Friday 6 March 2009
China promises spending, but it might not be new
Warning that China faces “unprecedented difficulties and challenges,” Prime Minister Wen Jiabao outlined a barrage of construction, increased subsidies and economic measures Thursday aimed at continuing his nation’s modernization despite the world financial crisis.
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China promises spending, but it might not be new
By Michael Wines
5 March 2009
BEIJING: Warning that China faces “unprecedented difficulties and challenges,” Prime Minister Wen Jiabao outlined a barrage of construction, increased subsidies and economic measures Thursday aimed at continuing his nation’s modernization despite the world financial crisis.
He also indicated that Chinese 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.
But in a long speech to the National People’s Congress, the Chinese 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.
Wen’s speech, which cited numerous budget increases for construction and other programs, left it unclear whether those figures were part of the already-announced stimulus program or represented entirely new spending. Details of the stimulus package have remained vague since its unveiling, and the Thursday speech shed little light on them.
Shanghai’s stock market rose 6.1 percent Wednesday, and other global markets also advanced, on speculation that Wen would announce still more economic stimulus spending. After Wen’s speech, investors turned more cautious, with Shanghai gaining 1.1 percent and the Hang Seng in Hong Kong falling by 1 percent.
Wen 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 a U.S. president’s State of the Union speech, laid out an economic program that analysts 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, an economist for UBS Securities in Beijing, 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 Thursday, she said, are equally important for China’s economic health.
In his speech, 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 is 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 specialists believe that growth is more likely to slip to 6.5 or 7 percent.
Wen said that the central government would significantly increase spending on schools, hospitals and clinics, low-income housing, 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 that 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.
Persuading Chinese consumers to abandon longstanding savings habits may be difficult. Official documents released Thursday indicated that the government planned to increase consumer loans, reduce some value-added and income taxes, cultivate markets for new and used homes and cars and subsidize rural residents’ purchases of consumer appliances.
Spending on an array of major programs, including highway and railroad building, low-income housing and energy conservation, would more than double, to about $132 billion.
Such spending and tax cuts, and a general reduction in tax revenues because of a slowing economy, would push this year’s budget deficit to about 3 percent of GDP, a modern record.
In advance of Wen’s address, Chinese officials announced Wednesday that they would increase military spending by 14.9 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 annual session of the National People’s Congress, which is meeting in the Great Hall of the People on Tiananmen Square, to present a united and confident front to a public battered by rising unemployment and falling incomes.
Protests by laid-off or cheated workers occur not infrequently, and the government has suggested that demonstrations will increase this year.
Keith Bradsher contributed reporting from Hong Kong.
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