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June 2011, Week 4

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How China Plans to Reinforce the Global Recovery

By Wen Jiabao
Financial Times
June 24, 2011

http://www.ft.com/cms/s/0/e3fe038a-9dc9-11e0-b30c-00144feabdc0.html#axzz1QDumXLqg

About three years have passed since the eruption of the
financial crisis. Thanks to the joint efforts of the
international community, the global economy is
recovering. Yet there remain many uncertainties, and
the recovery is fragile. Global growth is uneven;
unemployment in developed economies remains high;
government debt risks in some countries have mounted;
inflationary pressure is increasing. While the shock of
the crisis has yet to end, new risks have emerged. The
world must co-operate closely to meet the challenges.

China has moved swiftly to fight the financial crisis,
adjusting macroeconomic policy to expand domestic
demand, and introducing a stimulus package to maintain
growth, advance reform and improve people's lives. By
taking these steps, we have overcome extreme
difficulties and laid a solid foundation for China's
development.

A notable result of our response to the crisis is that
China has maintained steady and fast growth. Between
2008 and 2010, China's gross domestic product grew at
an annual rate of 9.6, 9.2 and 10.3 per cent
respectively. The consumer prices index over the same
period was 5.9, -0.7 and 3.3 per cent; 33.8m new urban
jobs were created. China has maintained sound growth
this year.

The thrust of China's response to the crisis is to
expand domestic demand and stimulate the real economy,
strengthen the basis for long-term development and make
growth domestically driven. We have implemented a two-
year, Rmb4,000bn ($618bn) investment programme covering
infrastructure development, economic structural
adjustment, improving people's well-being and
protection of the environment. As a result, 10,800 km
of railways and about 300,000 km of roads have been
built and 210m kW of installed capacity for power
generation have been added. We have boosted support for
science and technology including by encouraging
companies to carry out technological upgrading and
innovation. More than Rmb1,000bn have been spent in
rebuilding after the Wenchuan earthquake. In the
affected areas, quality infrastructure and public
facilities were constructed, and 4.83m rural houses and
1.75m urban apartments were rebuilt or reinforced. The
quake-hit areas have taken on a new look. We are
working to improve the balance between domestic and
external demand, with the share of trade surplus in GDP
dropping from 7.5 per cent in 2007 to 3.1 in 2010.
China's rapid growth and increase in imports are an
engine driving the global recovery.

In fighting the crisis, China has made huge strides in
developing social programmes, which was beyond our
means just a few years ago. We have made breakthroughs
in building a social security system covering urban and
rural areas. We have introduced a rural old-age
insurance scheme which will cover 60 per cent of
counties in China this year. The basic urban medical
insurance scheme and rural co-operative medical care
scheme now cover more than 90 per cent of the
population. All Chinese now have access to free
compulsory education. Government spending on education
has grown to 3.69 per cent of GDP.

It has also pursued flexible and prudent economic
policies, and ensured they are targeted and
sustainable. Our budget deficit and debt balance are
respectively below 3 and 20 per cent of GDP. The
government budget deficit has been cut in 2010 and
2011. Since mid-2009, we have used monetary policy
tools to absorb excess liquidity. In the fourth quarter
of 2009, to strike a balance between maintaining steady
and fast growth, conducting structural adjustment and
managing inflation were set as the main goal of
macroeconomic regulation. Since January 2010, the
required reserve ratio and benchmark deposit and
lending rates have been raised 12 times and four times
respectively. So growth in money and credit supply has
returned to normal. In June 2010, reform of the
renminbi exchange rate regime was advanced, and the
renminbi has appreciated 5.3 per cent against the US
dollar.

There is concern as to whether China can rein in
inflation and sustain its rapid development. My answer
is an emphatic yes. Rapid price rises pose a common
challenge to many countries, especially other emerging
economies and China. China has made capping price rises
the priority of macroeconomic regulation and introduced
a host of targeted policies. These have worked. The
overall price level is within a controllable range and
is expected to drop steadily. The output of grain, of
which there is now an abundant supply, has increased
for seven years in a row. There is an oversupply of
main industrial products. Imports are growing fast. We
are confident price rises will be firmly under control
this year.

China is now at a new starting point in its drive for
development. We have adopted the 12th five-year plan
which calls for shifting the development model. We will
continue to pursue economic structural adjustment,
boost research and development, and education, save
energy and resources, promote ecological and
environmental conservation, and narrow the regional and
urban-rural gap. China's drive for industrialisation
and urbanisation is gathering pace. Its economy is
increasingly market-oriented and internationalised. We
are fully capable of sustaining steady and fast
economic growth.

China will continue to work with other countries with
common responsibilities. We should make concerted
efforts to strengthen the co-ordination of
macroeconomic policies, fight protectionism, improve
the international monetary system and tackle climate
change and other challenges. We should welcome the fast
development of emerging economies, respect different
models of development, increase help to least developed
countries to enhance their capacity for self-
development, and promote strong, sustainable and
balanced growth of the global economy.

The writer is China's premier

Copyright The Financial Times Limited 201

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