“2008 likely to be most difficult for China’s economy”

-- on Wen Jiabao’s statements

Zhang Kai

 


 

In March 2008, Wen Jiabao, Premier of the State Council, presented the government report to the People’s Congress meeting, and stressed China’s remarkable achievements since the Reform and modernization efforts:

In terms of economic development, China’s gross national product reached RMB 2.466 trillion yuan, an increase of 65.5% from 2002, at an annual growth rate of 10.6%. China has moved from the 6th to the 4th biggest economy in the world; the national revenue was 513 billion yuan, and foreign currency reserve was over USD 152 billion.

In terms of grain production, for four consecutive years, grain production had increased, reaching over 50 billion kgs.

In terms of trade and finances, the total import and export value reached USD 217 billion, rising from the 6th to the 3rd in the world.

However, at the press conference after delivering the Report, Wen Jiabao said: “This year is likely to be most difficult for the Chinese economy due to price hikes and high inflation.” It would not be easy to control CPI within 4.8%. China’s economy could not escape being affected by the sub prime rate crisis in the USA, the deflation of the US dollar, the high oil prices, and the massive vacillations of the global stock market. So, the difficulty for the Chinese economy lies in the many uncertainties both outside and inside China, leading to difficulties in policy making.[1]

This is certainly contradictory, for while China’s economy seems to be doing very well, the greatest difficulties are taking place. This is an indication of the ineffectiveness and inadequacies of macro regulatory policies by the party in power, when the economy following the logic of the market gets out of hand.

According to the Director of the State Statistics Bureau, while GDP increased by 11.4%, CPI of 2007 increased by 4.8%, the highest in the last 11 years; the major factors were price increases in food (rising by 12.3%) and housing (by 4.5% in general, and by 7.6% in 70 big and medium cities). All social strata have been concerned with inflation. Entering 2008, the situation has gone for the worse. It was reported that CPI for the first two months of 2008 had increased by 8.7%.[2] In January alone, food prices increased by 18.7%, with pork rising by 57%, poultry and meat by 30-40%, vegetables by 13.7%, and fruits by 10.3%.[3]

Zhong Dajun, economist in Beijing, said that the CPI index published by the State Statistics Bureau was not reflecting the actual situation of price rises. The CPI as felt by the general people in China in the last two years would be of two digits, and the situation resembled the eve of June 4, 1989, though at that time, domestic factors were prominent, and now, there are intricate factors of the global economy, hence the developments would be even more unpredictable. Zhong Dajun pointed out that one major reason for the inflation was the flow of global hot money into China. It amounted to about USD 500 billion in 2007. He argued that the politicization of the question of the rise in the value of the RMB has caused a lot of hot money to come into China, and the authorities need to print more and more RMB notes in response, hence there is the accelerating inflation in China.[4]

In March, there are reports of not only rising food costs of 11% compared to the last month, but also shortages in fuel supplies in cities like Guangzhou and Wuhan.

One by-product of the capitalist market is social polarization. The Gini coefficient in China has risen from 0.16 before the Reform to the current 0.47. New middle classes have grown, and they are mostly from non-public ownership economic systems and freelance professionals. It is estimated that there are about 75 million people controlling or managing about 10 trillion yuan, and they contribute about one-third of the tariffs. It is expected that by 2010, they will contribute to 50% of the tariffs, 40% of the volume of import/export trade, 69% of publications, 65% of China’s patent rights. 80% of new products come from medium and small enterprises, and 95% of them are from the non public ownership sector. In terms of employment, over 90% of jobs are provided by the non state sector.[5]

With increasing grievances, social conflicts and struggles are more frequent. In 2007 alone, there were 100,000 instances of social confrontations, averaging 274 instances everyday. According to the All China Trade Union, labour disputes in 2007 amounted to 406,000 cases. Zhang Mingqi, the Deputy President of the All China Trade Union, remarked that labour disputes have increased by over 20% every year in the last few years.[6]

However much the party-state leaders pledge to tackle the aggravating social and economic problems, they will not implement any radical democratic reform. The majority of the people in China will continue to come under the tyranny of both the political system and the market. Any real change going from the bureaucratic political totalitarianism to socialist democracy will have to depend on the rise to struggle by the broad masses.          4 April 2008


 

[1] Wen Hui Bao, 18 March 2008.

[2] Wen Hui Bao, 30 March 2008.

[3] Apple Daily, 20 February 2008.

[4] Ibid.

[5] Wen Hui Pao, March 9, 2008.

[6] Ming Pao, March 15, 2008.