Chinese Premier Wen Jiabao says China will “significantly increase” investment in 2009 to counter a slowdown in the world’s third-biggest economy.
But he didn’t announce a bigger stimulus package in his long address to the 2009 National People’s Congress in Beijing.
All that hype and market activity on Wednesday was for nothing.
Once again the mirage that is of China leading the globe out of the current slump was spun by some and swallowed by others. I wonder they bailed out of positions in yesterday’s rising markets.
News media reports said that Wen’s report to the NPC, reiterated an 8% growth target for 2009.
That’s more optimistic than the International Monetary Fund’s forecast that the nation’s economy will grow 6.7%, the lowest in almost two decades.
It’s “possible for us to meet this target,” Wen told the NPC yesterday. He said China needs to “reverse the economic slide as soon as possible”.
(That’s not a confident tone)
It’s also a consensus figure in that it was reached in extensive discussions before the public speech. After all, growth has been slowing for the past six quarters.
The December quarter saw annual growth of 6.8%, the lowest for years and well under the 13% rate for the year before.
The 8% mark is defacto government policy because it is believed (whether it is true is another thing) that an 8% growth level will produce enough economic growth to generate jobs, rising incomes and help keep a lid on social unrest, a big fear of the ruling Communist Party.
Announcing a lower growth figure than 8% would have been tantamount to admitting that the Party’s policies would not produce enough growth and could help spark social unrest: that is clearly not going to happen, so 8% was slotted in, regardless of whether it is a solid estimate or a political one.
Bloomberg quoted Wen as saying: "We face unprecedented difficulties and challenges..” the nation needs to “reverse the economic slide as soon as possible,” he said.
That statement alone would be enough to alert analysts that all the recent talk about the November stimulus starting to work should be treated suspiciously until firmer figures are produced.
China’s exports have plunged, like all other major economies.
That in turn has helped drag the country’s economy to its weakest growth in seven years and lifted unemployment by a reported 20 million people.
But the domestic property collapse has helped as well. And probably has played a bigger part than the slump in exports.
China’s 2009 budget deficit was set at 750 billion Yuan, rising to 950 billion Yuan (around $US140 billion, or over $A210 billion). That’s a real cash splash.
That includes local-government bonds, as the slowdown cuts revenue and the government spends to revive the economy. The deficit will be around 3% or a bit less of estimated gross domestic product.
Fiscal spending will rise 22% this year to 7.62 trillion Yuan ($US1.1 trillion), a smaller increase than last year’s actual 25.4%. But roughly the same in the actual amount.
Public spending, mostly on infrastructure, will more than double in 2009 to 908 billion Yuan. That’s the higher spending on rebuilding Sichuan, and the extra spending promised in November’s stimulus statement.
Social welfare spending will rise 17.6%, science and technology investment 25.6%, defence by around 15%, and a fund to help small business will more than double.
The inflation target is 4%, against a current figure of 1.1% and 5.9% for last year, indicating the government sees further price pressures later in the year. Despite this, the government is worried about deflation.
Wen said the global financial crisis “is still spreading and is yet to bottom out,”, adding that a trend towards global deflation was becoming more obvious.
Bloomberg and Reuters both pointed out the huge difference between this year and 2008. This year’s speech was steady as she goes, concerns, and a bit of grit and determination.
Last year the Premier was talking about controlling spending and inflation, which was starting to trigger protests and other examples of social unrest.
The big concern was the overheating economy and the value of the currency and trade tensions with the US and Europe in particular..
The November stimulus package includes spending through 2010 on public housing, railways, highways, airports, power grids and reconstruction work after the earthquake in Sichuan province.
The Communist Party’s Politburo pledged last month a “massive” increase in government investment this year and that, plus other comments to newsagencies in recent weeks, had led to speculation of a new, large stimulus package.
Despite the rise in the deficit, the country’s international credit rating was reaffirmed by the Fitch organisation late yesterday, even though its estimated 2009 growth rate is significantly lower than the 8% given by the Premier.
Fitch said in a statement accompanying the ratings announcement that China “retains an exceptionally strong external balance sheet.
The central government’s fiscal position is sufficiently robust to allow for an aggressive counter-cyclical policy response to what is clearly an economic hard landing.”
Fitch estimates China’s economic growth will slow to 5.6% in 2009, which would be the slowest rise since 1990.
And another big worry for all the China bulls in Australia, especially those iron ore and coking coal exporters looking for some price advantage by delaying contract settlements for the April 1 year.
They might be too late, judging by this report on Bloomberg yesterday:
"Steel prices in China, the world’s largest maker of the meta
