US's Snow supports Hu's new
plan By Antoaneta Bezlova
BEIJING - When China's communist leaders
adopted a new blueprint for the country's economic
development over the next five years, they hardly
banked on the support of the US treasury secretary
in pushing forward ambitious tasks such as
equalizing growth and narrowing the wealth gap
between urban and rural China.
But as John Snow, the US top
treasury official visiting the Chinese countryside
this week, delivered enthusiastic support for
Beijing's new development model of slower growth
and "social fairness", it served to illustrate how
every ripple from this giant economy can now be
felt across the world. ''We see the growth of
consumerism as going
directly to what is most on our mind, which is the
global imbalance of trade,'' Snow said, touring a
rural market in the
Chinese inland province of Sichuan.
He
told Chinese leaders they should increase the
spending power of China's 800 million peasants to
help them buy more and imported goods, and lessen
the country's ballooning trade surplus with the
United States. Boosting domestic demand and
spurring growth in China's vast rural areas is
exactly what Beijing leaders have in mind.
The latest Chinese 5-year plan, released
after a dour closed-door meeting of the top
leadership last week, abandoned a long-standing
policy of prioritizing fast growth in favor of
sustainable and balanced development. It also
redirects state intervention from the urban
economy towards the countryside where the vast
majority of Chinese people live. Under the motto
of creating a "harmonious society", President and
party chief Hu Jintao has promised to raise
spending on rural education and health, cut rural
taxes, step up price support for agricultural
products, and pay heed to protecting environmental
concerns.
For decades, China's state
economic plans - replete with communist-style
jargon and quotas for everything from wheat to
steel production, had little impact on global
markets. This, however, changed dramatically after
the Asian financial crisis, when Beijing decided
to jumpstart the economy by launching a massive
infrastructure drive to modernize cities, speed
the urbanization of some 200 million peasants and
accelerate the construction of highways and
airports across the country.
The
unprecedented spending spree resulted in increased
demand for commodities, and helped drive up world
prices for energy, steel, metal and cement.
Simultaneously, it spurred feverish investment in
power plants, steel mills and other factories. In
the three years since President Hu Jintao and
Premier Wen Jiabao came to power, the central
authorities have tried to rein in state-driven
capital investment, which their predecessors saw
as a strategy of generating jobs and staving off
popular discontent.
The new blueprint
affirms Hu and Wen's intention to put a lid on
runaway growth for the sake of boosting the
incomes of people living in rural areas. Whether
the leadership succeeds in its policies would have
implications for the world economy as the side
effects of a slowdown, or by contrast, a
continuing boom, have an increasingly global
reach.
While full details of the plan
won't emerge until early next year when the
Chinese parliament is scheduled to vote on it,
analysts say the new road map is designed to slow
annual growth from the average 9% over the last
decade to a more benign growth of 7%, and to
combat some of the imbalances which are provoking
social unrest, particularly in the countryside.
For years, Chinese peasants and
agriculture have supported the growth of the
country's cities and the increase of urban wealth.
''In the next five years, we expect cities to
repay the villages, and industry to repay
agriculture,'' says party policies researcher Xin
Ming. The state is poised to increase spending and
regain control over health, education and pensions
- all areas it retreated from after the launch of
market economic reforms in the 1980s. Rural
Chinese and laid off urban workers now have to pay
school and medical fees out of their own pockets,
and helping them financially would be a new way of
shoring up eroded support for the leadership and
the Communist party.
But Beijing also
hopes that by increasing the disposable income of
the rural population it can spur more consumption
of imported goods and services and thereby address
trade imbalances without being pushed into an
overly rapid currency revaluation it sees as
risky. China's trade surplus is forecast to reach
a record US$100 billion this year, triple last
year's $32 billion. ''Weak domestic demand will
further enlarge the trade surplus, and this is
something that we don't want to see,'' China's
central bank governor, Zhou Xiaochuan, said in an
interview with the Chinese business magazine
Caijing.
The Ministry of Commerce has also
warned that while the trade surplus has helped
expand Chinese foreign exchange reserves and
fueled economic growth, it will also have negative
effects, including new disputes with China's trade
partners and more pressure for revaluation of the
currency. The United States believes China keeps
its currency, the yuan, artificially undervalued,
rendering Chinese goods unfairly cheap on foreign
markets. Chinese exports have continued soaring
despite Beijing's decision on July 21 to make the
yuan about 2% stronger against the dollar and to
allow it to float in a restricted margin against a
basket of currencies instead of being pegged
directly to the US dollar.
Exports have
become one of the main engines for China's growth
over the last twenty years, prompting economists
to warn that the country's economic powerhouse is
too dependent on external demand. Recognition of
that was evident in Zhou Xiaochuan's remarks to
Caijing that ''in the major global economies, the
influence of domestic consumption on the trade
balance is far greater that of foreign-exchange
rate adjustments.''
By pledging to boost
domestic demand and thereby generate need for
imports, Beijing might have also succeeded in
averting being labeled a ''currency manipulator''
in an upcoming report of the US administration.
Should the US Treasury Department accuse China of
currency manipulation, it could pave the way for
imposing trade sanctions in the future.
