Wen plugs concerns over stimulus exit By Olivia Chung
HONG KONG - Chinese Premier Wen Jiabao used the annual gathering of the
National People's Congress (NPC) on Friday to ease concerns that the central
government is poised for an early unwinding of its economic stimulus support,
and pledged that sustainable economic growth will be maintained.
He
also
outlined measures aimed at boosting domestic spending and reducing the income
gap between urban and rural ares, from increasing support for agriculture to
relaxing controls over movement by workers from the countryside to cities.
China "will still face a complicated situation" to maintain a stable and
comparatively fast 8% growth target this year as it fights the
effects of the global economic slowdown, although the environment had improved
since last year, Wen told the opening of the third plenary session of the 11th
NPC.
The country aims "at ensuring the quality of economic growth, focusing on the
transformation of the economic development pattern and adjustment of economic
structures," Wen said, adding that the value of China's currency, the yuan,
would be kept "basically stable" at an "appropriate and balanced" level. The
mechanism for setting the exchange rate would continue to be improved, he said,
without giving details. Wen may expand on the issue at the press conference
that concludes the NPC meeting on Sunday.
China's economy expanded 8.7% last year, higher than an 8% target, helped by an
unprecedented 4 trillion yuan (US$585 billion) in government stimulus spending
to counter the effects of the global slowdown. As the leading economies emerge
from recession and exports pick up, the yuan's exchange rate is back as a point
of tension, with the US and other countries claiming the currency is
undervalued, giving China's exporters unfair advantage and increasing balance
of payments surpluses in its favor.
Some US politicians claim its present value is a factor in the US official
unemployment rate rising to as high as 10% - and around 17% when those no
longer seeking jobs are included.
On another area of concern to Washington, National People’s Congress spokesman
Li Zhaoxing, a former foreign minister, told reporters yesterday that defense
spending would grow 7.5% this year, the slowest pace in a decade. The increase
to 532.1 billion yuan is down from a 14.9% rise in 2009. China's defense budget
increased by at least 10% a year for the past 10 years, Bloomberg reported,
adding that the US aims to spend $636.3 billion this year.
China's actual defense spending could be as much as two and a half times the
official budget, Bloomberg reported, citing Phillip C Saunders, a research
fellow at the National Defense University's Institute for National Strategic
Studies in Washington. The published figure doesn't include purchases of
foreign weapon systems and pensions, he said.
China will continue its moderately easy monetary policy in 2010, Wen said. "We
need to maintain continuity and stability in our policies while constantly
making them better-targeted and more flexible as circumstances and conditions
change."
The government will "consolidate the momentum of the economic turnaround", but
will also need to accelerate economic restructuring and make substantive
progress in transforming the pattern of economic development, he said. China is
using tax incentives and other measures to boost domestic consumption to lessen
its dependence on exports for growth.
Shen Minggao, China economist at Citigroup, said official documents in the
course of the NPC meeting would continue to ignore specific wording about an
exit from stimulating the economy as policymakers believe that to do otherwise
could hurt market confidence.
"Before inflation becomes a clear and immediate threat, the exit policy will
likely be constrained to the areas of the property market, overcapacity, and
credit control," Shen said.
Wen said China also needs keep the overall level of prices stable, and the
consumer price index (CPI), a key inflation indicator, will be held at about a
3% rate of increase.
CPI inflation eased to 1.5% year-on-year in January, after surging to 1.9% in
December last year, according to the National Bureau of Statistics (NBS). The
producer price index (PPI), a gauge of inflation at the wholesale level, rose
4.3% in January from a year earlier, up from 1.7% in December 2009, when the
figure ended 12 months of decline.
Numerous policy statements this year have made it clear that the government is
managing liquidity, not turning off the taps, Pauline Loong, senior vice
president in charge of China policy and risk research at CIMB-GK Securities
(HK), said. An NPC announcement reaffirming the government's commitment to
ensuring economic growth restores much-needed perspective, she said.
"We see the government stepping up the shift to domestic consumption,
particularly rural consumption and introducing credit and stimulus support for
the private sector, especially for small and medium-sized businesses," she
said.
Economists are concerned that some stimulus money is not going to riskier
private markets, such as small and medium-sized enterprises (SMEs), which
create the most jobs, but is flowing to the property market and state-owned
enterprises, leading to assets bubbles and a widening income gap.
Private businesses, especially the SMEs, have been left out of the credit
bonanza as new lending doubled last year to a record 9.6 trillion yuan,
according to Loong. Credit went mostly to large state-owned enterprises and to
funding speculative activities.
Wen on Friday pledged that the central government will allocate 10.6 billion
yuan to support the development of small and medium-sized enterprises. Private
businesses created more than 11 million jobs last year, or more than 90% of new
employment, according to the All-China Federation of Industry and Commerce.
Unlike last year, when macro-economic issues topped the NPC agenda in the wake
of the global recession, domestic concerns, such as income disparities and
soaring housing prices, are the focus of this weekend's sessions. State-run
Xinhua News Agency reported that the top three issues of most concern to the
general public are income disparities, housing and efforts to stamp out rampant
corruption.
The 36-page working report delivered by Wen gave less than one page to the
property sector, which might disappoint public concerns about the rising cost
of housing. Average contracted home prices rose 24% last year to 4,695 yuan per
square meter, with Shanghai prices rising 27.6%, and Beijing's 16.4%, according
January report by the National Bureau of Statistics.
Wen vowed to enhance income distribution as a key way to boost domestic demand
and narrow the income gap.
"We will not only make the 'pie' of social wealth bigger by developing the
economy, but also distribute it well on the basis of a rational income
distribution system," he said. The government would set strict standards for
the income of executives, especially senior staff, at state-owned enterprises
and financial institutions. He vowed to crack down on illegal income, regulate
off-the-books income, gradually form a transparent, fair and rational pattern
of income distribution, and reverse the widening income gap.
There are growing complaints in China that income growth lags the increase in
state fiscal revenue. Low incomes have also been seen as impeding government
efforts to shift growth from an over-reliance on exports to an economy driven
mainly by private consumption.
Urban per capita full-year net income increased 9.8% to 17,175 yuan last year,
almost three times average rural income of 5,153 yuan, which rose 8.5% in 2009,
according to the National Bureau of Statistics. The urban-rural income gap is
now at its widest since the country launched its reform and opening-up policy
in 1978, according to China Daily.
The central government is to increase spending to support agriculture, rural
areas and farmers by 21.8% to 725.3 billion yuan, and up to a further 133.5
billion yuan will be spent subsidizing agricultural production, Wen told the
NPC.
Fast economic growth has come with severe environmental costs, such as air and
water pollution and forest degradation. Increased outputs of carbon dioxide and
other gases linked by many in the scientific community to climate change have
also increased with widespread construction of mostly coal-fired power
stations.
China will work hard to develop low-carbon technologies as well as new and
renewable energy resources to actively respond to climate change, Wen said. The
country also plans to increase it forest carbon sinks and expand forests by at
least 5.92 million hectares in 2010.
Wen also told the NPC that China will reform its national household
registration system and relax restrictions on permanent residence registration,
or hukou, in towns, small and medium-sized cities.
The hukou system was introduced in 1958 when the government put a lid on free
migration flow, particularly from rural areas to cities. Under the present
system, migrant workers have to maintain their registered permanent residence
in the countryside, making it hard for them to obtain welfare such as
healthcare and education, among other rights, at their urban work places.
On Monday, 13 mainland newspapers covering 11 provinces in China made a rare
joint appeal in a co-signed editorial urging an end to the hukou system.
The joint editorial said there is great potential in the consumption demand of
900 million people in rural areas, which could help propel domestic demand to
fight against export deflation and boost economic development.
Olivia Chung is an Asia Times Online correspondent based in Hong Kong.
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