Oxstones Investment Club™By Jeff Bliss
Oct. 4 (Bloomberg) — China will address “structural problems” and stabilize its economy by increasing domestic demand, Premier Wen Jiabao said.
Wen, in an interview with CNN, said he’d argued before the global recession that China’s economic development “lacks balance, coordination and sustainability.” The financial crisis “reinforced my view on this point,” he said on the “Fareed Zakaria GPS” program taped Sept. 23 in New York and broadcast yesterday.
“We can rely on stimulating domestic demand to stabilize and further grow the Chinese economy,” Wen, 64, said. The premier also said he’s concerned China’s stability may be threatened by inflation and corruption and that he remains committed to pressing for changes in China’s political system.
China’s economy has expanded more than 90-fold in the past three decades, fueled by exports to countries such as the U.S. Treasury Secretary Timothy F. Geithner and U.S. lawmakers have urged the country’s leaders to look more to domestic markets for growth. They have also pushed China to allow faster appreciation of its currency, arguing that an undervalued yuan gives Chinese manufacturers an unfair advantage in export markets.
The U.S. trade deficit with China widened to $145 billion in the first seven months of this year, from $123 billion for the same period in 2009.
Currency Conflict
Wen criticized some U.S. lawmakers for pressing China to increase the value of its currency.
“Some people in the United States, in particular some in the U.S. Congress, do not know fully about China,” Wen said. “They are politicizing the problems in China-U.S. relations.”
On Sept. 29, the U.S. House passed legislation prodding China to raise the value of the yuan. Under the bill, U.S. companies would be allowed to petition for duties on imports from China to compensate for the effect of an undervalued yuan.
The yuan gained 1.74 percent last month, the biggest monthly advance since a dollar peg was ended in July 2005, according to data compiled by Bloomberg.
China’s goal is to have “balance and sustainable trade with other countries,” Wen said. “China does not pursue a trade surplus.”
China supports a stable euro and won’t reduce its holdings of European bonds, underlining the strengthening ties with the European Union, Wen told Greek lawmakers during a visit in Athens yesterday. Wen said he hopes to improve the domestic investment climate in China and that the EU eases restrictions on high-tech exports and rejects protectionism.
Greece
Wen, who next travels to Belgium, Italy and Turkey, said Oct. 2 that China plans to buy Greek bonds once Greece begins tapping international markets for funding again. China will support the country’s shipping industry, as Greece seeks investment to emerge from a second year of recession, Wen said.
Wen told CNN that after China’s 4 trillion-yuan ($600 billion) economic stimulus program, controlling inflation is a priority. Inflation “is something that I have been trying very hard to manage appropriately and well,” Wen said. “Corruption and inflation will have an adverse impact on the stability of power in our country.”
Wen is trying to cool down the country’s property market as house prices soar and become increasingly unaffordable for China’s middle class. Last month, China’s government added to curbs by tightening down-payment rules for first homes, suspending third-home loans and pledging to quicken a trial of a property tax.
Growth Pace
China’s plan to stimulate the economy with government spending has been a success, ensuring “the continuance of steady and relatively fast economic growth,” Wen said.
Economic growth moderated to 10.3 percent in the second quarter from 11.9 percent in the previous three months. The pace may slow to 8.7 percent in the fourth quarter, according to the median estimate in a Bloomberg News survey of economists.
Still, China’s manufacturing expanded at the fastest pace in four months in September, adding to signs that economic growth is stabilizing.
Wen said the $814 billion U.S. stimulus package and Obama’s goal of increasing exports are helping the American economy.
“Although they came a little bit late, they still came in time,” Wen said.
With its tradition of “scientific and technological talent and managerial expertise,” the U.S. “will tide over the crisis and difficulties,” Wen told CNN. “We must have confidence in the prospects of the U.S. economy.”
U.S. Recovery
The U.S. recovery “is in the interest of the recovery and stability of the world economy,” he said.
Wen also addressed political changes, which critics said have been outpaced by the country’s economic growth.
“The people’s wishes for and needs for democracy and freedom are irresistible” he said.
China has 400 million Internet users and 800 million mobile phone subscribers, some of whom use the technology to criticize the government, Wen said.
Google Inc., the owner of the world’s most popular Internet search engine, has continued to express concern about being pressured to censor search results in China.
Earlier this year, after a series of attacks on Google computers, the Mountain View, California-based company said it would stop censoring search results and instead redirect visitors to its unfiltered Hong Kong site.
‘Continuous Progress’
“I hope that you will be able to gradually see the continuous progress of China,” Wen said.
The premier is a former aide to the late Communist Party General Secretary Zhao Ziyang, who was ousted from his post in the wake of 1989 protests on and around Beijing’s Tiananmen Square. Wen was photographed with Zhao visiting protesting students in the square that year.
In a speech in the southern city of Shenzhen in August, Wen argued for more political overhaul to cement China’s economic gains.
Wen and President Hu Jintao are set to step down from their Communist Party posts in late 2012 and from their government positions in March 2013. The party’s Central Committee will meet later this month as a younger generation of leaders jostle for the top jobs.
Wen said on CNN that he believes the future generation of Chinese leaders will make the country even more prosperous.
–With assistance from Michael Forsythe in Beijing, Maria Petrakis and Natalie Weeks in Athens and Francois de Beaupuy in Paris. Editors: Paul Tighe, Dick Schumacher.
To contact the reporter on this story: Jeff Bliss in Washington at jbliss@bloomberg.net
To contact the editors responsible for this story: Paul Tighe at ptighe@blooomberg.net; Mark Rohner at mrohner@bloomberg.net
Tags: China, continuous progress, corruption, currency conflict, domestic demand, Greece, inflation, trade surplus