Narrow Focus on Chinese Economy Neglects Other Issues

March 17, 2009

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Li Hong
by Li Hong

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Li Hong and Yougeng Sun of FH Beijing offer this analysis of how the National People’s Congress and Chinese People’s Political Consultative Conference are responding to economic crisis in their country.

In the face of the severe economic downturns and devastating credit crisis around the world, the Chinese government introduced last November massive economic stimulus package of 4 trillion yuan ($586 billion) to fuel domestic demand and ensure its economy to grow at an annualized rate of 8 percent, a magic growth number that the Chinese government and many economists believe is needed to absorb the new entrants into the labor market each year. Social stability was also on the mind of policy makers when the 8-percent-target was set.

Setting the goal is “the government’s commitment and responsibility” and has showed “confidence and hope” as the global financial crisis is taking a toll, said Chinese Premier Wen Jiabao at the press conference on March 13 at the close of the annual sessions of the National People’s Congress (NPC), China’s parliament, and the Chinese People’s Political Consultative Conference (NPPCC), the government’s political advisory body.

There have been wide-spread doubts that the eight percent is attainable and the 4-trillion yuan is adequate to tackle the economic woes China has been faced with in the last few months with the collapse of external demand for inexpensive made-in-China goods. Chinese exports plummeted 25.7 percent in the month of February over year-ago period to $64.9 billion, the largest fall in more than a decade and the fourth monthly decline in a row. On the eve of the annual NPC session, speculations were rampant that “China’s leaders would unveil their second economic stimulus package in four months”. In fact, never before have the world, or to be more precise, the global financial markets anticipated a Chinese Premier’s government work report at an annual NPC session. The rally in stocks and commodity prices around the world was short-lived as no new stimulus package was announced in Mr. Wen’s report.

But at Friday’s press conference, Premier Wen announced that the Chinese government “has prepared plans to cope with even bigger difficulties amid the financial crisis and is ready to put forward new stimulus package at any time if need. But for now, China is focused on the current package to which the central government will contribute 1.18 trillion yuan of new money. The rest will come from the local governments, bank lending and other sources. Wen said the banks have already greased the nation’s credit wheels by lending out 470 billion yuan in November, 770 billion in December, 1.62 trillion in January and 1.07 trillion in February.

The 2009 NPC and NPPCC sessions were the most economy-centric in recent memories. In his annual government work report, the equivalent of State of the Union address in the US, Mr. Wen said confidence was what China needed most to implement government’s package of stimulus measures. “Confidence can produce courage and strength, only with which can we overcome difficulties and challenges.”

South China Morning Post political commentator Mr. Wang Xiangwei said in his weekly column said: “the central government was vague about precisely how the funds would be invested until early March in the run-up to the annual sessions of the NPC, leaving many domestic and overseas investors confused and concerned about the effectiveness of the plan.”

And the deep economic crisis and heavy focus on economic growths, job creation and social stability appeared to have pushed other agenda such as legal reforms to the bottom of the to-do list. No new legislations/laws were passed during this session with the exception of the Food Safety Law effective on June 1 and the creation of a proposed overarching food safety commission which will enforce the law.

Still, calls for government openness, transparency and accountability are far and wide. In an apparent attempt to assuage societal concerns, Premier Wen jumped on the Internet bandwagon by hosting an online chat with some 300,000 netizens, fielding questions from unemployment, wealth gap, social justice to democracy.

It remains to be seen how effective the stimulus package will be to reinvigorate the economy. Will it create the much-taunted trickle down effect to create jobs for the 20 million migrant farm workers and the newly-minted college grads? Will it finally stimulate domestic demand by breaking the Chinese propensity to save give the absence of strong social safety net? Will it help reduce the wealth disparity between the privileged and the disadvantaged? Is it possible that central government hastened to put the package together without seizing the opportunity to address those concerns for the long run?

There seems to be more questions than answers for now. Stay tuned.