The Central Economic Work Conference was held in Beijing during December 5 - 7, 2009, setting keynote for the macroeconomic policies in 2010. According to the conference, proactive fiscal policy and moderately easy monetary policy will be maintained, structural adjustment and consumption stimulus will be main tasks in 2010, and township-based urbanization will be actively promoted in the near future.

Pertinence & Flexibility of Fiscal & Monetary Policies
While continuing the 2009 policies, there are expected to be more pertinence and flexibility in the fiscal and monetary policies in 2010. Specifically, the fiscal policy will strengthen support for education, healthcare and social security, and the monetary policy will provide favors for employment, strategic new industries, industrial transfer, etc. Additionally, the monetary policy during 2009 was in face overly loose, and it will be adjusted to be moderately easy in 2010 in order to curb the asset bubbles and inflation.

"Economic Structural Adjustment" as Keyword in 2010
"Economic Structural Adjustment" has become the keyword for economic work in 2010. More attention will be paid to quality and efficacy of economic development, rather than the sole growth rates. The adjustment aims to lower the national economy's high reliance on fixed asset investment.

The year-on-year growth rate of fixed asset investment in China is expected to decline from 33% in 2009 to about 20% in 2010. The newly constructed projects started from 2009 determined that the fixed asset investment growth will still be high in 2010, as follow-up investment is essential for completion of those projects, otherwise huge non-performing assets will come out and jeopardize the whole economy. However, the conference clarified that new investment would be mainly made in the projects being constructed and the number of new projects would be strictly controlled during 2010.

Other measures for structural adjustment include: promoting steady growth of exports, expanding domestic consumption, supporting development of strategic new industries (such as low-carbon and new e guiding industrial transfer, coordinating regional economic development balance, etc.

Consumption Stimulus Measures Continue in 2010
Consumption stimulus will remain as an important target in the near future. A series of specific measures will continue to be adopted in 2010, including:

• Purchase tax cut for small passenger vehicles with displacement volume below 1.6 liters;
• Subsidies to rural citizens purchasing home appliances, light vehicles and motorcycles;
• Subsidies to consumers replacing old home appliances and vehicles with new ones;
• Subsidies to rural citizens purchasing agricultural facilities, etc.

Township-based Urbanization
A highlight of the conference is the emphasis on urbanization based on small cities and towns. Currently, the urbanization rate of China is less than 46%, much lower than the rate of above 90% in most developed countries. It is estimated that each percentage point increase of urbanization rate in China means over 10 million people moving from rural areas to urban areas for living, studying and working, which leads to huge demand for infrastructure construction and consumption demand release, providing substantial driving force for development of China's economy.

At the current stage, development of small cities and towns can lower difficulty of urbanization as well as the cost of rural citizens moving to urban areas. The living cost in small cities is much lower compared with large cities and life convenience is much better, which means significant attraction to talents and labors. Meanwhile, towns play a role of bridging cities and rural areas, and their prosperity can pull development of the vast rural areas.

The conference also proposed to loosen the urban Hukou limit for certain rural citizens, which is highly related to access to public services such as education, healthcare and low-rent housing. Detailed measures will be promulgated by the National Development and Reform Commission in 2010.

Macro Control over Real Estate Market Started
Right after the conference ended, State Council announced to resume the business tax exemption time limit for second-hand housing transactions from 2 years back to 5 years. The previous adjustment of the exemption time limit from 5 years to 2 years at the end of 2008 was to boost consumption of housing when the macro economy faced severe downturn. However, the housing prices in China started soaring from the second quarter of 2009, which increased the government's concern over huge bubbles.

Recently a report from Chinese Academy of Social Sciences says that the housing-price-to-income ratio in China is irrationally high and over 85% families in China cannot afford an apartment. The report also believes that the essential reasons for high housing prices in China include the government's monopolized supply of construction lands, weak management over real estate developers' hoard of lands and manipulation of housing prices, etc.

State Council also announced to differentiate loan policies between owner-occupied housing and investment-oriented housing, which means the easy policy for one family's buying the second apartment is likely to be tightened. Increasing down payment percentage in total housing price as well as the interest rate for mortgage proved to be effective in restraining investment-oriented housing purchase.

Other measures to control the real estate market include: increasing supply of ordinary commercial housing; increasing supply of land for medium and low-price commercial housing as well as public rent housing; strengthening construction of security housing for low-income families, etc.

By courtesy of ©ACMR-IBISWorld Reports, 2009

ACMR ALL CHINA MARKETING RESEARCH CO., LTD.