As U.S. Treasury Secretary Timothy Geithner warned this week that the U.S.
recession is deepening and Japan’s Prime Minister Taro Aso said there is “no
bottom in sight” for his sinking country, many investors turned to China for
a measure of hope. There have been glimmers of stability recently in the
world’s third-largest economy, and Asian stock markets briefly climbed midweek
amid reports that
Beijing would announce additional stimulus measures on top of the $586
billion it has already said it will spend to revive its
slowing economy.
But anyone thinking China is going to be the engine that pulls the rest of
the world out of the swamp should probably reconsider what Premier Wen
Jiabao said during his visit to London in February: that for China to
maintain its own
economic growth “will be the biggest contribution to the whole world
in the face of the financial crisis.”
There was clear disappointment as Asian stocks slumped after Wen
offered no new stimulus spending when he delivered his annual work
report March 5 at the opening of the National People’s Congress. At
follow-up sessions the following day, top
officials offered more details on
its stimulus plan, saying it would go to transportation
infrastructure, housing, energy saving technology and health care. While
they didn’t rule
out additional funds, they said decisions on whether to throw more money at
its problems would be based on analysis of how well current programs are
working.
The country’s plan “should be front-loaded and forceful,” said China’s
central bank governor Zhou Xiaochuan. “If confidence collapses, it’s
too late for us to react. It takes a long time to recover. We learned
this from the experience of other countries.” Zhou said he saw some
signs of improvement in China’s economic data, implying that big
increases in stimulus spending were unlikely in the near future. In
other words, if the rest of the world wants a rescue, it should save
itself.
Some economists argue it is unrealistic to expect that China, which saw its
slowest growth in seven years
last quarter, will be able to boost its domestic demand through short-term
spending enough to mitigate steep declines in global trade. “The idea that
China will be helping the rest of the world is a myth,” says Ben
Simpfendorfer, a Hong Kong-based China
economist for the Royal Bank of Scotland. “Almost half of what it
imports is related to export processing. A large share of the
remainder is commodities. It imports little for its own consumption.
That befits its status as the world’s largest manufacturing center.”
Chinese officials
expressed “confidence” — a word that was repeated frequently during March 6
press conferences — that their
program would offer significant benefits for the country’s consumers
and corporations. Zhang Ping, head of the National Development and
Reform Commission, outlined an infrastructure-heavy program that
includes $219 billion for roads, railways and other transportation,
$146 billion for recovery from disasters including the Sichuan
earthquake, $58 billion for improving housing for the poor, $54
billion for rural development programs, $54 billion to boosting
technology and innovation at Chinese corporations and $30 billion for
energy saving and anti-pollution measures. Health care will get $22
billion, less than 5% of the total.
As Zhou and Zhang talked numbers Thursday, they emphasized
that China is doing all it can, but the rest of the world — and
particularly the U.S. — needs to begin pulling its weight again. Asked
what further steps China might take, Zhou replied, “What we are
waiting for is, what will happen in the country where the crisis
originated. If you can explain what that country will do, we can say
what we will do.”
Outside official circles in China that sentiment is stated more
bluntly. “The U.S. is definitely a dragger. It’s not a pusher. It’s
not a puller,” says Chen Xingdong, a Beijing-based China economist for
BNP Paribas Securities. “The U.S. is not doing the right thing. It’s
not acting.”
