SUN WUKONG China's need for a firmer
hand By Wu Zhong, China Editor
HONG KONG - In about a month's time, the
State Council - China's central government or
cabinet - headed by Premier Wen Jiabao - will
complete its five-year term. Although Wen is
expected to be re-endorsed in March by the
National People's Congress (NPC) as premier to
head the new five-year-term State Council, most of
the senior officials of the cabinet will be
replaced. Reviewing the performance of Wen's
cabinet over the past five years, many people in
China feel a little disappointed with its
weaknesses in harnessing the economy, especially
when compared with its predecessor headed by the
no-nonsense Zhu Rongji.
Almost right after
Wen was appointed premier and his cabinet
formed
in March, 2003, the epidemic of severe acute
respiratory syndrome (SARS) broke out in China.
The newly-appointed health minister, Zhang
Wenkang, and local officials, following the
adopted tradition of keeping the outbreak of any
epidemic a "state secret", tried hard to cover it
up, making it difficult for the disease to be
contained.
However, Wen and President Hu
Jintao decisively departed from the decades-old
communist "convention" of keeping nearly
everything secret and increased the transparency
of information and government operations regarding
the SARS outbreak. In late April, 2003 (just about
a month after Wen's cabinet was formed), Zhang
Wenkang, known to be a personal medical adviser to
Jiang Zemin - Hu's predecessor, and the
then-Beijing mayor Meng Xuenong - a protege of Hu,
were sacked for trying to cover up the SARS
outbreak. Wen also made visits to hospitals,
schools, construction sites, supermarkets and
residential estates to show his concern and to
quell public fears.
This was Wen's golden
period when he and his cabinet enjoyed the
greatest popularity and also won praise abroad,
and Chinese people began to call him "the people's
premier". But soon Wen had to deal with another
thorny issue: how to rein in an economy that was
overheating. The booming economy was a legacy Wen
had inherited from Zhu.
Although Zhu
became premier in March 1998, he had been
overseeing the country's economic development
since 1993 as executive vice premier. When the
Asian financial crisis broke in mid-1997, Zhu
decided to increase government spending and ease
credit to boost domestic demand so that economic
growth would not slow down, even though exports
and foreign investment might shrink due to the
crisis. In a sense, Zhu's expansionary fiscal and
monetary policies proved a success. While many
countries and regions were hit badly by the
financial crisis and suffered recessions, China's
economy sustained high-speed growth.
But
when Wen succeeded Zhu in 2003, both fixed-asset
investments and liquidity tended to become
excessive. With easy borrowings from banks, local
governments kept investing in infrastructure
projects to boost growth in their regions. By that
time, exports had already resumed high-speed
growth and foreign capital was pouring in again.
The combined strength of all these factors turned
the economy hot. There was a need to apply the
brakes.
So in early 2004, the State
Council began its macro-economic controls by
sending out a circular demanding that regional
governments curb excessive investments in fixed
assets and some of those overheating industries
like steel. To rein in regionalism, Wen even
applied the tactic of "killing a chicken to scare
the monkeys". In April that year, the State
Council ordered the closure of Tieben Iron and
Steel in Jiangsu province, a privately-invested
project approved by the local government without
Beijing's okay. Some officials were punished and
the owner of Tieben detained.
But
apparently to avoid a dramatic slowdown in
economic growth, Wen remained hesitant for most of
the past four years to use more effective monetary
policy instruments to tighten credit, such as
increasing interest rates. This is one of the
major reasons why excessive liquidity remains
largely unchecked.
Retrospectively, had
the government made better use of monetary policy
instruments from the beginning, "our
macro-economic controls might have proved more
effective", said Zhou Xiaochuan, governor of the
People's Bank of China, the central bank, at a
public function at the end of last year. It is
rare for a cabinet member to publicly criticize
policy. But Zhou is becoming outspoken because he
may step down from his current post, partially
taking the blame for the unsuccessful
macro-economic controls. This is despite the fact
that in China monetary policy decisions are made
by the State Council, not the Central Bank.
While economic growth has now
significantly slowed down, housing prices in major
cities have kept going up, arousing public
criticism of the government's policy failure.
It was not until last December that the
Central Economic Work Conference decided to adopt
a "tightening monetary policy" and gave up the
expansionary approach.
The tightening
policy may have come a little late because
inflation, as well as housing price hikes, has
already become the major source of growing public
discontent. China's consumer price index (CPI)
rose 6.9% in November and 6.5% in December, while
the figure for the whole of last year is predicted
to be over 4%.
Some Chinese officials and
analysts say the spiraling inflation highlights
Wen's "indecisiveness" in taking effective
measures to deal with the economy from the
beginning. And now the government has to take
administrative measures to intervene in the
market. This month, the State Council ordered
price controls on foodstuffs and other daily
necessities.
"Obviously, Wen wants to
model himself on Zhou Enlai [the Chinese premier
during Mao Zedong's times] who tended to take care
of everything, big or small. And to safeguard his
image as 'the people's premier', Wen likes to
visit the grassroots, shaking hands with ordinary
people or hugging child AIDS patients. That's
nice," a Beijing-based sociology researcher says,
who declined to be named.
"But times have
changed. China's is no longer a command economy
and the size is much bigger today. As the premier
taking care of the country, Wen should have
focused on more important matters and been more
decisive," he says.
Some Chinese officials
and scholars say another problem with Wen's
cabinet is that its policies at times seem to be
inconsistent and lacking in coordination.
For instance, in mid-May, 2007, the
Ministry of Finance officially denied a market
rumor that it would increase the stamp tax on
share transactions. However, days later it
announced the tax would be raised to 3% from the
previous 1%, effective from May 30. The
announcement caused a market plunge and angry
investors condemned the ministry for "cheating",
saying they had lost their trust in the government
because of this move.
And, in late 2007,
the State Administration of Taxation issued a new
form of personal income tax return, demanding a
person with an annual income of 12,000 yuan
(US$1,670) or more to declare any portion of his
income from housing and/or stock transactions.
This immediately prompted fears that the
government might soon impose a levy on capital
gains. The taxation authority had to make an
official denial.
"But if it is not going
to impose a levy on capital gains, why take the
trouble to do this? Simply to harass tax payers?"
a government official in Beijing asked.
Zhu set a policy to greatly expand China's
tertiary education and turned it into an economic
sector to help boost domestic consumption. To
facilitate the expansion, the government gave the
green light for universities to borrow loans from
banks.
Official figures show that since
1999, public universities across the country have
invested more than 500 billion yuan in
infrastructure construction. And according to the
Chinese Academy of Social Sciences' blue paper on
social development in 2006, the outstanding loans
owed by Chinese public universities stood at 150
billion to 200 billion yuan in 2005.
Repayment of such loans was due in recent
years, but many schools are unable to pay them
back. So the Ministry of Education last year
allowed schools to sell their land or property to
repay their debts. But the Ministry of Land and
Resources said it was illegal for universities to
dispose land resources without its approval. The
dispute between the two ministries has yet to be
settled.
The so-called "through train"
scheme to allow individual mainland Chinese to
invest in the Hong Kong stock market directly is
another example of such crossed lines. The State
Administration of Foreign Exchange (SAFE)
announced on August 20, 2007, that a trial run of
the "through train" would be launched in Tianjin
so mainland Chinese citizens could directly trade
in Hong Kong shares through the Bank of China
without capital limit.
However, officials
from other government departments, such as the
Central Bank and the China Securities Regulatory
Commission, immediately expressed reservations,
saying this needed to be considered "more
thoroughly". Apparently, a decision on such a
policy breakthrough is beyond the power of SAFE.
Finally, in early November, Wen said further
studies should be done before the "through train"
could be launched. It seems now the scheme has
been shelved indefinitely.
Also, some
members of Wen's cabinet have been netted in
anti-corruption campaigns, including former
minister of land and resources, Tian Fengshan, and
former director of the National Bureau of
Statistics, Qiu Xiaohua. This can be interpreted
that official corruption has spread to the central
government, or that cabinet members were not
chosen carefully.
But Wen's cabinet has
also achieved a great deal over the past five
years. China's economy has attained double-digit
growth in the past five years. Economic success is
there for the world to see. By end of 2007,
China's gross domestic product (GDP) reached 24.66
trillion yuan, bringing the Middle Kingdom closer
to overtaking Germany as the world's third-largest
economy after the United States and Japan.
But problems need to be solved and
shortcomings must be overcome. In March, Wen will
form his new cabinet to face the new challenges of
the next five years. It is hoped he will choose
his cabinet more carefully so it performs better
than over the past five years.
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2008 Asia Times Online Ltd. All rights reserved.
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