China seeks reasonable GDP while avoiding 'negative side effects'

China vowed to maintain stable economic policies to achieve reasonable GDP growth without leaving negative side effects while deepening its reform measures in 2014, as the country's top leaders wrapped up a key economic meeting on Friday.

China will "make progress while maintaining stability," as its economy faces downward pressure stemming from problems including severe over-capacity in some industries, contradictions of structural unemployment and the worsening ecological environment, said a statement published on the close of the four-day Central Economic Work Conference on Friday.

The country will stick to a prudent monetary policy and proactive fiscal policy next year, while it continues to push forward interest rate liberalization and exchange rate reforms, according to the statement.

The meeting set ensuring national food security as the first task for the country's economic policymaking in 2014, the statement said. China will continue upgrading its industrial structure, promote coordinated regional development and boost its opening-up next year, it added.

China's task of carrying out a reform, the statement said, is "crucial and formidable."

Xu Hongcai, director of the Department of Information at the China Center for International Economic Exchanges, told the Global Times Friday that the statement covered the most important areas that China's macroeconomic policymaking should focus on next year.

"The meeting stressed the most important task of nurturing a market-oriented economy and adjusting the government's function by limiting its intervention in the market," Xu said.

The meeting took place a month after the Third Plenum of the 18th Communist Party of China Central Committee, which suggested that the market should play "a decisive role" in economic development and resource allocation.

The country will take limiting and dissolving risks from local government debt as a crucial task, the statement said. "China should coordinate adopting short-term measures and building a long-term mechanism in defusing risks of local government debt," said the statement.

Local governments are likely to face greater oversight on borrowing in 2014 due to decisions made in the meeting, limiting their ability to promote growth and reducing over-investment, said a research note sent to the Global Times on Friday by Capital Economics.

The statement added that the country will take "unswerving efforts" to tackle overcapacity and pursue innovation-driven growth, and the central government's decisions and arrangements should be implemented without compromise.

Lu Zhengwei, Shanghai-based chief economist with Industrial Bank Co, told the Global Times on Friday that severe local government debts and over-capacity problems, caused by China's previous policies focusing on fast GDP growth, have left scars on the country's current economy.

"Since [China's leaders] now stress an economic growth without leaving negative side effects, the goal of GDP growth next year may be slightly adjusted to a lower level," Lu said.

Xu agreed with Lu, adding that local government debts and over-capacity have dampened domestic businesses' and consumers' drive and ability to contribute to economic growth.

The country will "keep a reasonable growth of monetary credit, optimize the funding and credit structure and increase the proportion of direct financing," the statement said.

China has been trying to open up more channels for companies to obtain financing as a way to add vitality to its economy and steer its economic growth from being dependent on exports to domestic consumption.

"A lot of market potential remains untapped because small and micro-sized businesses lack the energy and confidence to grow, due to the difficulty to seek funding," Xu said.

Although urbanization reform was not mentioned heavily in the statement as expected, the central government is working on the issue intensely without releasing too much information, because local officials might misread signals such as freer land transfers and increase land sales to boost GDP growth, said Tian Yun, a research fellow with the China Society of Macroeconomics at the National Development and Reform Commission.