Wen firm on reserve priorities
By Antoaneta Bezlova
BEIJING - While much hope is focused on China and its still-growing economy as
a rare bright spot in the current financial gloom, the country's leaders are
drawing a line on global expectations, reminding the world that for them
China's priorities come first.
This was underlined by Premier Wen Jiabao on Friday when speaking to the press
at the closing of the annual meeting of the nation's legislature in the Great
Hall of the People in Beijing, he said that in managing the country's foreign
exchange reserves, "our first consideration is the national interest".
As the decline in global markets continues and the credit crunch is squeezing
the world's economies, China and its US$2 trillion in
foreign exchange reserves are being looked upon as a beacon of hope.
Wen conceded that ''we also have to consider the stability of the overall
international financial system", as it and Chine were "interlinked'', but he
left no doubt that Beijing had pre-conditions for extending a helping hand.
Asked if China would consider contributing more to the bailout fund of the
International Monetary Fund (IMF), Wen said any such pledge would be voluntary
and take into account any individual country's conditions.
"I believe such increase of contributions to the IMF is not for just for one
single country to contemplate," Wen said," but it has to be undertaken by all
countries according to their (IMF) quotas."
Quotas are analogous to shareholder capital and make up the IMF's permanent
funding. The US is the institution's largest shareholder. Increases in quotas
are laborious to arrange and politically difficult to push through, the
Economist magazine reported last week, when US Treasury Secretary Tim Geithner
proposed using another available IMF mechanism - that is, boosting the fund's
credit line with rich countries to $500 billion from its present $50 billion
through "New Arrangements to Borrow" (NAB). China is not an NAB member, though
could join if the NAB is enlarged, the Economist said.
Wen on Friday also pointedly voiced concern about the security of Chinese
investments in the United States, asking the Barack Obama administration to
"honor its promises and to guarantee their safety".
"We have lent a huge amount of money to the United States," Wen said, "and to
be honest, I'm a little worried". As the United States' largest creditor, China
would seek to "fend off risks" and safeguard its own interests, he pledged.
As of December 31, China had invested $696 billion in United States treasury
bonds.
In the two-hour pre-scripted meeting with the press Wen devoted considerable
time to defending China's policy decisions in the midst of the global downturn,
saying the leadership stood ready to unveil additional measures to revive the
world's third largest economy.
China has "adequate ammunition" to shore up public confidence and can add at
any time to its four trillion yuan (US$585 billion) stimulus package announced
last November, the premier said. Aware of how a continuous flow of weak
economic data is eroding trust in government capacities to deal with the
crisis, Wen repeatedly emphasized the need for confidence building.
"Confidence is more important than gold and money," he told reporters during
the nationally televised conference. "First and foremost, we have to have very
strong confidence. Only when we have strong confidence can we have more courage
and strength, and only when we have courage and strength can we overcome the
difficulties."
But four months after the government announced its first stimulus package, the
overall economic picture still looks precarious. Last year's GDP growth of 6.8%
was the country's lowest since 2001, and half of its 13% growth in 2007.
While investment jumped a higher-than-predicted 26.5% in the first two months
over a year earlier, plunging exports have resulted in the worst trade
contraction China has seen in years.
The National People's Congress, China's parliament, on Friday approved the
stimulus package and a record budget deficit for this year to cope with the
downturn. "We are prepared for a protracted and very difficult crisis,'' Wen
told the media.
He recognized that rising unemployment was among the "most serious problems"
the government faced in dealing with the economic downturn. About 11 million
migrant workers remain unemployed after returning to China's cities after the
lunar new year break in January, according to government statistics published
this week.
The Communist Party is worried about the prospect of heightened unrest among
migrants and the six million university and college students who will graduate
later this year but will face difficulties finding jobs.
"The deal that the Communist Party struck with urban intellectuals after the
1989 pro-democracy protests [in Beijing's Tiananmen Square and elsewhere] now
looks increasingly fragile," says Ian Buruma, professor of human rights at Bard
College, New York.
The party created conditions for people to grow richer in exchange for their
tacit agreement to stay out of politics, Buruma said this week in Beijing. "But
this deal is now in danger of collapsing because too much of it rests on the
promise of delivering continuous prosperity.''
Nevertheless, Wen re-affirmed China's commitment to achieve its target of 8%
GDP growth this year even as economies from Japan to the US are contracting.
The goal was "difficult but possible" if "considerable efforts" were deployed,
he said.
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