Despite the signs of recovery of the Chinese economy since the last quarter of 2009, the Government needs to follow a cautious line till it is satisfied that the recovery is being sustained and will continue to be sustainable. That is the message repeatedly being stressed during the current session of the National People's Congress (NPC), the Parliament, being held at Beijing since March 5,2010.
2. Even as the session was on, there were encouraging reports from the foreign trade front on which the Chinese economy has depended for its progress till now. The Customs Bureau of the Chinese Government reported on March 10,2010, that exports went up by 46 per cent in February from a year before after a 21 per cent increase in January. Imports increased by 45 per cent in February as compared to February of last year. Combined data for January and February showed that exports surged by 31.4 per cent during the period from a year earlier. Shipments to other countries amounted to 94.5 billion dollars, continuing a 3-month streak of export gains. China's global trade surplus was $7.6 billion in February and the combined January-February surplus was $21.8 billion.
3.These seemingly spectacular increases were as compared to January-February of 2009 when the foreign trade had come down steeply due to a steep fall in orders from the US and the EU countries. What these figures indicate is that the downturn in exports has been arrested and reversed, but they do not indicate a return to the pre-2008 position. Chinese economists have been cautioning that it might take at least about three years to reach the pre-2008 figures and that till then one cannot claim that the economy has recovered from the crisis triggered off by the fall in overseas orders. A reversion back to the pre-2008 position would depend not only on the success of the Chinese policies to deal with the crisis, but also on the success of the policies of the US and other countries.
4. Even before the latest Customs figures were released, Chinese leaders and officials , who intervened in the NPC discussions and who briefed the media in the margins of the session, were cautioning against any over-optimistic assessments of the recovery. They stressed the need to wait till the third quarter of this year before assessing the sustainability of the recovery.
5.They said that it would be premature to consider any withdrawal of the economic stimulus policy initiated after the onset of the crisis in 2008 in order to step up investments in infrastructure projects and increase the domestic demand to reduce the dependence on exports. The Central bank Governor Zhou Xiaochuan said on March 6, 2010, that the policy makers must be "very cautious" in timing an exit as a world recovery wasn't yet solid. Commerce Minister Chen Deming said the same day that it was too early to say that exports had recovered from the global financial crisis.
6.Zhu Guangyao, the Assistant Minister for Finance, said that it would be too early for the Government to withdraw its economic stimulus policy and called upon other countries to coordinate their exit strategy to strengthen the fledgling recovery. He added that the global economic situation was too unpredictable at present to make such a move. The Government had announced a 586-billion U.S. dollars stimulus package in late 2008, which was designed to be implemented in 2009 and 2010. Zhu said: "The Central Government has taken into consideration the effect of the global financial crisis that will continue to be felt this year.The stimulus policy will continue, and China will stick to a proactive fiscal policy and moderately easy monetary stance."
7.Li Yining, senior economist and a member of the Chinese People's Political Consultative Conference (CPPCC) National Committee, warned that it would do the Chinese economy more harm than good if the country exited the stimulus package now. He said: “Recovery in developed countries is not entrenched; and domestically, although new orders are increasing, more time is needed to monitor their sustainability. We need to wait until at least till the third quarter of this year to see whether the time is ripe for an exit."
8. Prime Minister Wen Jiabo told the NPC in his address on March 5,2010: " We must not interpret the economic turnaround as a fundamental improvement in the economic situation. This is a crucial year for continuing to deal with the global financial crisis, maintaining steady and rapid economic development and accelerating the transformation of the pattern of economic development. This year the main targets we have set for economic and social development are increasing GDP by approximately eight per cent... (and) holding the rise in consumer prices to around three per cent."
9. A careful reading of the cautionary notes coming from different leaders and officials would indicate that they are ruling out any termination of the present stimulus package before it is fully implemented by the end of this year. The recovery since the last quarter of 2009 would not come in the way of its implementation. At the same time, they are not talking of any fresh stimulus package when the present one is completed by the end of this year. One could also discern a note of concern that the recovery of exports might increase pressure from the US for a revaluation of the yuan. Hence, the widely and loudly expressed caution about the sustainability of the recovery.
10. In the media briefings in the margins of the NPC session, Chinese policy-makers have expressed their continued confidence in the US dollar and emphasized that decisions regarding continued investments of their foreign exchange reserves in US Treasury Bonds would be taken purely on economic and not on political grounds. The message coming out is: The decisions regarding investments in US bonds would be taken by the investing banks and not by the Foreign Office. There has been a clear attempt to dismiss speculation that the decisions of President Barack Obama to sell more arms to Taiwan and to receive His Holiness the Dalai Lama could affect future Chinese investments in the US bonds.
11. Yi Gang, head of the State Administration of Foreign Exchange (SAFE), the chief currency regulator, reiterated on March 9 China’s continued commitment to invest in US Treasuries. He asserted that a recent unloading of some holdings was simply part of regular market operations. He added that the country is diversifying its foreign investments to spread out risks, and it has no plan to boost its gold holdings. He made it clear that China's investment in US Treasuries is market-driven and should not be politicized. He said: "The US Treasury market is the world's largest government bond market. Our foreign exchange reserves are large, so you can imagine that the US Treasury market is very important to us."
12. In 2008 and 2009, the fears among the policy-makers were over the possibility of political and social unrest due to the closure of a large number of factories depending on exports and the increase in unemployment. There is now a confidence that these dangers have been averted through the stimulus package and through measures for the restructuring of the economy initiated in order to depend in future more on domestic demand than on exports.
13. The present fears as reflected during the NPC session are over the widening economic gap between urban and rural residents, resentment in the interior areas over the restrictions on their migrating to the urban areas in order to partake of the urban prosperity, the increasingly unaffordable prices of houses which are creating pockets of resentment in the urban areas and dangers of uncontrolled lending by the banks. Till now, the Chinese banks give the impression of functioning well and no major bank has run into serious difficulties due to bad debts. Does this indicate the true state of the health of the banking sector?
14. According to the “Global Times”, between 2000 and 2009, China's GDP tripled from 9.9 trillion yuan to 33.53 trillion yuan, while per capita GDP grew from 7,858 yuan to about 20,500 yuan, putting the country on track toward becoming the second-largest economy in the world. However, the increase in average income contrasts with a widening gap between urban and rural residents. The per capita disposable income of urban residents was 17,175 yuan last year, compared with 5,153 yuan for rural residents, according to the latest figures from the National Bureau of Statistics, with the income ratio between urban and rural residents at 3.33:1, in comparison to 2.56:1 in 1978. While people in large cities such as Beijing and Shanghai have been earning more than 100,000 yuan a year and buying cars for family use, some people in remote western areas, such as the Ningxia Hui Autonomous Region, can make only about 2,000 yuan, not even enough to buy a phone with.More than 40 million people are living under the poverty line of 2,000 yuan per year.
15. The Government has this year pledged a package of measures to improve income distribution, including increasing farmers' and rural workers’ income and providing more support to low-income residents. Proposals for relaxing curbs on migration from the rural to the urban areas are also under consideration. ( 11-3-2010)
( The writer is Additional Secretary (retd), Cabinet Secretariat, Govt. of India, New Delhi, and, presently, Director, Institute For Topical Studies, Chennai. He is also associated with the Chennai Centre For China Studies. E-mail: email@example.com )