The US debt threat
Wen Jiabao said he was “worried” about the US debt and China’s huge investments in the United States. Never the less, he also said that China’s economy would remain stable with an 8 per cent growth. Similarly, he insisted that the situation in Tibet was “peaceful and stable.”
Wen explained that China “lent a huge amount of money to the United States. [. . .] Of course we are concerned about the safety of our assets. To be honest, I am a little bit worried. I request the US to maintain its good credit, to honour its promises and to guarantee the safety of China’s assets.”
The economies of the United States and China are intertwined. Much of China’s industrial output ends up in the United States; at the same time, Beijing is one Washington’s main money lenders. As of 31 December 2008 China held in fact US$ 696 billion in US treasuries, an increase of 46 per cent over the previous year.
The global economic crisis is testing this close relationship as Chinese exports drop following declining demand. The US government rescue package is also impacting on the value of the dollar. For this reason China must “fend off risks” by diversifying its US$ 1.95 trillion in foreign-exchange reserves to safeguard its own interests, Wen said.
Chinese experts note that only if China is certain that inflation will not take off in the United States will it continue to sink its money in US treasury bills. Should its investments run the risk of turning into waste paper, it will have to reconsider.
In the last few weeks US Treasury Secretary Timothy Geithner has called for the appreciation of the Yuan to reduce the US-China trade imbalance, accusing China of “manipulating” the exchange rate.
However, our “goal” said Wen today, “is to maintain a basically stable yuan at a balanced and reasonable level. [. . .] At the end of the day, it is our own decision and any other countries can’t press us to depreciate or appreciate our currency.”
Still the United States is not alone in complaining about the exchange rate. Many other countries have said that the current rate unduly favours Chinese exports.
Right now Beijing is concerned about the drastic drop in exports, down 25 per cent over last year, which is having a sobering impact on the real economy as plant close, workers get laid off and social tensions rise.
Last year, so-called “mass incidents” (strikes, sit-ins, demonstrations, clashes with police, wounded and killed) as a result of labour problems topped 87,000. And as the crisis gets worse many in Beijing are concerned that things might get out of control. Hence in his press conference Wen tried to reassure everyone on that score.
In light of present trends in the world economy, many analysts and international economic agencies expect China to grow at best by 6.7 per cent this year. But Wen promised that China’s growth will be in the order of 8 per cent, an average seen as essential to ensure full employment and reduce social tensions.
“I believe that there is indeed some difficulty in reaching this goal. But with effort it is possible,” he said.
“Ammunitions” for the stimulus
In order to face the economic crisis which has already left 20 million workers unemployed, the Chinese government has already prepared a set of measures worth 4 trillion yuan (US$ 585 billion). What is more, at “any time, we can introduce a new stimulus,” Wen said, adding that we “have reserved adequate ammunition”.
In addition to the 4 trillion yuan China’s government is committed to investing 1,180 billion yuan. Beijing plans to move on the tax front (cuts worth 600 billion yuan), increase pensions, teacher salaries, and farm incomes so that farmers can increase their demand for domestic industrial goods. Also the government is planning to spend 850 billion yuan to reform the health care system.
But not everyone is convinced. Doubts have surfaced with regards to the measures’ feasibility given the widespread corruption in the party. Scandals and misappropriations of public funds are daily occurrences.
Bao Tong, an well-known dissidents under house arrest, and Yan Yiming, a activist lawyer in Shanghai, have called on the government to make public the stimulus plan showing how this mass of money will be spent. So far their request has fallen on deaf ears.
During the press conference Wen tried to allay any fears with regards to the situation in China and the world.
“Only when we have confidence can we have courage and strength, and only when we have courage and strength can we overcome difficulties,” he said.
For the premier China is ready to face the world’s long and hard financial crisis, having giving itself a wide leeway for action and the right policies. “I expect that next year both China and the world will be better off,” he said.
A “peaceful and stable” Tibet
Dismissing criticism, complaints and eyewitness accounts, Wen said that the situation in Tibet was generally “peaceful and stable.”
Last 10 March, the 50th anniversary of the Tibetan uprising that was drowned in blood, the Dalai Lama said that Chinese rule in Tibet had turned his homeland into a “hell on earth”.
In his denunciation he slammed large scale Chinese investments as an instrument of Tibet’s “Sinisation”, a process that is marginalising indigenous Tibetans.
By contrast, Wen claimed that over “the past few years, the government” speeded up “the pace of economic development and worked to improve the living standards of the Tibetan farmers and herdsmen.” Tibet continued progress has “proven that the policies we have adopted are correct.”
During the National People’s Congress, which coincided with the 50th anniversary of the Tibet uprising, the region was placed under martial law. Towns and cities were patrolled by soldiers; the movement of people was made more difficult by checkpoints; the internet was blacked out and many people were arrested.
In order to put a stop to what he calls the “cultural and religious genocide” of Tibet, the Dalai Lamas has demanded “cultural autonomy” for his people, leaving the country under Chinese sovereignty. Yet China still accuses him of seeking “independence.” Even Wen Jiabao repeated the accusation.
For the premier talks with the Dalai Lama’s representatives can continue only if he abandons his “separatist stance.”
On the same issue Mr Wen pressed France to clarify its position on Tibet, saying this was necessary to improve relations.
French President Nicolas Sarkozy met the Dalai Lama in December last year in Gdansk (Poland). For this reason in his recent tour of European capitals Wen refused to visit Paris.
“The problems that have arisen between China and France arose mainly because the French leader met the Dalai Lama in a prominent way, and this not only involved the core interests of China, it also seriously harmed the feelings of the Chinese people,” Mr Wen said.