Thursday, 5 March 2009
China outlines ambitious plan for stimulus
Warning that China faces “unprecedented difficulties and challenges,” Premier Wen Jiabao outlined a barrage of construction, increased subsidies and economic measures on Thursday aimed at continuing his nation’s modernization despite a world financial crisis.
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China outlines ambitious plan for stimulus
By Michael Wines
5 March 2009
BEIJING: Warning that China faces “unprecedented difficulties and challenges,” Premier Wen Jiabao outlined a barrage of construction, increased subsidies and economic measures on Thursday aimed at continuing his nation’s modernization despite a world financial crisis.
He also indicated that China’s leaders would seek to begin a fundamental shift in their economic strategy by encouraging citizens to spend and consume more goods, as in most Western economies. China’s startling growth has been driven so far by exports and abundant spending on roads, dams and other infrastructure projects, a trend that experts say cannot be sustained in the long term.
But in a long speech to the National People’s Congress, China’s legislature, Wen did not explicitly announce any new spending to combat the financial crisis beyond the $585 billion that China committed to spend in November.
China’s stock market rose about 6 percent on Wednesday, and other global markets also advanced, on speculation that Wen would announce still more economic stimulus spending.
Instead, he said that while 2009 would be a year of “arduous tasks,” China’s economic strategy was sound and the nation’s fundamentally positive outlook was unchanged.
His address to the legislature’s 3,000 delegates, which was similar to an American State of the Union speech, laid out an economic program that analysts here say was dominated by two concerns: riding out the global downturn and keeping citizens’ unhappiness with their lot from boiling over into public unrest.
“Social stability is definitely of concern to the government; it’s always been the top concern,” Tao Wang, a Beijing-based economist for UBS Securities, said in an e-mail message. “Everything from delivering growth to holding down unemployment, it’s all about stability.”
Wang said that the stimulus program announced in November, which focuses mostly on major construction projects, was a good way to combat China’s flagging economy quickly. But social investments of the kind Wen announced on Thursday, she said, are equally important for Chian’s future economic health.
In his address, Wen set a target of 8 percent growth in China’s gross domestic product in 2009, the same as in previous years. The government has long said that this rate was needed to hold down unemployment and the potential for unrest. The economy expanded 9 percent last year, even after growth slowed sharply in the last quarter.
But a number of economic experts believe that 6.5 or 7 percent growth, meager by recent Chinese standards, is increasingly likely.
Wen said that the central government would significantly increase spending on schools, hospitals and clinics, low-income housing and environmental programs and other projects aimed at improving people’s lives.
He also reaffirmed plans to raise subsidies to farmers, old-age pensions and income grants to China’s poorest citizens, and said spending on “social safety net” programs would jump 17.6 percent, or about $6.4 billion.
But he reserved some of his strongest words for the Chinese consumer, whose legendary frugality has kept China’s consumer goods and services industries from growing at anywhere near the rate of the national economy. Wen said bolstering consumer demand must become “a long-term strategic principle and a basic point of departure for stimulating economic growth.”
His speech contained few details on how demand would be stimulated, or how the many government building and spending programs he described would be financed, but he said that China’s budget deficit this year would be equal to about 3 percent of GDP, a modern record.
China’s parliamentary session is generally dominated by the pro forma passage of laws and regulations decided well in advance. The delegates, the handpicked cream of the Communist Party establishment, have little taste for revolt. They gathered in the Great Hall of the People, on Tiananmen Square, for Wen’s overview of domestic and foreign policy goals. Much of the rest of the session is to be spent giving those goals ritual approval.
In advance of Wen’s address, Chinese officials announced Wednesday that they would increase military spending by 15 percent this year, continuing a long streak of double-digit jumps that has alarmed the United States. The rate is slightly lower than in the past few years, however.
The government is eager to use the session to present a united and confident front to a public battered by rising unemployment and falling incomes. Officials estimated a month ago that 20 million of the nation’s 130 million migrant workers - the cheap-labor force that powered much of China’s construction and export booms - had lost their jobs.
Protests by laid-off or cheated workers occur not infrequently, and the government has suggested that demonstrations will increase this year.
Already, the Beijing authorities have rounded up hundreds of would-be petitioners who traveled here from other cities, many hoping to present grievances personally to the National People’s Congress delegates.
Even so, deliberations are still likely to illuminate the government’s measures to promote economic and social stability.
Experts will be watching Wen’s proposals closely to see not only how the proposed $585 billion (or 4 trillion yuan) stimulus will be spent, but how much is genuinely new spending. China’s central government is allotting only about $175 billion of the total; the rest is supposed to come from banks, investors and local governments, whose finances are especially opaque.
Most of the money is set to go to infrastructure projects, like roads and dams, that pump money quickly into the economy. But many outside experts and some party figures are calling for more money to be spent directly on people’s basic needs.
The delegates will consider one bill that would pour 850 billion yuan, or about $124 billion, into health care reform, setting up a national health insurance program and overhauling the medical care system. But even that amount would bolster annual health care spending to only about 120 yuan, or $18, per person, a sum some analysts say is too little to provide meaningful relief.
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