Premier Wen Jiabao: China's Economic Challenges

Posted by: Dexter Roberts on March 5, 2009

At the opening of the annual National People’s Congress this morning in Beijing, the mood was mainly somber. In the work report—sort of like a Chinese version of the State of the Union—premier Wen Jiabao focused on the challenges facing what is now the world’s third largest economy. So despite the brilliant blue sky and the sight of minority delegates including Tibetans and Muslim Uighurs decked out in their colorful native costumes (the annual parliament meeting being one of the rare times they actually wear the garb), the tone was far from festive.

After seeing 9% growth last year, the slowest in seven years, China is facing “unprecedented difficulties and challenges,” Wen said. Amongst those, he cited global deflation, huge pressures on China’s export makers hit hard by the declining world economy, as well as growing trade protectionism. Environmental pollution and food and workplace safety problems remain. And growing income inequality across China, an incomplete social security system, including substandard education and health care are all enormous challenges for China too. Wen also singled out farmers and the rural sector, facing new pressures and slowing per capita income growth.

To attain the targeted 8% growth this year, Beijing will lift fiscal spending by 22% to $1.1 trillion and is expecting banks to issue $735 billion in loans, a slight rise over last year. The value of the Chinese currency will be kept “basically stable.” Social welfare spending is to rise by 17.6% to $43 billion and central government subsidies to agriculture will total $18 billion—both are aimed at helping boost domestic consumption in the Chinese economy. “We need to cultivate areas of high consumer demand and expand consumption in new areas,” including tourism, sports, animation, agricultural machinery, and second-hand cars, Wen said.

That may not be too easy. “Social spending…has been widely touted as the key to reducing the rate of household saving,” wrote London-based Capital Economics in a March 4 report. “However this is a structural not a cyclical issue. Education and health are likely to get another big boost in the budget, but the impact on household savings will take years to emerge,” the report cautioned.

All told, China plans to run a deficit of $139 billion (with $29 billion in locally-issued bonds), just under 3% of gdp, but “a record high in six decades,” according to a Xinhua report on March 5. That spending is key “to cushion the impact of the global financial crisis,” Xinhua continued. “We face arduous tasks in promoting reform, development and stability,” Wen said. Although rumored to happen, Wen did not announce new stimulus spending beyond the $586 billion already earmarked.

Not surprisingly, Wen threw in some obligatory upbeat socialist rhetoric: the people of China last year “faced difficulties squarely, worked with courage and determination, surmounted all difficulties and obstacles, and made new achievements in reform, opening up and socialist modernization.” And this year, Beijing is aiming for “the great rejuvenation of the Chinese nation,” Wen intoned to one more wave of choreographed applause. But the premier reserved most of his two hour-plus speech for a lot less cheery stuff.

Wen spoke at length about China’s increasingly dire employment situation. While the official urban unemployment target for 2009 is 4.6% (last year it was 4.2%) many are predicting a much higher rate. According to official reports, as export factories shut their doors last year some 20 million Chinese migrant workers lost their jobs. And in addition to one million college graduates who could not find jobs in 2008, there are expected to be 7.1 million more graduates seeking work this year. Wen announced that Beijing will reimburse tuition for those college graduates who opt to enlist in the military or work in villages and provide job training for laid-off migrant workers. Altogether, Beijing will spend $6.18 billion this year to boost employment. “We will do everything in our power to stimulate employment,” Wen said.

In a signal that Beijing is becoming more flexible when it comes to a tough new labor law that took effect over a year ago, Wen added that Beijing is now ready to help enterprises that are facing difficulties by “renegotiating wage levels with their employees, adopting flexible employment and work hours.” And for those potentially angry workers who still can’t keep or find their jobs and opt to take to the streets? “We will improve the early warning system for social stability to actively prevent and properly handle all types of mass incidents,” the premier said, using the Party lingo for protests and riots.

Reader Comments

Jinsan

March 7, 2009 9:53 PM

A pretty good summary of the economic status quo in China

Mao

March 7, 2009 10:32 PM

4 trillion yuans stimulus from Central government + another 8 trillion spendings from Local governments should be able to lift the economy from slump.

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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