China’s annual economic policy meeting, attended by Hu Jintao and a range of top central and provincial government officials, closed last night.
There were no surprises. China will continue its "proactive" fiscal policy and an "appropriately loose" monetary policy stance in 2010.
"While keeping the consistency and stability of macro-economic policies, we should work hard to increase policy flexibility," said a statement.
As the Financial Times pointed out in a biting Lex note, it is a "fair rule of thumb that the emptier the rhetoric, the trickier the outlook".
"In 2010 and beyond, the costs of [China’s economic] achievement should become more obvious. Investment in fixed assets accounted for 95% of GDP growth in the first nine months, for example."
Meanwhile, Qin Wang at Morgan Stanley has put together a list of five potential surprises that may come up in 2010. Each surprise has a lower-than-30% probability, the bank says, but is a possibility worth considering.
1. The government could start tightening policy aggressively by the beginning of Q2, 2010. After growth hits 11% to 12% in Q1, and inflation soars, the government reacts by hiking interest rates and regulating bank loans more tightly. As a result, the recovery derails, and China falls back into problems.
2. Consumer price index inflation exceeds 4%. Prices are already bubbling upwards, and a combination of a strong economic recovery and rising global commodity prices push inflation up strongly. If crude oil hits $100 a barrel and food prices raise 10%, this is a very possible outcome, says Morgan Stanley.
3. The central bank raises interest rates ahead of the US Fed rate hike by more than a month. Because of the peg between the renminbi and the dollar, China’s interest rate committee will have to look to the US for some guidance.
4. The renmbinbi is not depegged from the dollar until November 2010 and beyond. "We would be very surprised if the arrangement remains intact beyond November 2010, when the G20 summit is due to take place in Korea," writes Morgan Stanley. However, when the US needs China to finance its recovery through the purchase of government debt, who’s pushing the issue?
5. A property sector crackdown, like in 2008. MS believes that while some cities has seen a very unbalanced property market, it will take more overheating across the country for the authorities to intervene. "The property sector is the most important source of organic growth in China," they say.