In its most difficult year, China aims to reach ambitious targets

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In its most difficult year, China aims to reach ambitious targetshttp://www.theglobeandmail.com/servlet/story/RTGAM.20090305.wchina06/BNStory/International/home

MARK MACKINNON  March 5, 2009 at 10:50 PM EST


A migrant worker welds the frame of an advertising board in Wuhan, Hubei province on Thursday. (Reuters)

BEIJING — Striking an unusually stark tone for a gathering of the country's rubber-stamp parliament, Chinese Premier Wen Jiabao warned Thursday that China is facing a year of “unprecedented difficulties and challenges” that could spark social unrest if ambitious growth targets aren't met.

Speaking amid an unemployment crisis that has already seen more than 20 million people lose their jobs, Mr. Wen said that 2009 could be “the most difficult year for China's economic development since the beginning of the 21st century.”

“The global economic crisis is still expanding. We have not seen the worst of it yet. The global market demand continues to contract. The global deflation trend is obvious. Trade protectionism is beginning to rear its head and China's external economic environment is turning more serious,” he said in a speech to nearly 3,000 NPC delegates who gathered Thursday in the Great Hall of the People in the centre of Beijing.

However, Mr. Wen didn't announce any new spending beyond the $585-billion (U.S.) economic stimulus package unveiled by the government last fall. Many had expected cash-rich China would bolster the existing package to help pull the country out of a spiral that has seen growth drop from 13 per cent in 2007 to 9 per cent last year and just 6.8 per cent in the final quarter of 2008.

China's failure to announce an expansion of its stimulus program was just one of a number of factors that sent stocks into an early tailspin Thursday. Hit by persistent worries about major banks, including Citigroup, and a warning from General Motors about a possible bankruptcy, U.S. stocks ended at 12-year lows, with the Dow Jones industrial average shedding 281.40 points, or 4.09 per cent, to 6,594.44. and the Standard & Poor's 500 Index losing 30.32 points, or 4.25 per cent, to 682.55. Weighed down by sagging financial stocks, the S&P/TSX composite index closed down 185.58 points, or 2.37 per cent, at 7,629.17. Markets are braced for more potential bad news today with the release of the February U.S. jobs report, expected to show a loss of more than 600,000 jobs. Mr. Wen predicted China would meet its target of 8 per cent growth in 2009, although there are mounting doubts the country will be able to sustain such a pace. Given that many economists believe 8 per cent is the minimum level of growth required for China to continue creating jobs, Mr. Wen acknowledged that the stakes are high.

“In China, a developing country with a population of 1.3 billion, maintaining a certain growth rate for the economy is essential for expanding employment for both urban and rural residents, increasing people's incomes and ensuring social stability,” he said.

To achieve that goal, Mr. Wen detailed how the government would boost spending on schools, hospitals and other social programs, saying Beijing would “do everything in its power” to stimulate employment.

The jobs crisis in China, the world's third-largest economy after the United States and Japan, is expected to worsen in the coming months when upwards of six million recent university graduates will pour into the job market looking for work that doesn't exist. Most of the 20 million laid off so far were poorer migrant workers who had moved from rural areas to take jobs in China's previously booming factory cities.

While Mr. Wen expressed confidence that China's economy is still fundamentally sound, he called on notoriously frugal Chinese consumers to do their part in helping the recovery.

Increased domestic demand needs to be “a long-term strategic principle and a basic point of departure for stimulating economic growth” in the face of a precipitous fall in exports to North America and Europe. To that end, the government plans to increase consumer loans, reduce taxes and subsidize the purchase by rural residents of appliances such as air conditioners and water heaters. The various stimulus measures are expected to push this year's budget deficit to a record 3 per cent of gross domestic product. China increased defence spending by a “modest” 14.9 per cent.

Mr. Wen also announced that China is ready for peace talks with rival Taiwan, the island that split from China 60 years ago after a long civil war. Citing a major improvement in relations over the past year – regular direct flights between Taiwan and the mainland began in December – Mr. Wen said China is ready for political and military talks that would “create conditions for ending the state of hostility.”

A spokesman for Taiwanese President Ma Ying-jeou welcomed the remarks, but said Taiwan is more interested in economic agreements first “and political ones later.”

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