Chinese premier worries about economy

Chinese Premier Wen Jiabao has warned that this will be a “most difficult year” for the mainland’s economy, caught between global economic uncertainties and crises at home.

In an address to the State Council last Thursday (but reported only yesterday) Mr Wen said that the rapidly growing nation faced strong headwinds that warranted “scientific democratic policies” to confront “uncertainties in international circumstances and the economic environment” and deal with “new difficulties and contradictions in the domestic economy.”

Beijing is especially concerned about a looming recession in the United States, the world’s biggest consumer of Chinese exports, but also about inflation which jumped by 4.8 per cent last year, the sharpest rise in 11 years.

The government has been trying to fight by letting the yuan rise against the US dollar, a risky strategy that affect the competitiveness of Chinese goods on world markets.

Even nature seems to be turning against the mainland with the worst snowfalls in 50 years, wreaking havoc on electrical supplies, coal and food, and leaving hundreds of thousands of workers stranded at train stations as they try to make their way home for the Lunar New Year.

Even Wen got a taste of the mainland’s weather when his plane was diverted from Hunan and forced to land in Hubei from where he continued his trip by rail.

Usually Chinese leaders tend to give a positive spin on economic issues; this is why analysts are keen to look into Wen’s pessimistic assessment.

“They (state leaders) realise they have underestimated the impact of the external slowdown,” JP Morgan chief China economist Frank Gong told the South China Morning Post. “This probably will lead to a change of policy from tightening to stimulating the economy.”

“It was a mistake to say at the end of last year that the [2008] tightening had to be biased towards monetary tightening because the external market deteriorated quickly, obviously much faster than they had thought,” he noted. “The central government should have given themselves more policy flexibility.”

Business is also concerned about the effect of a US recession, a strong yuan, higher production costs and bad weather.

Simon Shi Kai-biu, who runs motor-system manufacturer Sun Motor International in Shenzhen, said there were now three days of blackouts a week in Dongguan, up from two.

This has forced the company into a costly and polluting alternative—diesel-fuelled power generation—to avoid disrupting production.

“Generating our own electricity adds an extra 5 per cent to costs,” Mr Shi said. “This is on top of extra costs for providing meals for workers who are not able to get home for the Lunar New Year.”