China Accelerates Meeting of Top Leaders

China’s Communist Party will move its scheduled meeting of its top leaders six months ahead from November to next month, according to a report by the Hong Kong-based REORIENT Securities Ltd., apparently at least partly out of concern for the current state of the economy.

The decision couldn’t be separately confirmed, and no reason was given for bringing forward the conclave, the so-called Fourth Plenum, officially supposed to be called to discuss further improvements to the party’s governing capacity. China’s economy is regarded as basically opaque to outsiders, with economists battling for months over whether it has begun to shrink despite official pronouncements of continued economic health.

Other analysts cautioned against reading too much into the report However, local party apparatchiks are said to be making arrangements to proceed to the capital for the meetings, involving hundreds of delegates.

There may be a major reshuffle of key people and posts to continue to push forward reforms outlined last year by Prime Minister Li Keqiang, who is attempting to diversify the economy away from its past reliance on export-led growth to a model led by internal consumerism and emphasis on service industries, according to a Shanghai-based source, who said he had been hearing rumors for several months that the Plenum would be fast-forwarded, although not necessarily to June. Li is said to want to push out some of the bureaucrats who were in charge of reform during the reign of President Hu Jintao and Premier Wang Jiabao, which was largely regarded as stalled.

“There is no point in pushing reform with the same people in place who did nothing for several years,” the source said.

The communist party leaders apparently would also like to take major steps to solidify ties with Russia. Presidents Vladimir Putin of Russia and Xi Jinping of China Tuesday signed a record deal which had been in the works for more than a decade to deliver natural gas from Russia to China. The deal, and ones expected to follow in energy, infrastructure and technology are said by political analysts to signal a new era of cooperation after decades of deep freeze going back to the 1970s when the two countries nearly went to war.

As to the economy, Li has persistently ruled out stimulative measures of the kind that created massive imbalances in the wake of the 2008 global financial meltdown. However, the government appears willing to step up its efforts to keep the economy moving, probably though more construction and infrastructure spending, which has already begun, particularly by expanding the country’s rail system.

Even if exports hadn’t been flagging because of the stalled economies of the west, that has necessarily implied slower growth, which may be causing frictions in the provinces.

“The sooner the better (for the Plenum to take place) to maintain a head of steam before disbelief sets in and does impact the economy,” said a Shanghai-based financial analyst.

Concerns have been growing that the economy is flagging and that concrete policy steps must be taken. Although manufacturing turned in its best performance in five months, the HSBC/Markit Flash Manufacturer’s Purchasing Manager’s Index was still at 49.7, indicating that factory activity was still contracting. A reading below above 50 indicates expansion, below that figure indicates shrinkage.

High on the agenda of the performance review by party elders is expected to be a review of the banks, whose nonperforming loans have been rising for 10 straight months, and the real estate market, which in recent days has shown more signs of turning sour.

Wang Tao, chief China economist for the UBS investment bank, said property supply has been growing faster than underlying demand, creating the possibility of a bubble, while investment demand for housing is being eroded and inventories are building up.

“We think a more persistent and sharper downturn in the property sector is the biggest risk for China's economy in the next couple of years,” Wang said in a report earlier this month.

According to figures compiled by the National Bureau of Statistics, inventory pressure is most acute in the commercial real estate sector, with nearly 13 months of supply on hand. Residential sales have buckled under pressure as well, falling by a 15.4 percent annual pace, pushing up unsold inventory to three to four months. Office sales fell off as well, slumping by 8.8 percent year on year, with ready-for-sale space inventory rising to more than seven months.

Moody’s service adjusted its rating on real estate yesterday to negative, predicting that mainland home sales growth would continue to decelerate over the next year. Developers are resorting to zero down payment options in an effort to attract buyers in Beijing.

Thus the property sector, particularly housing, can be expected to get more policy boosts as confidence has been waning too quickly and too irrationally as suggested by commentaries from State-run official news outlets.

The government has plenty of arrows in its quiver, plus the means and willingness to use them, including by increasing infrastructure investment and relaxing restrictive policies. While downturn probably remains manageable, Wang is cutting her growth forecast to 6.8 percent, well below the 7.5 percent predicted for 2014 by Premier Li.

The People’s Bank of China, the central bank, has shown signs in recent days of backing off its current policy towards a continuing shift towards more accommodative monetary policy, releasing loans

for re-lending to policy banks and taking other steps With foreign exchange flows slowing because of the stalled global economy, the PBOC has begun to use a mixture of tools to support growth.

Each of the plenums has a long-set agenda set in Communist bureaucrat-speak, with the fifth, next year, introducing the next Five-Year plan for social and economic development, followed by a sixth, to discuss improvements in the general morality, the seventh to discuss the work report drafted by the Political Bureau and to be delivered to the next people’s congress, etc.