International | Mar 06 2009
By Andrew Nelson
Yesterday, China’s Premier Wen Jiabao presented his annual report to parliament, outlining economic plans for the year ahead. Key to the presentation was the nation’s GDP outlook, which was reaffirmed at 8% GDP growth this year. However, the Premier stopped short of detailing any major new stimulus measures to bolster the world’s third-largest economy, nor did he specify new spending on top of the US$586-billion stimulus package announced in November.
Wen Jiabao’s seeming confidence about maintaining GDP growth in 2009, despite the global downturn, was initially well received and provided an early lift to Asian stocks and other regional markets. Markets had rallied along with commodities prices the day before, partly on hopes China would announce some new steps to counter a slowdown in its economy and help other countries restart theirs in the process. But the lack of detail ensured the boost was short lived and investors turned cautious after Beijing really only reinforced programs and spending already known.
After opening higher, Asian stocks started to pare their gains by the afternoon as many investors booked profits from Wednesday’s rally. The Nikkei rose 2%, while South Korea’s Kospi ended down 0.1% in a choppy session. Benchmarks in Australia and Taiwan gained, while Singapore and Indian stock measures fell. In China, Shanghai’s benchmark added 1% after jumping more than 6% the day before in anticipation of the Premier’s speech and on reports of a rise in bank lending and speculation a tax on stock trading might be cut. Meanwhile, the Hang Seng lost about 1%.
Still, any sort of announcement wasn’t going bring about a lasting recovery in global markets, given Western economies and the global financial system remain in a state of disarray. Any spillover effects from good Chinese news was therefore always going to be limited.
In the end, all the Chinese Premier really said of substance was that the government’s 4 trillion yuan stimulus plan, announced in November, would help the country achieve 8% growth this year. While this rate is seen as critical to creating jobs and staving off social unrest as the worst global economic crisis in generations hits Chinese exports, it certainly wasn’t new news.
China, unlike most Western governments, has the wherewithal to increase its fiscal spending. Wen said the government’s budget deficit this year would be about 3% of China’s economy, compared with more than 12% for the US.
Bond sales were also referenced, but there was no mention of an amount. Premier Wen noted the outstanding value of government bonds amounts to 20% of GDP, which is within an “acceptable range”. Local governments will be allowed to issue 200bn yuan worth of bonds via the finance ministry. On top of that, he said monetary policy would be “moderately loose” in 2009, suggesting more rate cuts are in the pipeline.
Yet probably the most revealing part of Wen Jiabao’s talk was the discussion on government transparency and accountability. “I have always believed that the public has the right to know what its government is doing and thinking about, and the right to criticize and make comments on government policies,” he wrote in an on-line chat. Telling comments given the National People’s Congress holds its annual meeting Thursday in Beijing.
In his address to parliament and on top of his GDP growth pledge, Wen also vowed to “dramatically increase” government investment, beyond what it had already injected, to counter the sharp slowdown in the Chinese economy. Wen also said the government would take measures to boost domestic consumption, increase agricultural subsidies and maintain the stability of its currency. But again, there were few examples.
“Neither the fundamentals of China’s economic and social development nor its positive long-term trend has changed. We are fully confident that we will overcome difficulties and challenges,” Wen said.
Yet with the nation’s leaders set to meet this week to discuss how to get the economy back on track, implement more social welfare programs and raise the standard of living for rural residents, the real question is whether the government can do so in a transparent and accountable way.
Over the past three decades since China began introducing market-oriented reforms, it has consistently vowed to do so in a more open government. Last May, the government passed a landmark rule on the disclosure of government information. But while the measure was symbolically important, many of its promises have yet to be met. And this, it seems, is what investors want to see.