Hu Jintao warns of possible instability as economic crisis hits China

[PeterCH]

Hu Sees China Losing Its Competitive Edge
President Cites Reduced Global Demand

By Maureen Fan
Washington Post Foreign Service
Monday, December 1, 2008; A12



BEIJING, Nov. 30 -- Chinese President Hu Jintao warned at a weekend meeting of the Communist Party's elite Politburo that China is losing its competitive edge as international demand for its products is reduced, according to official state media reports Sunday.

China's growth rate has been forecast to be about 9 percent in 2008, down from 11.9 percent the year before and close to the 8 percent that economists say China must maintain in order to keep the labor market stable.

"China is under growing tension from its large population, limited resources and environment problems, and needs faster reform of its economic growth pattern to achieve sustainable development," Hu said, according to the People's Daily, the official Communist Party newspaper. He did not provide specifics.

"External demand has obviously weakened, and China's traditional competitive advantage is being gradually weakened" as international demand is reduced, Hu told members of the Political Bureau of the party's Central Committee, according to the state-run New China News Agency.

Protectionism has also started to increase in investment and trade, Hu added. China's export growth in October was 19.2 percent, down from 21.5 percent in September.

His comments came as China prepares to celebrate next month the 30-year anniversary of the opening and reform policies begun by Deng Xiaoping, who led the country from the late 1970s to the early 1990s. The anniversary has prompted both hard-liners and reformers to weigh in on the path China must now take, and Hu is striving to strike a balance.

A recent editorial in the People's Daily, for example, urged China to master information technology in order to get its message out and "safeguard the nation's ideological security." The piece, by a general named Xu Tianliang, underscored a deep debate within the party about how to commemorate the anniversary, said David Bandurski, a researcher at Hong Kong University's Journalism and Media Studies Center.

Michael Pettis, a professor of finance at Peking University, said Chinese exports aren't being priced out of the market. "The problem is a contraction in global demand, and all export economies are going to lose sales. If China tries to 'regain' competitive edge by subsidizing exports -- for example, by depreciating the currency -- that could make global conditions worse by increasing overcapacity, when what we really need is to increase global demand."

In his comments Saturday, Hu said that as the global downturn challenges the pace of economic development, China should "accelerate structural readjustment for sustainable development and stick to reform and opening up."

Efforts should be made to solve problems that concern the people's "fundamental interests" and improve people's living, Hu said, a reference to the central government's fear that growing protests linked to economic issues could be a destabilizing factor.

A strike by about 300 taxi drivers broke out Saturday in Chaozhou city in southern Guangdong province, following similar protests in other cities over rising fuel prices, competition from unlicensed cabs and local government plans to add more cabs.

http://www.washingtonpost.com/wp-dyn/content/article/2008/12/01/AR2008120100598_pf.html

 

[PeterCH]

BEIJING -- Chinese President Hu Jintao warned that the global financial crisis is sapping China of its competitive advantage in trade and that it will test the government's ability to steer the country.

Mr. Hu's remarks, carried Sunday in the official People's Daily newspaper, were a relatively candid, and relatively bleak, assessment from a leader who makes few public pronouncements on the economy. Speaking to a regular study session of top Communist Party officials, he also warned that deepening economic trouble might push countries to become protectionist, affecting China.

The president's comments underscore the anxiety in China's leadership amid a sharp slowdown in Chinese economic growth that is increasing unemployment after years of widening prosperity. The downturn is a particular challenge for Mr. Hu because he has staked his administration's credibility on improving the social and economic position of average people.


Hu Jintao
"Whether we can turn the pressures into momentum, transform challenges into opportunities and maintain stable and fairly fast economic development is a test of our ability to ride out the complications and a test of the party's ability to govern," said Mr. Hu, who is also Communist Party chief.

China's government three weeks ago announced a stimulus package of four trillion yuan (US$586 billion) in government and private-sector spending on public works and social programs. Economists expect the stimulus to diminish -- but not prevent -- the slump. The World Bank last week projected that China's economy, which grew a remarkable 11.9% last year, will expand about 9% this year before hitting an 18-year low of 7.5% next year.

While rapid by the standards of developed countries, growth at that level will pose a major headache for the Chinese government, which has said the economy needs to expand by about 8% annually to create enough jobs for the millions of people joining the urban work force every year. Widespread factory closures in the south of the country have already led to a series of protests, which leaders worry could threaten social stability.

It is unclear how much more the Chinese government could do to shore up its economy. Last week, the country's top economic planner told reporters that the massive stimulus package is expected to add just one percentage point to growth. He didn't say whether the government plans to roll out further stimulus measures if the global situation continues to decline.

Mr. Hu didn't offer specific solutions to the challenges, except to underline the need for "stable and moderately fast" growth.

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