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Macroeconomic Policy on NPC Agenda

03-05 00:47 Caijing Magazine

While investors fear macroeconomic tightening, the National People’s Congress will focus on exports, infrastructure and the ‘super ministry plan.’

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By staff writers Wang Changyong, Wang Zhen and Luo Changping

China’s 11th National People’s Congress is expected to confirm important Beijing leadership changes introduced last fall, give clues to the direction of China’s macroeconomic policy, and introduce cabinet reforms through a so-called “super ministry plan.”

Delegates from around the country meeting March 5-18 in Beijing plan to elect leaders of the NPC and State Council, who in turn would appoint the chairman of the NPC Standing Committee, State Council cabinet ministers, and President Hu Jintao to a new and likely final term.

Prime Minister Wen Jiabao’s address to the NPC is expected to discuss the risks of inflation and economic overheating versus the downside risk to China’s economic growth from a global slowdown.

Wen’s speech is expected to provide grist for the mill among many investors who worry that the top leadership will favor further macroeconomic tightening. Economists, however, argue that Beijing officials are equally focused on responding to weaknesses in export demand and domestic infrastructure investment linked to disastrous snowstorms that swept much of southern China in January.

Meanwhile, high inflation rates continue to generate concern. The consumer price index (CPI) in January rose 7.1 percent from the same month last year. The interest rate on bank saving has declined for 15 months in a row. And from a global perspective, the U.S. subprime crisis has restrained export demand, which might negatively affect China’s export-oriented companies.

According to Caijing columnist Lu Lei, pessimism in global capital markets has at least partially contributed to volatility in the Chinese stock markets. Yet a decline in external demand has struck the overall health of businesses as well -- a decline that Lu said will likely affect exporters this year in the second and third quarters.

As for China’s macroeconomic policy, the economic decisions made by the Communist Party of China last fall set the tone for moderate but slightly tightened monetary policy in 2008. The NPC will study and elaborate these macroeconomic policies.

But due to the winter storm disaster, which cost the national economy an estimated 100 billion yuan, growth rates for retail consumption and industry manufacturing may have declined 1 percent to 2 percent. Many domestic and international institutions have thus lowered their expectations for China’s economic growth rate. Farm products and logistics will be most directly affected by the natural disaster. Meanwhile, post-disaster infrastructure building and related lending are expected to contribute to higher growth in some areas.

Chinese authorities have recently shifted toward an emphasis on sustaining stable growth, according to a second quarter 2008 outlook for China written by JP Morgan Chase Economic Research Team. The report said the unprecedented storms put temporary upward pressure on CPI, but that the government would likely boost fiscal spending and infrastructure investment.

Nevertheless, a state information center said the disaster will have only a temporary effect, and that the overall basics and trend of Chinese economic growth will not be changed.

Last week, the central leadership announced that the government “must moderate the pace of macroeconomic controls to align with the domestic and international economic environment.” This means Beijing is more likely to adopt a policy that encourages more flexible macroeconomic adjustment than a policy of one-way economic tightening.

Meanwhile, state ministry reform is also on the NPC agenda. Delegates plan set aside more than four of the 13.5 days of meetings to discuss the Program for Reform of Institutions under the State Council, popularly called the “super ministry plan,” which is expected to influence the direction of reform, economic development and social transformation in China.

Hua Jianmin, state councilor and secretary-general of the State Council, is scheduled report on the program draft March 11. Members of the Chinese People’s Political Consultative Conference have been invited to Hua’s presentation, but the media has not. NPC delegates will hold group discussions about the program during the following three days, leading to an NPC vote on the “decided draft” March 15.

Few surprises are expected among the NPC’s personnel decisions. Other routine events include reviews of and hearings on working reports filed by the government, Supreme Court and Supreme Procuratorate. Nevertheless, NPC’s agenda is heavier than in past years.

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