Move that big red state into the blue
column By Gary LaMoshi
HONG
KONG - The returns are in from China, and the Democrats
have won. That's the United States Democrats, the ones
the US Republicans have suspected of being communists
all along.
The policies and programs revealed at
the Chinese National People's Congress (NPC), the first
under the fourth-generation leadership of President Hu
Jintao and Premier Wen Jiabao, have a decidedly
Democratic flavor, starting with the slogan, "Putting
people first". (They might have picked that up cheap
from any number of failed US Democratic presidential
campaigns.) Beyond the headline of endorsing the right
to private property, the economic presentations to this
NPC session represent a left turn.
Gone are the
days of growth at any price, in favor of more directed
economic expansion. Indiscriminate tax breaks for
industry are out, tax cuts for family farmers are in.
The government plans to rein in lending (easy enough
when you own the banks), and dampening enthusiasm in the
property, steel and cement sectors.
There's also
no hint of help for US (Republican) President George W
Bush and an administration that's pushing for a
revaluation of the yuan. State Council Development and
Economic Reform Minister Ma Kai pledged to maintain the
currency at a "rational and balanced level".
China's economy officially grew at a rate of 9.1
percent last year, its best performance since 1997, and
per capita gross domestic product (GDP) surpassed
US$1,000 (8,276 yuan), all despite the impact of severe
acute respiratory syndrome (SARS). Unofficial estimates
put GDP growth in the double digits, amid signs that the
economy was overheating, as it did a decade ago.
Moreover, the gap between urban and rural incomes
widened at an accelerating pace. So the duo of Hu and
Wen have decided to act.
Lower growth target,
7 percent They've declared a growth target of 7
percent for the year. It's a great thing to be able to
promise 22 percent less growth and not have to worry
about angry voters. The leadership has telegraphed this
shift by restricting further investment in heavy
industries. That's a blow to state-owned company
leaders, the Chinese counterparts of US fat cat business
executives.
Instead, the leadership wants to
encourage growth at the grass roots and bamboo shoots.
It will cut agricultural taxes and shift the
government's development spending from massive
infrastructure projects - such as ever-broader circles
of ring roads for those new cars - to rural needs. The
goal is to lift rural incomes from the 2003 level of
2,622 yuan ($316) - less than a third of urban area
incomes. Beijing has also pledged to increase
agricultural subsidies to encourage grain production as
part of a nearly $10 billion rural aid program. That's
about the same level of government spending on the urban
poor and unemployed.
Beijing also aims to create
9 million new jobs in urban areas. In this workers
paradise, the Chinese Communist Party hopes to hold the
urban unemployment rate to 4.7 percent, compared with
4.3 percent in 2003. The economic plan aims to limit
foreign trade growth to 8 percent, compared with 37
percent last year.
To some extent, of course,
Chinese government statistics, historical and projected,
are a combination of fantasy, whimsy and wishful
thinking. This set of figures fails to account for a
number of factors that don't fit the story Hu and Wen
wish to tell, such as the orgy of spending on urban
infrastructure in preparation for the 2008 Olympics in
Beijing and the challenge of increasing jobs and trade
with the neighbors while limiting overall growth. The
government has set itself some difficult, perhaps
contradictory challenges.
But it's important to
recognize that Beijing has far more to say about how its
economy runs than do Washington or Tokyo or Brussels.
Investors ignore Chinese government pronouncements at
their own peril. So, it's worth considering how
Beijing's latest plan could impact foreign investors
large and small.
Tilt away from foreign
trade, more domestic consumption At first glance,
this plan is far more friendly to John Deere than Louis
Vuitton or even Ronald McDonald. But behind the
headlines, the new tilt away from foreign trade and to
boosting the rural sector population of 900 million
points toward a growing emphasis on domestic
consumption. When rural consumers get a few dollars in
their pockets, they're more likely to buy shampoo than
cell phones, wire their villages for electricity and get
another pig.
Automobiles, the hottest growth
item of the past year, are due for a slowdown. Last
year's breakneck sales were fueled by the SARS outbreak
as people sought to avoid public transportation, so
demand is expected to slow substantially. Add in
cutbacks in bank lending and expect car sales to crash,
at least temporarily.
In the longer run, if
China can accomplish in the agricultural sector what
it's done in manufacturing, woe betide farmers around
the world. With climate ranging from tropical to arctic,
China has arable land in all categories and the
potential to produce goods across the spectrum. Wash
down that roast beef with a glass of Great Wall red?
The turn toward developing domestic markets,
though, doesn't mean an end to the capital goods and raw
material imports that have boosted Japan, Australia and
neighbors in between. But the focus may change, for
example, from less coal and iron for steel and more
petrochemicals for fertilizers and plastic bottles.
Although the new economic program does have the
flavor of the US Democrats, don't expect an outbreak of
democracy or accountability within China's politics.
Hong Kong's leading democrat and the former leader of
its Democrat party Martin Lee was in the US last week to
testify before a US Senate Foreign Relations
Subcommittee about Hong Kong's democratic development.
Chinese media and Beijing-backed demonstrators at the
Hong Kong airport denounced Lee as a "traitor". You see,
"Putting people first" only goes so far.
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