Monday, March 10, 2008

2003-2008, First Term of Hu and Wen: Analysis

On March 5, Wen Jiabao, China's premier minister, delivered the government work report at the first session of the 11th National People's Congress (NPC) to show what have been achieved in his first five-year term (to be more precise, the first five year term of Hu Jintao and Wen) and what they will achieve in 2008.

By many measures, the past five years had been the best period for the country. In 2007, China's GDP reached RMB 24.66 trillion, indicating a 10.6% annual real growth from 2002 to 2007. In 2007, China's GDP was only about 2% lower than Germany measured by daily-weighted exchange rate, ranking the 4th in the world. Also in 2007, China replaced the United States, becoming the world second largest goods exporter, next only to Germany. By the end of 2007, China's foreign currency reserves ballooned to US$ 1.53 trillion, ranking the first in the world, 5.3 times that of the end of 2002.

The general public are also benefiting from China's impressive growth. In 2007, average disposable income in urban area reached RMB 13,786, 79.0% higher than 2002. Average net income in rural areas in 2007 reached RMB 4,140, 67.2% higher than 2002.

But certainly there are more daunting tasks ahead, environmental deterioration, underfunded social security net, widening regional gaps, over-reliance on exports and investment, high inflation, just to name a few.

To tackle those problems, Primer Wen pledged to stick to the reform policy so as to further integrate China into the world economy, adopt tight monetary policy to prevent economy from overheating and maintain a prudent fiscal policy to strengthen investment to places that the government views is in need of them indeed.

In his government work report, Primer Wen set China's GDP growth target at 8% in 2008 and cap inflation at 4.8%, the same as the 2007 level. He also pledged to provide 10 million more job opportunities and maintain an unemployment rate within 4.5%.

These goals could be easily achieved if it was in 2005 or 2006. Back in 2003, when Hu and Wen first took the helm, China was crippled by the unprecedented SARS crisis, which pushed the pessimism of "the Coming Collapse of China" to its peak. But Hu and Wen weathered that crisis and reported the best performed five-year term. .

Again, at the beginning of 2008, when Hu and Wen is about to start their second term, China was plagued by an rare massive snowstorm and they weathered that too. While many start to doubt China's infrastructure quality and crisis control system, I simply cannot think of any other country who could do a better job at a time when the worst snowstorm in half a century coincided with the Chinese New Year and millions of people were trying to get back home for family reunion.and then go back to their work places within a few weeks.

But we do see a real challenge for China ahead as the year 2008 is so much different from the past few years. Take the foreign trade for example. Back in 2003, the world economy was much healthier. Both the United States and European Union (EU) had a decent growth, and China's potential had not been unleashed as it just entered WTO. At that time, China's exports were only 36.0% of the size of 2007 with a trade surplus only 9.7% of 2007.

Now, many economists are arguing not on whether or not the United States will fall to recession, but the length and the magnitude of the recession. Similarly, the future of EU is not as bright as it was. These are certainly not good news for China. Indeed, facing domestic difficulties, there is no better scapegoat than China for developed countries to put figure on China. Quality and safety problems of China-made products will certainly become the key issues the western politicians would like to make a stronger case.

Therefore, it will be crucial to see how Hu and Wen lead China go through 2008, the 30th anniversary of China's opening-up. For your analyst, he is optimistic about China. To a great extent, he believes the Chinese government has the power to spend if necessary and China's competitive edges are still there. But Wen's 8% call could be closer to the final outcome than any year since he took helm.

No comments:

Enter your email address:

Delivered by FeedBurner