Stimulus unlikely right after China's leadership change

The world is watching the world’s second-largest economy as it holds its once-a-decade leadership change, with expectations of a ramp-up in government spending.

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But China may not be in any hurry to do so.

The Chinese Communist Party’s 18th National Congress started on Thursday November 8 in Beijing.

A new cast of leaders, including Xi Jinping and Li Keqiang, are expected to take over the party’s top positions currently led by Hu Jintao and Wen Jiabao.

“No immediate or big stimulus packages are expected after the new leaders take office,” Chen Kexin, chief analyst of Distribution Productivity Promotion Center of China Commerce, a research institute that monitors product prices for China’s Ministry of Commerce, told Steel First.

“China will go ahead with its announced spending on infrastructure projects for roads and railways. And any reform or stimulus plan the new leaders are arranging will never come close to the size of the one we saw in 2009, as mega stimulus plans don’t solve problems but merely put them off,” Chen said.

China's incoming leadership is not expected to launch another big stimulus program, "unless they see the economy on the verge of a recession, which is not the case now”, Vale, the world's largest iron ore producer, said in its latest quarterly report in October.

Traditionally, increased spending is expected after each of China’s leadership changes, but this time around, the new leaders are not expected to make their move until March or the second half of 2013 after they are comfortable in their new roles, several industry insiders in Shanghai and Beijing said.

But all of them believe that the new leaders will continue to work to maintain a sustainable growth of the country.

“New leaders, with a 10-year office ahead of them, will plan for growth that will sustain, not just for two or three years only,” a trader in Singapore said.

“The focus will be on the longer-term benefits, including promoting environmental protection, social stability, and people’s livelihood,” Chen said.

"The plunge in the A-share market could also reflect a lack of confidence due to the absence of pro-growth measures," an industry analyst in Beijing said.

The Shanghai Composite Index closed at 2,071.51 on Thursday, down 1.63% from Wednesday.

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