The Chinese Premier admitted this morning that his goal of 8 per cent growth for the world’s third-largest economy would be tough to meet this year, but he had more weapons in his armoury if need be to ensure Beijing reaches that target.
Speaking at his annual news conference after the end of the session of the National People’s Congress, China’s ceremonial parliament, Wen Jiabao reminded the United States of its responsibilities in easing the global financial crisis – and of its indebtedness to his country, which now owns the bulk of US Treasuries.
“I would like … to once again request America to maintain its trustworthiness, keep its promise and guarantee the safety of Chinese assets,” he said.
Grim-faced throughout most of the two-and-a-half-hour question-and-answer session, the Premier focused almost entirely on how China was coping with the global economic downturn and stressed the need for a renewal of confidence as a prerequisite for a revival of the economy. Confidence, as in his annual work report at the opening of parliament last week, was a watchword.
Holding the growth rate above his goal of 8 per cent – a number that a year ago looked conservative after five years of double-digit growth – would be a challenge.
“I believe that there is indeed some difficulty in reaching this goal. But with effort it is possible.” The IMF has forecast a GDP growth of 6.7 per cent for China this year.
But Mr Wen said the relative strength of China’s economy when measured against the crisis in the United States gave cause for hope. “China’s finance (system) is basically healthy and stable. This is providing strong and vigorous support for economic development.”
China had been spared the need to dig deep into its pockets to save its banks – already benefiting from rescue packages over the last decade. He said: “If we say the United States and Europe are fighting wars on two fronts – the financial crisis and the impact on the real economy – then China must also prevent risks, but we haven’t had to use fiscal money to fill a financial hole.
“On the contrary, the finance system is providing a large amount of credit for economic development.”
In remarks that mixed confidence with caution, he indicated that the enormous 4.0 trillion yuan ($600 billion) stimulus package unveiled last November should be sufficient to pump up the economy by expanding and accelerating government spending. But Beijing has also kept some of its powder dry in case the crisis worsens.
“We have prepared enough ‘ammunition’ and we can launch new economic stimulus policies at any time.” He gave no details.
China’s years of growth, and tightly managed budget, meant it could now afford to borrow to support the economy. “We now have more leeway to run a larger fiscal deficit and take on more debt. The most direct, powerful and effective way to deal with the current financial crisis is to increase fiscal spending – the quicker the better.”
And he referred again to the responsibility of the United States, sending a stark message to Washington since China remains the biggest holder of US government debt and maintains most of its towering foreign exchange reserves in dollar-denominated assets.
“Of course we are concerned about the security of our assets and, to speak truthfully, I do have some worries,” Wen said. However, he believed President Barack Obama had now taken steps that had raised expectations in Beijing.
Analysts estimate that nearly half of China’s $2 trillion in currency reserves are in US Treasuries and notes issued by other government-affiliated agencies.
A collapse in exports and a slump in factory output growth in February surprised investors who had taken recent manufacturing surveys and electricity output data as signs that China’s economy had already bottomed out.
But a sustained surge in bank lending since late last year has fuelled hope that ample financing is in place for the Government’s stimulus package to gain traction. With 10 months to go in 2009, China is already more than half way towards reaching its goal of at least 5 trillion yuan in new bank lending.
Attaining that eight percent growth is an absolute priority for the ruling Communist Party, which has staked its claim to legitimacy on ensuring ever-rising living standards. That figure is widely thought to be the minimum growth rate needed to hold down the jobless rate at manageable levels – although the country is already struggling to find jobs for at least 20 million unemployed migrant workers.
Officials fear social unrest could flare if they remain out of work for long, or if many more men and women join their ranks. The Premier did not shy away from the issue, while stressing that China had remained stable despite the rising jobless rate. “The problem of unemployment is a very serious one. Our government will take this a hundred times more seriously and never become complacent,” he said.
Loading ...
China should be worried about their dangerous over investment in US Treasury obligations. Washington’s long-term choice is either repudiation or monetization. For monetization to be effective, the depreciation in the dollar would have to be substantial and this in turn would dramatically raise prices of imports for American consumers which would mean a tremendous drop in foreign imports. Debt monetization would cause more disruption to exporting nations than selective repudiation of Treasury debt.
Washington has bailed out the banks, Wall Street & their Washington special interests and much of the cost is added to the national debt to by paid by this and future generations while real estate and investments continue to fall. Find out what a growing repudiate the debt movement could mean for treasury bonds, the dollar, gold and the stock market.
The Campaign to Cancel the Washington National Debt By 12/22/2013 Constitutional Amendment is starting now in the U.S. See: http://www.facebook.com/group.php?gid=67594690498&ref=ts
Thanks, Ron Holland