BofA Analyst: The 4 Most Important Points From The Chinese Premier's Conference

wen jiabao

Photo: Feng Li/Getty Images

Chinese Premier Wen Jiabao spoke at the end of the Fifth Session of the 11th National People’s Congress (NPC).His comments on the property market sent the Shanghai Composite tumbling 2.63 per cent. Jiabao also commented on the yuan, called for political reform and spoke about the Chongqing incident.

Here are some highlights from the Chinese premiere’s press conference.


Jiabao said housing prices were far from a reasonable level and added that relaxing curbs now could cause ‘chaos’ in the housing market. Jiabao said home prices needed to match people’s income. From Xinhua:

“If we develop the housing market blindly, a bubble will emerge in the housing sector. When the bubble bursts, not only the housing market will be affected, it will weigh on the entire Chinese economy.”

Ting Lu, China economist for Bank of America-Merrill Lynch, believes it’s clear that the Chinese government will have to continue its tightening measures, especially home purchase restrictions through 2012 to bring down home prices.

But he thinks that some measures like the home purchase restrictions (HPR) in lower-tiers cities are overdone and can not be sustained. Lu also expects that the government will have to ease some of the HPRs at the end of the year and says there it ‘no need to become overly bearish on property [fixed asset investment] FAI growth’. FAI is a measure of capital spending.

The Renminbi

Yuan appreciation has been a sore point for China with countries like the U.S. calling for Beijing to allow it to appreciate. Jiabao said the yuan has reached equilibrium level and said China will continue its exchange rate reform by allowing more two-way volatility of RMB-USD. Lu said: “China should avoid significant and sustained yuan depreciation this year due to uncertain global environment and the need for stability during the year of leadership change.”

Growth Target

Jiabao said China’s lower growth target of 7.5 per cent in 2012 – from previous estimates of 8 per cent – reflects Beijing’s efforts to change its growth model by being less dependent on energy and resources. Lu says markets over-reacted to the 7.5 per cent growth target.


Jiabao called for more political reforms and warned that China’s failure to bring about more reforms could result in another cultural revolution – a reference to the protests from 1966 through 1976. Lu said China needs both social political reforms but is not likely to see many in 2012 – 2013 because of the leadership change – a time at which politicians tend to be more conservative than usual.

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