And an older article:
Move that big red state into the blue column
By Gary LaMoshi
HONG KONG - The returns are in from China, and the Democrats have won. That's the United States Democrats, the ones the US Republicans have suspected of being communists all along.
The policies and programs revealed at the Chinese National People's Congress (NPC), the first under the fourth-generation leadership of President Hu Jintao and Premier Wen Jiabao, have a decidedly Democratic flavor, starting with the slogan, "Putting people first". (They might have picked that up cheap from any number of failed US Democratic presidential campaigns.) Beyond the headline of endorsing the right to private property, the economic presentations to this NPC session represent a left turn.
Gone are the days of growth at any price, in favor of more directed economic expansion. Indiscriminate tax breaks for industry are out, tax cuts for family farmers are in. The government plans to rein in lending (easy enough when you own the banks), and dampening enthusiasm in the property, steel and cement sectors.
There's also no hint of help for US (Republican) President George W Bush and an administration that's pushing for a revaluation of the yuan. State Council Development and Economic Reform Minister Ma Kai pledged to maintain the currency at a "rational and balanced level".
China's economy officially grew at a rate of 9.1 percent last year, its best performance since 1997, and per capita gross domestic product (GDP) surpassed US$1,000 (8,276 yuan), all despite the impact of severe acute respiratory syndrome (SARS). Unofficial estimates put GDP growth in the double digits, amid signs that the economy was overheating, as it did a decade ago. Moreover, the gap between urban and rural incomes widened at an accelerating pace. So the duo of Hu and Wen have decided to act.
Lower growth target, 7 percent
They've declared a growth target of 7 percent for the year. It's a great thing to be able to promise 22 percent less growth and not have to worry about angry voters. The leadership has telegraphed this shift by restricting further investment in heavy industries. That's a blow to state-owned company leaders, the Chinese counterparts of US fat cat business executives.
Instead, the leadership wants to encourage growth at the grass roots and bamboo shoots. It will cut agricultural taxes and shift the government's development spending from massive infrastructure projects - such as ever-broader circles of ring roads for those new cars - to rural needs. The goal is to lift rural incomes from the 2003 level of 2,622 yuan ($316) - less than a third of urban area incomes. Beijing has also pledged to increase agricultural subsidies to encourage grain production as part of a nearly $10 billion rural aid program. That's about the same level of government spending on the urban poor and unemployed.
Beijing also aims to create 9 million new jobs in urban areas. In this workers paradise, the Chinese Communist Party hopes to hold the urban unemployment rate to 4.7 percent, compared with 4.3 percent in 2003. The economic plan aims to limit foreign trade growth to 8 percent, compared with 37 percent last year.
To some extent, of course, Chinese government statistics, historical and projected, are a combination of fantasy, whimsy and wishful thinking. This set of figures fails to account for a number of factors that don't fit the story Hu and Wen wish to tell, such as the orgy of spending on urban infrastructure in preparation for the 2008 Olympics in Beijing and the challenge of increasing jobs and trade with the neighbors while limiting overall growth. The government has set itself some difficult, perhaps contradictory challenges.
But it's important to recognize that Beijing has far more to say about how its economy runs than do Washington or Tokyo or Brussels. Investors ignore Chinese government pronouncements at their own peril. So, it's worth considering how Beijing's latest plan could impact foreign investors large and small.
Tilt away from foreign trade, more domestic consumption
At first glance, this plan is far more friendly to John Deere than Louis Vuitton or even Ronald McDonald. But behind the headlines, the new tilt away from foreign trade and to boosting the rural sector population of 900 million points toward a growing emphasis on domestic consumption. When rural consumers get a few dollars in their pockets, they're more likely to buy shampoo than cell phones, wire their villages for electricity and get another pig.
Automobiles, the hottest growth item of the past year, are due for a slowdown. Last year's breakneck sales were fueled by the SARS outbreak as people sought to avoid public transportation, so demand is expected to slow substantially. Add in cutbacks in bank lending and expect car sales to crash, at least temporarily.
In the longer run, if China can accomplish in the agricultural sector what it's done in manufacturing, woe betide farmers around the world. With climate ranging from tropical to arctic, China has arable land in all categories and the potential to produce goods across the spectrum. Wash down that roast beef with a glass of Great Wall red?
The turn toward developing domestic markets, though, doesn't mean an end to the capital goods and raw material imports that have boosted Japan, Australia and neighbors in between. But the focus may change, for example, from less coal and iron for steel and more petrochemicals for fertilizers and plastic bottles.
Although the new economic program does have the flavor of the US Democrats, don't expect an outbreak of democracy or accountability within China's politics. Hong Kong's leading democrat and the former leader of its Democrat party Martin Lee was in the US last week to testify before a US Senate Foreign Relations Subcommittee about Hong Kong's democratic development. Chinese media and Beijing-backed demonstrators at the Hong Kong airport denounced Lee as a "traitor". You see, "Putting people first" only goes so far.
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