China's grandfather has to find his balance
Tuesday, 18 March 2008
Richard McGregor
ON March 17, "Grandfather Wen", as Wen Jiabao is known, holds his annual press conference at the close of the National People's Congress. With a captive audience running to hundreds of millions, China's premier will be in command of a bully pulpit of awesome dimensions.
The forum's reach is palpable for anyone who manages to get heard during the live coverage. Disenfranchised peasants were still calling the Financial Times Beijing office with invitations to investigate official corruption in their villages two years after I asked Mr Wen at the press conference about illegal land seizures in rural areas.
If recent history is any guide, Mr Wen will use the event to project the same image the state media has assiduously promoted since he ascended to power with Hu Jintao, the president and head of the Communist party, in late 2002.
Mr Wen has spurned the bright lights of the "new China" and the heavily publicised meetings with foreign business leaders that were a feature of the administration of Jiang Zemin and Zhu Rongji. Instead, he has played empathiser-in-chief, sharing meals with migrant workers, hugging Aids sufferers and heading underground for photo opportunities with black-faced coal miners.
Part of his approach is Politics 101 for any incoming government, which needs to distinguish itself from its predecessor before striking out on its own. And part is because foreigners, by and large, do not need cultivating any more. They are already here, or on their way. But most of all, Mr Wen's approach is an acknowledgement of the deep fissures left by China's rush for growth and the collapse of education, health and social services for the poor in cities and the countryside in the past decade.
Mr Wen insists he wants to make the system fairer. The swelling tax receipts in the central government coffers in recent years means he finally has some real money to do so.
The ratio of revenue to gross domestic product has grown from 11 per cent in 1997 to about 20 per cent now, according to Dragonomics, a Beijing consultancy. After the latest budget, social spending now accounts for 35 per cent of spending, up from 26 per cent in 2003. Farm taxes have already been abolished and income support in cities increased.
It is impossible to tell how much Mr Wen's campaign to rebrand the government with a kinder, gentler image has worked in a country with no independent, published opinion polls or regular elections, but by one benchmark he has succeeded. No one would have dared called Mr Zhu, known for chewing out officials in public to get his way, by the affectionate sobriquet of "Grandfather". That, for Mr Wen's critics, is the point. What supporters see as empathy, these critics depict as weakness and vacillation. Nowhere is this more obvious that in his stewardship of the economy.
For five years, Mr Wen, and the ministers under his charge, have been handing down regular directives about the need to "rebalance" growth away from reliance on investment and, more recently, on net exports. Local governments have been ordered to give priority to lifting energy efficiency and cutting pollution.
On nearly all counts, Mr Wen has been firing blanks. During his time as premier, the current account surplus has more than tripled as a share of GDP. The consumption share of growth has declined. Even investment accounts for a bigger share of GDP than when he took over in 2002.
China's trade surplus may now be peaking but, even so, at a high level, perhaps equal to last year's figure of $260bn. With China still tightly managing its currency, this money will end up being warehoused in the country's bulging foreign reserves.
To put this figure into perspective, China's new sovereign wealth fund, already the subject of scrutiny in western capitals, now has only $200bn under its control and only about a third of that is available for new investments overseas. If a recent Reuters report is correct, China added $61.6bn in January alone to its reserves, double the amount of its combined trade surplus and foreign investment inflows for that month, implying additional reserve growth this year of a staggering $700bn.
Economists have been branding China's surpluses as unsustainable for years. But as Brad Setser of the Council on Foreign Relations remarked on his blog: "What cannot go on forever seems to be going on forever."
The most scathing description of China's economy came from Mr Wen himself, at last year's press conference. He described it as "unstable, unbalanced, unco-ordinated and unsustainable". Left unsaid was the fact that he had been in charge of managing the economy for the preceding four years.
Some qualifications of such critiques are needed. Governing China gets more complex by the day. The days of a "strong man" dictating policy from on high, without regard to variable conditions on the ground, are gone. The trade surpluses, too, tell you as much about the US economy as they do China's. A historic transition of the kind China is undergoing is never going to look anything other than ugly under day-to-day scrutiny. And many developing countries would kill to have China's problems.
But the bigger question remains unanswered, about whether China's central government has an off switch for the present model of growth. If it does, Wen Jiabao is still struggling to find it.
........................................
FT Syndication Service
ON March 17, "Grandfather Wen", as Wen Jiabao is known, holds his annual press conference at the close of the National People's Congress. With a captive audience running to hundreds of millions, China's premier will be in command of a bully pulpit of awesome dimensions.
The forum's reach is palpable for anyone who manages to get heard during the live coverage. Disenfranchised peasants were still calling the Financial Times Beijing office with invitations to investigate official corruption in their villages two years after I asked Mr Wen at the press conference about illegal land seizures in rural areas.
If recent history is any guide, Mr Wen will use the event to project the same image the state media has assiduously promoted since he ascended to power with Hu Jintao, the president and head of the Communist party, in late 2002.
Mr Wen has spurned the bright lights of the "new China" and the heavily publicised meetings with foreign business leaders that were a feature of the administration of Jiang Zemin and Zhu Rongji. Instead, he has played empathiser-in-chief, sharing meals with migrant workers, hugging Aids sufferers and heading underground for photo opportunities with black-faced coal miners.
Part of his approach is Politics 101 for any incoming government, which needs to distinguish itself from its predecessor before striking out on its own. And part is because foreigners, by and large, do not need cultivating any more. They are already here, or on their way. But most of all, Mr Wen's approach is an acknowledgement of the deep fissures left by China's rush for growth and the collapse of education, health and social services for the poor in cities and the countryside in the past decade.
Mr Wen insists he wants to make the system fairer. The swelling tax receipts in the central government coffers in recent years means he finally has some real money to do so.
The ratio of revenue to gross domestic product has grown from 11 per cent in 1997 to about 20 per cent now, according to Dragonomics, a Beijing consultancy. After the latest budget, social spending now accounts for 35 per cent of spending, up from 26 per cent in 2003. Farm taxes have already been abolished and income support in cities increased.
It is impossible to tell how much Mr Wen's campaign to rebrand the government with a kinder, gentler image has worked in a country with no independent, published opinion polls or regular elections, but by one benchmark he has succeeded. No one would have dared called Mr Zhu, known for chewing out officials in public to get his way, by the affectionate sobriquet of "Grandfather". That, for Mr Wen's critics, is the point. What supporters see as empathy, these critics depict as weakness and vacillation. Nowhere is this more obvious that in his stewardship of the economy.
For five years, Mr Wen, and the ministers under his charge, have been handing down regular directives about the need to "rebalance" growth away from reliance on investment and, more recently, on net exports. Local governments have been ordered to give priority to lifting energy efficiency and cutting pollution.
On nearly all counts, Mr Wen has been firing blanks. During his time as premier, the current account surplus has more than tripled as a share of GDP. The consumption share of growth has declined. Even investment accounts for a bigger share of GDP than when he took over in 2002.
China's trade surplus may now be peaking but, even so, at a high level, perhaps equal to last year's figure of $260bn. With China still tightly managing its currency, this money will end up being warehoused in the country's bulging foreign reserves.
To put this figure into perspective, China's new sovereign wealth fund, already the subject of scrutiny in western capitals, now has only $200bn under its control and only about a third of that is available for new investments overseas. If a recent Reuters report is correct, China added $61.6bn in January alone to its reserves, double the amount of its combined trade surplus and foreign investment inflows for that month, implying additional reserve growth this year of a staggering $700bn.
Economists have been branding China's surpluses as unsustainable for years. But as Brad Setser of the Council on Foreign Relations remarked on his blog: "What cannot go on forever seems to be going on forever."
The most scathing description of China's economy came from Mr Wen himself, at last year's press conference. He described it as "unstable, unbalanced, unco-ordinated and unsustainable". Left unsaid was the fact that he had been in charge of managing the economy for the preceding four years.
Some qualifications of such critiques are needed. Governing China gets more complex by the day. The days of a "strong man" dictating policy from on high, without regard to variable conditions on the ground, are gone. The trade surpluses, too, tell you as much about the US economy as they do China's. A historic transition of the kind China is undergoing is never going to look anything other than ugly under day-to-day scrutiny. And many developing countries would kill to have China's problems.
But the bigger question remains unanswered, about whether China's central government has an off switch for the present model of growth. If it does, Wen Jiabao is still struggling to find it.
........................................
FT Syndication Service