Speaking to officials in Beijing, Hu Jintao has urged "no delay" in implementing economic reform. His comments featured an eight-point proposal that was not materially different from earlier government statements: The emphasis was on improving the quality, effectiveness and sustainability of economic growth.
Hu’s words were important in that they indicated something of a return to normal after a year of extraordinary government involvement in the economy – made particularly clear this week with the announcement that investment made up 92.3% of China’s GDP growth in 2009.
Stimulus funds and a loose monetary environment will wind down gradually, but their effects will continue to be visible in higher economic growth figures this year. Beyond 2010, Beijing will increasingly look for growth to be driven by domestic consumers and private investment. Hu himself said the task would be "prolonged and arduous" – attempts at boosting private investment are unlikely to succeed without greater opening and stronger support for small enterprises from banks.
Furthermore, real reform could involve the destruction of vast excess capacity in sectors like steel and cement, an economically necessary but politically painful step. The payoff would come in more sustainable – if slightly slower – growth, but Beijing will most likely maintain an incremental approach to reform, knowing the market volatility a major shift would create.