China’s economic leaders struck a note of quiet confidence on Friday that the economy is already reviving in response to swift action to counter the shock of the global financial crisis.
Premier Wen Jiabao disappointed financial markets on Thursday by failing to announce an increase in a CNY 4 trillion ($585 billion) investment plan rushed out on November 9 as crumbling exports drained life from the world’s third-largest economy.
But comments by a trio of top officials suggested that, while Beijing stands ready to prime the pump further, extra measures might prove unnecessary because substantial fiscal and monetary stimulus is already coursing through the economy. “The economic figures are stabilizing and recovering, which demonstrates that the policies have begun to show an impact,” central bank governor Zhou Xiaochuan said.
Speaking at a news conference during the National People’s Congress, the largely ceremonial parliament, Zhou said China had learned the lesson from other countries that a sluggish response to the crisis delays the restoration of confidence. “We must err on the side of being quick and decisive.”
Zhou was speaking a day after Wen said China would ramp up deficit spending this year to hit its target of 8% growth, widely thought to be the minimum needed to keep a lid on unemployment and head off the threat of social unrest.
JOB MARKET STABILISING
More than 20 million migrants who lost their jobs due to the global crisis are still without work, according to Chen Xiwen, director of the Office of the Central Rural Work Leading Group. But Chen said there had not been a fresh wave of migrants returning jobless to the countryside in the month since the end of the Lunar New Year, or Spring Festival, holiday.
“At present, according to the situation on the ground, with factories reopening after the Spring Festival, employment is recovering and there is no new phenomenon of migrant workers returning home,” Chen told a news conference.
The cautiously optimistic assessment follows figures suggesting that the economy may be on the cusp of a recovery. New domestic-currency lending has surged since November and hit a record 1.6 trillion yuan in January, while surveys show manufacturing is picking up from very depressed levels.
On the other hand, a tentative recovery in steel prices has petered out, and recessions in China’s main export markets appear to be worsening.
Zhang Ping, head of the National Development and Reform Commission, the main planning agency, said Beijing would keep tracking the flow of economic data before deciding whether extra stimulus was necessary.
“Of course, we can’t complacently assume that we can entirely avoid the impact of the crisis or that our measures are already enough to counter it,” he said. “But I believe that, with the measures that we’ve taken or will take, we can have full confidence that we can escape the current hardships and fully respond to this crisis, because in the long term our economic conditions have not fundamentally changed,” Zhang added.
The officials made it clear that China still had plenty of ammunition to fire if necessary.
China’s national budget deficit will jump more than sevenfold this year to over 1 trillion yuan. But that will still be less than 3% of national income. The United States, by comparison, is budgeting for a deficit of 12.3% of GDP.
“This is something that our country can handle and remains at a safe level,” Xie Xuren, the finance minister, said of the projected deficit. Likewise, Zhou said the central bank still had plenty of scope to “fine-tune” monetary policy following five cuts in interest rates and four reductions in banks’ required reserves since September.
Speculation has swirled that China, in addition to pumping up the deficit and lowering borrowing costs, might also let the yuan fall in order to help its beleaguered exporters.
The 21st Century Business Herald quoted an unidentified official as saying China’s exports and imports slumped by more than 20% in February from year-earlier levels, following drops of 17.5% and 43.1% respectively in January.
Asked whether he could rule out depreciation of the yuan, Zhou kept his options open by saying that China had drawn up various contingency plans for the currency and the economy in the event of a further deterioration in international conditions.
But he said Wen had made China’s position clear on Thursday by stating the yuan would remain basically stable. “We seem to be in no need of new wording,” Zhou said. (Reuters)