Japan Brief / FPCJ, No. 0914
March 9, 2009


China’s National People’s Congress Convenes, Focusing on Economic Stimulus

China’s second plenary session of the 11th National People’s Congress (NPC), the equivalent of a parliament, got under way on March 5 in the midst of a sharply declining economic growth as a consequence of the global economic crisis. The communist country’s attempt to revive economic growth, which dominates the agenda of the congress, is drawing keen attention of the rest of the world as it is considered to bear crucial importance for global economic recovery, with major developed countries, Japan included, failing in that job.

China, the world’s third largest economy after the United States and Japan, must maintain an economic growth of at least 8% for its internal stability. With 20 million people newly entering the labor market each year, the economy must grow at this rate to provide them with jobs. Anything short of this stands to lead to a rise in joblessness, creating social instability to threaten the Communist regime. The partly leadership is particularly sensitive about this as this year marks the 60th anniversary of the founding of the People’s Republic in October, which happens to be the 20th anniversary of the brutal crackdown of the prodemocracy demonstrations on Tiananmen Square. There already is mounting evidence of widespread discontent in many parts of the country.

“Keep 8” is the slogan that is dictating the economic policy laid out by Premier Wen Jiaobao before the National People’s Congress. He started his speech by describing the hardships the country underwent in 2008, a year marked by the rebellion in Tibet and the Sichuan earthquake, on top of which came the economic slowdown in the latter part of the year, despite the triumphant staging of the Beijing Olympics in summer. Wen warned that 2009 would be an even more difficult time, but vowed to mobilize every available means to achieve an 8% growth. “In a developing country like China with a 1.3 billion population, growth above a certain speed must be maintained to boost employment and maintain social stability,” he stated.

As it turned out, the Chinese economy, which depends for 40% of its GDP on exports, which suffered a sharp deceleration after summer last year. The economic growth rate during the October-December period slowed to 6.8% over the corresponding period of the preceding year, sizably short of 8%. Before the lunar New Year (which fell on January 26), more than 20 million migratory workers from rural areas who had been working in factories in the coastal region had lost their jobs. On top of this, an army of 6 million students graduating from universities is to join the labor market as job seekers.

In an attempt to prop up the decelerating economy, the Chinese government intends to carry out fiscal investment programs worth 4 trillion yuan (approximately 57 trillion yen), coupled with 500 billion yuan (approximately 7.25 trillion yen) in tax cuts for enterprises and individuals. It is not just for China itself that recovery is urgently needed. The whole world appears to be counting on it as a locomotive to pull the sinking global economy now that the United States, Europe and Japan are plunging into simultaneous depression.

At the same time, many countries of the world, Japan in particular, appear concerned about China’s fast-growing military budget, which has expanded by double digits every year in the past two decades. The growth rate was 20.4% in 2006, 19.3% in 2007 and 19.6% in 2008. It is slated to grow by 14.9% (to 480,686 million yuan) this year. It is widely suspected that there is a lot more military expenditure outside the announced defense budget, hidden and embedded in such sectors as space development and foreign aid. The expanding military expenditure of China, already a major military power, is understood to represent the country’s shift to a global-scale military strategy. Also noted as a notable emerging trend is Beijing’s conspicuously conciliatory approach toward Taiwan.

Expectations and Apprehensions

Japanese media expressed both expectations and apprehensions about China’s resolve to turn around the economy and restore the high growth needed. Since China is now Japan’s largest trading partner, Japanese businesses are anxious to find any sign of improvement in the Chinese economy. Yet editorial commentaries were quick to note that what’s happening there doesn’t allow any optimism in terms of achieving the government’s goal of 8% growth.

The Nikkei and the Mainichi Shimbun titled their March 6 editorials “Expectation on China’s domestic demand expansion.” The Nikkei said: “Already, in anticipation of the boosting of domestic demand in China, international commodities markets are showing signs of a rebound and Japanese stocks linked to that country’s domestic demand are moving up. International interest in the ripple effect of China’s domestic demand promotion measures looks strong.” The Mainichi said: “It is not only America that is placing expectation on China as an engine to lift the world’s economy. Economic recovery in China, which is Japan’s largest trading partner, is directly linked to how the Japanese economy fares.”

The Asahi Shimbun said: “Beijing is well aware that the nation's traditional formula for economic growth, focused on capitalizing on low wages at home to ramp up exports to the West and Japan, is now on a shaky footing. The challenges confronting the government are testing its ability to shift the policy focus toward improving the quality of people's life. The Yomiuri Shimbun noted: “Exports, which drove China's economic growth, have been sluggish since autumn, and as the effect of the recession on the United States and Europe---major markets for China---has been serious, there is no prospect for a quick recovery of exports to those nations. This has massively destabilized China's growth strategy.”

All five leading dailies expressed concern about the continuous massive expansion of China’s military expenditure. The Sankei Shimbun said: “China appears to be giving top priority to the maintenance of social stability amid stagnating economy and rising concern over unemployment. The country’s positive measures should be welcomed at a time when the world economy is declining sharply. But we are concerned that its defense spending for this year is slated to rise by 15.3%, marking the 21st straight year of a double-digit increase.”

The Yomiuri said: “Despite the large deficit set in the budget, defense spending rose as an exception. It has seen a 14.9 percent increase from last year, marking a two-digit increase for 21 consecutive years. There is no explanation provided for the increase, which outpaces the economic growth rate. As long as China aims to seek ‘peaceful development,’ it must explain this move in a convincing way.” The Asahi concurred: “Beijing announced plans to increase defense spending by 14.9 percent this year---double-digit increase for the 21st straight year. The steady and rapid growth of China's military spending makes the world feel uneasy.”

(Copyright 2009 Foreign Press Center / Japan)


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