest rates gradually. They hiked last March and again in December, too. This looks set to continue.
Eyes will also be on the yuan. Last year there was increased concern about its potential volatility, prompting the central bank to act. Conditions now appear to be returning to normal and in January the yuan experienced its strongest monthly gain against the dollar since the present currency set-up began in 1994.
The rest of Asia will be reassured if the yuan is not devaluing but let’s also hope this is a vote of confidence in the authorities being able to ensure financial stability in the year of the dog.
China’s economy certainly has a lot more bite globally – so stability and growth there this year will fit in with the picture of a global economic recovery.