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Friday 5 March 2010
China’s Wen Blocked by Politics From Fixing ‘Unstable’ Economy
Premier Wen Jiabao calls China’s economic growth path “unbalanced, uncoordinated, and unsustainable.” This week’s annual parliament session may prove he is unable to change its course.
China’s Wen Blocked by Politics From Fixing ‘Unstable’ Economy
By Bloomberg News 04 March 2010
March 4 (Bloomberg) -- Premier Wen Jiabao calls China’s economic growth path “unbalanced, uncoordinated, and unsustainable.” This week’s annual parliament session may prove he is unable to change its course.
Wen, 67, will give what amounts to China’s State of the Union speech tomorrow to the National People’s Congress in Beijing. His audience will include people who, according to analysts, disagree with some possible measures to fix the imbalance: provincial and municipal officials and such company heads as Hangzhou Wahaha Group Co. Chairman Zong Qinghou.
Adding to the inertia is the fact that Wen, President Hu Jintao and other leaders are nearing the end of their tenures, said Jim McGregor, a senior counselor in Beijing at APCO Worldwide. APCO is a public-affairs group advising clients including China Cosco Holdings Co., Asia’s biggest shipping company.
“China’s in severe election mode,” McGregor said in a Bloomberg Television interview. “They have 2 1/2 years left in their term.” There is “a lot of jockeying for position.”
Wen says China’s growth model -- emphasizing investment, manufacturing and exports over consumption -- is creating economic distortions. He told an online audience on Feb. 27 that 2010 would be “the most complicated year for the country’s economy” as the government sought to control property prices and inflation stoked by $1.4 trillion in new lending last year.
‘Debt-Fuelled Bubble’
Wen’s view is shared by Kenneth Rogoff, a professor at Harvard University in Cambridge, Massachusetts. Rogoff said on Feb. 23 that a collapse of China’s “debt-fuelled bubble” could send growth to as low as 2 percent from last year’s 8.7 percent.
China is forecast by the International Monetary Fund to surpass Japan in 2010 as the world’s second-largest economy and will expand 9.5 percent this year, according to the median estimate of 40 economists. That compares with a 3 percent forecast for U.S. growth.
“Things need to change now,” said Wang Tao, a Beijing- based economist for UBS AG, in an interview. “Later the costs will become higher and higher.”
One remedy is an overhaul of the tax system, Wang and other economists say, to create a dependable stream of revenue for China’s local governments. A property tax and a sales tax could wean them from dependence on land sales and production taxes. Land sales helped fuel real-estate speculation and taxes on industrial production stoked overcapacity in steel and cement as local governments built factories regardless of whether they generated a profit.
Against It
Those measures aren’t on this year’s Congress agenda “because there are so many people against it,” Wang said.
While a property tax isn’t likely to be implemented this year, a timetable may be set, Hong Kong-based CLSA Asia-Pacific Markets said in a Feb. 22 research note.
Many government officials oppose the tax, fearing it will reduce the value of their own real-estate holdings, said Arthur Kroeber, managing director of Beijing-based Dragonomics, an economics-research firm whose clients include hedge funds and Fortune 500 companies.
“A property tax is not suitable,” said Zong, of Hangzhou- based Wahaha, in an interview. He is a delegate to the Congress. “There is no need for it. It will just make houses less affordable.”
Wen is likely instead to announce measures, some of them favoured by Zong, to help ease income disparities. They may include increasing the minimum wage and spending more on housing for poor people, CLSA said. Such moves help promote consumption and ease economic distortion, but they are insufficient, Wang said.
Boosting consumer spending through actions such as an expansion of rural rebates for appliances will be a boon for Beijing-based computer maker Lenovo Group Ltd. and Hong Kong- based television maker Skyworth Digital Holdings Ltd., CLSA said.
Property developers including Liao Xiaoqi, a former vice minister of commerce and the chairman of Beijing-based China World Trade Center Co., are due to attend the annual meeting as members of China’s political-advisory body. Leaders of state-run companies that bought real estate with some of last year’s record $1.4 trillion in new loans are also among the delegates.
State companies have become an increasingly powerful political force in China, helped by government policies favourable to the large-scale construction projects and manufacturing that they dominate. State-run companies had sales of 22.5 trillion yuan ($3.3 trillion) and profit of 1.3 trillion yuan last year, according to the Ministry of Finance.
“They have become very very powerful, very cash rich, and very resistant to various kinds of reform,” Kroeber said.
Needless Factories
The result may be that Wen and Hu, 67, won’t be able to muster the political support needed to overhaul the tax system and close down needless factories, Wang and Kroeber say.
Wen and Hu’s 10-year tenures begin to wind down starting in late 2012, when they step down from their Communist Party posts. Both are due to retire from their government positions in March 2013.
“The closer that we get to the leadership transition, the more incentive the top leaders have just to kick all the tough structural problems down the road and let the next guys handle it,” Kroeber said.
3 comments:
China’s Wen Blocked by Politics From Fixing ‘Unstable’ Economy
By Bloomberg News
04 March 2010
March 4 (Bloomberg) -- Premier Wen Jiabao calls China’s economic growth path “unbalanced, uncoordinated, and unsustainable.” This week’s annual parliament session may prove he is unable to change its course.
Wen, 67, will give what amounts to China’s State of the Union speech tomorrow to the National People’s Congress in Beijing. His audience will include people who, according to analysts, disagree with some possible measures to fix the imbalance: provincial and municipal officials and such company heads as Hangzhou Wahaha Group Co. Chairman Zong Qinghou.
Adding to the inertia is the fact that Wen, President Hu Jintao and other leaders are nearing the end of their tenures, said Jim McGregor, a senior counselor in Beijing at APCO Worldwide. APCO is a public-affairs group advising clients including China Cosco Holdings Co., Asia’s biggest shipping company.
“China’s in severe election mode,” McGregor said in a Bloomberg Television interview. “They have 2 1/2 years left in their term.” There is “a lot of jockeying for position.”
Wen says China’s growth model -- emphasizing investment, manufacturing and exports over consumption -- is creating economic distortions. He told an online audience on Feb. 27 that 2010 would be “the most complicated year for the country’s economy” as the government sought to control property prices and inflation stoked by $1.4 trillion in new lending last year.
‘Debt-Fuelled Bubble’
Wen’s view is shared by Kenneth Rogoff, a professor at Harvard University in Cambridge, Massachusetts. Rogoff said on Feb. 23 that a collapse of China’s “debt-fuelled bubble” could send growth to as low as 2 percent from last year’s 8.7 percent.
China is forecast by the International Monetary Fund to surpass Japan in 2010 as the world’s second-largest economy and will expand 9.5 percent this year, according to the median estimate of 40 economists. That compares with a 3 percent forecast for U.S. growth.
“Things need to change now,” said Wang Tao, a Beijing- based economist for UBS AG, in an interview. “Later the costs will become higher and higher.”
One remedy is an overhaul of the tax system, Wang and other economists say, to create a dependable stream of revenue for China’s local governments. A property tax and a sales tax could wean them from dependence on land sales and production taxes. Land sales helped fuel real-estate speculation and taxes on industrial production stoked overcapacity in steel and cement as local governments built factories regardless of whether they generated a profit.
Against It
Those measures aren’t on this year’s Congress agenda “because there are so many people against it,” Wang said.
While a property tax isn’t likely to be implemented this year, a timetable may be set, Hong Kong-based CLSA Asia-Pacific Markets said in a Feb. 22 research note.
Many government officials oppose the tax, fearing it will reduce the value of their own real-estate holdings, said Arthur Kroeber, managing director of Beijing-based Dragonomics, an economics-research firm whose clients include hedge funds and Fortune 500 companies.
“A property tax is not suitable,” said Zong, of Hangzhou- based Wahaha, in an interview. He is a delegate to the Congress. “There is no need for it. It will just make houses less affordable.”
Wen is likely instead to announce measures, some of them favoured by Zong, to help ease income disparities. They may include increasing the minimum wage and spending more on housing for poor people, CLSA said. Such moves help promote consumption and ease economic distortion, but they are insufficient, Wang said.
Appliance Aid
Boosting consumer spending through actions such as an expansion of rural rebates for appliances will be a boon for Beijing-based computer maker Lenovo Group Ltd. and Hong Kong- based television maker Skyworth Digital Holdings Ltd., CLSA said.
Property developers including Liao Xiaoqi, a former vice minister of commerce and the chairman of Beijing-based China World Trade Center Co., are due to attend the annual meeting as members of China’s political-advisory body. Leaders of state-run companies that bought real estate with some of last year’s record $1.4 trillion in new loans are also among the delegates.
State companies have become an increasingly powerful political force in China, helped by government policies favourable to the large-scale construction projects and manufacturing that they dominate. State-run companies had sales of 22.5 trillion yuan ($3.3 trillion) and profit of 1.3 trillion yuan last year, according to the Ministry of Finance.
“They have become very very powerful, very cash rich, and very resistant to various kinds of reform,” Kroeber said.
Needless Factories
The result may be that Wen and Hu, 67, won’t be able to muster the political support needed to overhaul the tax system and close down needless factories, Wang and Kroeber say.
Wen and Hu’s 10-year tenures begin to wind down starting in late 2012, when they step down from their Communist Party posts. Both are due to retire from their government positions in March 2013.
“The closer that we get to the leadership transition, the more incentive the top leaders have just to kick all the tough structural problems down the road and let the next guys handle it,” Kroeber said.
The quality of work and products should also be prioritized in China.
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