NEW YORK (CNNMoney) — Taming rapidly rising prices is so 2011.
In the new year ahead, China’s top leaders will focus instead on slowly revving up the world’s second largest economy.
At least, that’s the message economists glean from reading in between the lines of an official government release Wednesday. Chinese leaders met behind closed doors for three days this week, to hash out their economic strategy for 2012 at their Central Economic Work Conference.
The end result was a lengthy concluding statement, diagnosing the outlook for the world economy as “extremely grim and complicated” and focusing a lot more on stabilizing China’s growth, rather than last year’s number one priority: curbing inflation.
“For most of the last year, officials reiterated that controlling inflation was the primary task. Now, this goal is preceded by the goal of maintaining stable growth,” said Mark Williams, chief Asia economist for Capital Economics.
This year, inflation in China peaked in July as consumer prices that month were up a whopping 6.5% compared to a year earlier. Prices have eased since then, and in November, the inflation rate was 4.2%, the lowest since September 2010.
Chinese manufacturing slows down
Meanwhile, signs have emerged showing Europe’s debt crisis and slow economic growth in the West in general, are starting to weigh on China’s manufacturing sector and broader economy.
China’s gross domestic product — the broadest measure of economic output — slowed in each of the first three quarters of this year, and the fourth quarter data is likely to show no deviation from that trend.
Possibly adding to the slowdown are government controls originally put in place to fight inflation. Over the last year, officials had tightened credit in the country’s financial system, and tried to take some of the steam out of a domestic housing boom.
They first started to show signs of shifting from tighter policies in November, when the People’s Bank of China cut the amount of money that banks need to hold in reserve — the first cut in the reserve requirement ratio since 2008.
The policy statement out Wednesday shows Chinese leaders are willing to allow for a “reasonable increase” in the money and credit supply, but they intend to stick to their tightening efforts that target real estate specifically, and they plan to keep their currency, the yuan “basically stable.”
Easing may come more from the fiscal side, through tax cuts targeting specific sectors and more aid for welfare and public service programs including education and public housing.
In official terms, the statement called it implementing “proactive fiscal policy and prudent monetary policy.”
“In their view, expanding China’s domestic demand is the best way to cope with a fast changing international and domestic environment,” Qu Hongbin, co-head of Asian Economics Research at HSBC said in a note to clients. “To this end, spending needs to be targeted towards the improvement of social security and people’s welfare, development in China’s service sectors, and expanding the share of national income for the country’s middle-income group.”
But even though economic growth may now be the higher priority, maintaining lower inflation by no means falls off the agenda.
“Stability means to maintain basically steady macro-economic policy, relatively fast economic growth, stable consumer prices and social stability,” the official statement said.